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Electric vehicle sales are at an all-time high and should reach 1 million units in 2023, but will remain de facto luxury purchases owing to high battery costs. Car buyers also remain concerned about charging infrastructure.
U.S. drivers bought electric cars and trucks at a record rate in 2022, heralding double-digit growth in 2023 as major automakers and startups roll out eye-catching new models. But high sticker prices, costly batteries and lingering concerns about charging infrastructure will continue to constrain growth—particularly outside of California.
Sales of EVs are projected to be about 800,000 units in 2022, accounting for more than 5% of the overall market, according to Cox Automotive. Plans for new models and production facilities, including tens of billions of dollars being poured into new plants to make batteries for companies including General Motors, Ford and Hyundai mean the segment could grow by about 20% next year and hit the one million-unit level, reaching as much as 8% of total U.S. volume, according to Cox. It’s an impressive figure, but it also means that gasoline-powered autos will still account for more than 90% of sales.
“For there to be a step change, EVs have to develop relevance beyond California. And the numbers from a registrations perspective are very clear that EVs aren’t yet a U.S. phenomenon. They’re a California phenomenon,” Stephen Beck, founder and managing partner of corporate consultancy cg42, told Forbes. “You can get to a pretty large-scale number by doing well in California because it’s a massive market, but to get to serious levels you need to be relevant across the country. We’re not there yet.”
“EVs aren’t yet a U.S. phenomenon. They’re a California phenomenon.”
The Golden State, which has pushed carmakers to sell electric vehicles since the 1990s to help ease persistent air pollution problems and cut carbon emissions, is a different country relative to the U.S. overall when it comes to battery-powered vehicles. Through the first three quarters of 2022, 15% of all new autos sold in California were electric, triple the national rate. Including plug-in hybrids and a small number of hydrogen fuel cell autos, the state estimates it accounts for 42% of total zero-emission vehicles that have been sold in the U.S. It’s pushing to ramp that up significantly through the 2020s and has banned the sale of new gasoline-fueled vehicles starting in 2035.
But getting more Americans to switch to electric vehicles requires a vastly larger network of easily accessible charging stations, particularly for people who don’t have the option to install a charging system at home, and better affordability. The recently enacted Inflation Reduction Act and Bipartisan Infrastructure laws provide new federal incentives and funds for purchasing EVs and building charging stations. Still, dramatic price reductions aren’t likely in the near term. That’s a challenge for many consumers as the average price of a new electric model is over $65,000, compared with an average price of $48,681 for all new vehicles, according to Cox Automotive.
In 2022, carmakers struggled with supply chain headaches, particularly for semiconductors, that slowed the production of all new vehicles and raised prices across the board. EVs, however, are also exposed to volatile raw material prices, particularly for lithium, nickel, cobalt and other metals needed for lithium-ion batteries.
“From a raw materials perspective, lithium will continue to constrain EV demand until the end of 2025 or early 2026,” said Cameron Perks, senior analyst for London-based Benchmark Minerals, which tracks battery metals. “Expect sustained higher prices until that point.”
Some relatively affordable electric models are on the market, including General Motors’s Bolt hatchback, priced from about $27,000, and the upcoming Equinox EV with a $30,00 base price. Hyundai’s Ioniq 5 and the Kia Niro EV are priced at about $41,000. But the highest volume sellers remain Tesla’s Model Y hatchback and 3 sedan, priced from $66,000 and $47,000 (excluding costly upgrades like the company’s controversial Autopilot and Full Self-Driving features that add $21,000 to the stick).
Ford’s F-150 Lightning electric truck, the most important EV model added in 2022, has seen its base price jump 40% over the past few months. It now starts at $55,974.
Ford Motor Co.
A major new model coming in 2023 is Tesla’s hard-edged Cybertruck and though Elon Musk has hinted it could have a base price of about $50,000, the company’s history suggests that it’s likely to cost tens of thousands of dollars more. Likewise, Ford’s F-150 Lightning electric truck, the most important EV model added in 2022, has seen its base price jump by 40% over the past few months, now starting at $55,974, a $4,000 price increase made in mid-December. As a result, EVs remain de facto luxury vehicles, limiting the number of people who can afford them.
“Historically, if you look at vehicles priced from $55,000 and north you’re basically talking about just 3% to 5% of car buyers that can afford them,” said Eric Noble, founder and president of automotive consultant The CARLAB. “That’s the total addressable market.”
Interest in EV ownership among U.S. consumers is improving though it’s got a long way to go. Currently, only 20% of adults are “very interested” in buying an electric car in the next five years, according to Morning Consult’s Automotive & Mobility Tracker. The key concern cited by people surveyed is a lack of charging stations, 48% of whom listed that as a major factor. The cost of owning an EV, mainly the purchase price, is also a major or minor consideration for 69% of respondents, Morning Consult said.
Only 20% of adults are “very interested” in buying an electric car in the next five years
In addition to new models on the way, auto and battery makers are pouring billions of dollars into new U.S. battery plants across the country that will ramp up domestic production throughout the second half of the 2020s. Companies like Redwood Materials, founded and led by Tesla cofounder JB Straubel, are also setting up production plants to supply key battery components including anode and cathode materials that are now sourced almost exclusively from China, South Korea and Japan. Redwood also intends to use recycled battery metals in its products though Straubel admits major battery price reductions aren’t on the horizon in the near term.
“The transition is very exciting, seeing all the different battery factories and automaker announcements—it literally feels like one a week. But that doesn’t immediately equate to price reductions. And it may be a little bit the opposite on the raw materials,” Straubel told Forbes. “I feel like we’re in this period where we take one or two steps forward on manufacturing efficiencies and economies of scale and then one step backward on raw material costs.”
“I don’t see that changing in a huge way in the next even couple of years,” Strauble said. “It would need some big unlocking of raw material supplies and I’m not sure where that comes from yet.”
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Source: https://www.forbes.com/sites/alanohnsman/2022/12/22/were-not-there-yet-the-booming-electric-car-market-still-has-a-long-road-ahead-of-it/