Industry Hand Wringing

In recent weeks, automakers have made it sound as if the era of the electric vehicle was coming to an end and that we’ll be driving internal combustion vehicles until the end of time.

A year and a half into a joint initiative to produce an affordable line of compact crossovers, Honda and Ford shuttered the project, saying that it would be “difficult as a business.”

Ford’s crosstown rival General Motors was more circumspect about their move away from EVs.  “We’re also taking immediate steps to enhance the profitability of our EV portfolio and adjust to slowing near-term growth,” GM CEO Mary Barra said. “These steps include moderating the pace of our EV acceleration in 2024 and 2025.”

And it isn’t just traditional car manufacturers that are sounding the alarm. After a quarterly report that showed disappointing sales volume, revenue, and profit, Tesla’s CEO Elon Musk pinned the problem on the federal government’s rate hikes. "I just can’t emphasize it enough that for the vast majority of people, buying a car is about the monthly payment. And as interest rates rise, the proportion of that monthly payment that is interest increases naturally. So if interest rates remain high, or they go even higher, it’s that much harder for people to buy the car."

But have EVs really hit a wall?

Despite a backdrop of growing concerns, it's important to note that electric vehicle sales are still on the rise. In the third quarter, the United States witnessed a historic milestone as EV sales surpassed 300,000 units for the first time. Sometime in the fourth quarter of this year, EVs will top 1,000,000 units annually in the U.S. for the first time. EVs have accounted for 7.9% of auto sales in the U.S. so far this year, up from 6.2% in 2022.  In Europe, sales saw a 14.3% increase in September, and in China, the world's largest EV market, sales surged by 22%.

So what gives? Why all the doom and gloom from U.S. manufacturers.

A recent Cox Automotive study, which reported that EVs spend more time on dealership lots before being sold, highlights the evolving nature of the EV market. The transition from early adopters to the early mass majority is ongoing, and as the market matures and more EV models with extended ranges become available, consumers may find electric vehicles increasingly appealing.

Kayla Reynolds, a customer and market research manager at Cox, described this period as "a hiccup for adoption." Despite the challenges, the overall market for electric vehicles is booming and growing faster than that for traditional gasoline-powered cars. The demand for a wider range of electric vehicles is becoming increasingly apparent, reflecting the growing interest in this sustainable technology.”

In other words, now that EVs are becoming more commonplace, the question is no longer “should I get an EV or should I get a gas-powered car?” Instead, buyers are looking hard at prices, features, compatibility, and rebates. And much of it is very confusing.

Understanding the federal tax breaks for EVs is a prime example. According to Axios, forty percent of Americans aren’t even aware of the $7,500 tax credit available from the federal government for purchasing qualifying EVs. And even if they are aware, they probably know that the list of qualifying vehicles is very short. Leasing provides an easy workaround, but few consumers are aware of that solution.

But it’s not just the money aspect that is confusing. Although lithium-ion batteries have performed pretty consistently in recent years, other key technologies are changing rapidly. For years, vehicle owners have faced several different charging interfaces when it comes to juicing up their cars. If there was any doubt about where they would get their next charge, they’d often be forced to bring an adapter with them to ensure they could use a different standard. Over the past year, Nissan, Ford, GM, and Volvo have announced a shift to the North American Charging Standard, pioneered by Tesla, but implementing that change will have to wait for a model year or two to pass.

Another major technology that’s “just around the corner” is vehicle-to-grid (V2G) charging. EVs with V2G capabilities will allow owners to power their home from their cars’ batteries, or even sell it back to their local utilities. Since most EVs have storage capacity four-to-five times larger than home energy storage systems, EVs could become an important component of a home’s energy system. But implantation lags. Nissan’s Leaf promised the ability over a decade ago, but regulators only approved a functional charger in 2022. GM has promised that it would roll out the capability starting in 2024 models, but its recent announcement of slower paced implementation has introduced uncertainty in that timeline.

Other improvements such as higher battery efficiencies, improved ranges, and lower cost models have been promised consistently, but slowly delivered. The electric vehicle market is at a crossroads, navigating changing consumer preferences, economic factors, and the transition from early adoption to mass-market acceptance. And while American automakers pull back from their plans, Volvo, Nissan, Hyundai, and Mercedes-Benz are gobbling up market share and hitting record sales figures.

The Upshot

The EV market in the U.S. is maturing, but it will continue to grow, taking up more and more of the space once occupied by the internal combustion engine. If American auto makers want to be part of that market growth, they need to understand why their European and Asian competitors are growing faster than they are.