The “EV slowdown” is exaggerated. It’s the combustion engine cars that are on the way out.
June 27, 2024 has 1:00 p.m. ET
The last few months have been complicated for the electric vehicle industry, to say the least.
Major players like General Motors, Ford and Mercedes-Benz are holding back on their electrification efforts, citing uneven and unpredictable consumer demand. Many drivers are hesitant to go electric because they worry about a lack of charging stations and insufficient range.
Tesla, a longtime leader in the field, could have led the charge this year with new and updated models, but is instead focusing on AI and robotics. After years of meteoric growth, the electric vehicle maker reported an 8.5% drop in vehicle deliveries in the first quarter of this year. Lately, the debate around the electric car market has been marked by bad vibes and murky prospects.
Gasoline cars in trouble
The United States is currently experiencing slowing growth in the electric vehicle market. But globally and in the long term, sales of plug-in cars are expected to soar while traditional, fuel-guzzling vehicles run out of steam.
But if we look beyond the pessimistic headlines and take a broader perspective, a clear trend emerges: the internal combustion engine is on its way out.
Electrify America’s flagship indoor charging station in San Francisco, California
Electric and hybrid vehicles are gradually, and in some parts of the world, rapidly, replacing conventional, fuel-guzzling non-electric vehicles. Experts say this is a huge win for the planet. And even as some automakers announce new, more efficient engines to stay competitive if full adoption of electric vehicles takes longer than expected, it’s hard to argue with the trends that point to the end of the gas era.
“The market is taking a very short-term view of this,” said Daan Walter, director of RMI, a nonprofit research organization focused on clean energy. “It’s really over for the combustion engine.”
Charting the decline of internal combustion
Sales of internal combustion engine (ICE) vehicles peaked globally in 2017 and have been declining since then, according to the latest Electric Vehicle Outlook report from research firm BloombergNEF (BNEF). The total number of internal combustion engine vehicles, including hybrids, on the world’s roads will peak in 2025. By 2027, oil demand for road transportation will also peak, BNEF forecasts.
By this year, plug-in (and even hydrogen) vehicles across all segments will help replace 4 million barrels of oil per day, according to the report. That’s roughly Japan’s annual oil consumption.
While sales of old-fashioned cars and trucks have plummeted, sales of electric vehicles have soared. In 2023, some 14 million electric and plug-in hybrid vehicles will be sold worldwide, representing 18% of total passenger vehicle sales, according to the International Energy Agency (IEA). This represents a gain of 3.5 million, or 35%, compared to 2022. If we look longer term, the figures become even more striking. In 2016, around 700,000 plug-in cars were sold worldwide, according to the IEA. Simply put, annual sales of electrified vehicles have exploded by 2,000% in less than a decade.
The EV transition is there, but it is far from evenly distributed. China and some Nordic countries eat much of the world’s lunch when it comes to electric vehicle adoption. Yet U.S. sales of ICE vehicles have also been on a downward trend.
According to the US Energy Information Administration, the market share of conventional gasoline cars has fallen to its lowest level ever in 2023: 84%. At the same time, sales of hybrid, plug-in hybrid and fully electric vehicles reached a record 16% of the U.S. market. Pure electric vehicles, or battery electric vehicles (BEV), accounted for a record 7.6% of new vehicle sales last year.
The United States lags far behind China, where aggressive industrial policies and intense competition have propelled electric vehicles to 50% market share in a relatively short time. In any case, here too things are moving in the direction of greater electrification.
Electric vehicle market to continue to grow, despite some setbacks
Despite what you may have heard, EV momentum hasn’t dropped in 2023; it’s just slowed to a pace below previous levels of spectacular growth. Annual sales of plug-in cars are expected to more than double over the next four years, reaching 30.2 million in 2027, according to BNEF. Of course, the 21% average annual growth rate worldwide over that period won’t be as high as the 61% seen over the past four years. But is this the doomsday for electric cars? It certainly doesn’t look like it.
Electric vehicle sales will continue to increase in the long term, leaving ICE vehicles with no viable path to return to 2017 levels. According to BNEF, plug-in car sales will reach 42 million in 2030 (45% of sales) and 73 million in 2040 (73% of sales). And this assumes that there are no new political interventions.
Government policies, which take the form of carrots and sticks, have played a crucial role in the transition to electric vehicles so far and will continue to play an important role in some parts of the world, experts say. But other key factors come into play, beyond generous subsidies or the looming ban on internal combustion engine vehicles.
A big problem: The economics of making and buying electric vehicles have improved as the industry has grown. Case in point: The new BYD Seagull sedan, from China’s largest EV maker, sells for as little as $10,000 in its home country. As electric vehicles have fueled unprecedented demand growth, lithium-ion battery costs have plummeted from about $1,400 per kilowatt-hour in 2010 to $139 in 2023, according to BNEF, which estimates costs will fall further.
2024 Chevrolet Equinox EV
Continued progress in electric vehicle affordability will be key to attracting more buyers around the world. In the United States, electric vehicles have historically been oriented toward luxury, although prices tend to fall. And some models already cost less than their gasoline counterparts when you factor in total cost of ownership. This is because electric cars require less maintenance and electricity generally costs less than gasoline.
The next “inflection point” will be widespread initial price parity, Walter said. This step, when a buyer can understand that an electric vehicle will save them money without much thought, has been taken in some leading markets, but not yet in the United States. “That’s really when you see the market go crazy,” Walter said.
Additionally, studies show that once someone buys an electric car, they rarely go back to gasoline. Electric vehicle drivers love the cost savings; the ease of charging at home; and the quiet, smooth ride.
Another factor of change is emerging: competition and the fear of falling behind. Unlike the early days of the policy-driven transition to electric vehicles, automakers themselves are moving forward decisively to stay competitive, said Corey Cantor, senior electric vehicle analyst at BNEF. For automakers, the cost of inaction is higher than ever.
“The further we go into this decade, the more likely winners and losers will become,” Cantor said. “So if you’re an automaker, you can’t afford not to have a BEV strategy from now on. »
The Kia EV3, worth around $35,000, will arrive in the United States in 2026.
So what about this slowdown in electric vehicles?
Of course, it’s not all sunshine and rainbows in the land of electric vehicles. The long-term global picture looks rosy, largely because of China’s fierce growth rate. But some markets, including the United States, are facing short-term slowdowns.
In the first quarter of this year, U.S. sales of plug-in cars were up just 4% from a year earlier, according to BNEF. That’s mostly a Tesla problem that could stem from its aging lineup, its caustic CEO, or both. Companies like Ford and GM have actually seen huge year-over-year gains on the EV front, despite their reluctance.
Hyundai Motor Group, which includes the Kia and Genesis brands, is also enjoying huge success. Each of these three automakers could sell 100,000 electric vehicles in the United States in a year, a record that only Tesla has reached so far.
According to BNEF, plug-in car sales in the United States are expected to increase 20% from 2023, less than the 32% it previously forecast. It nevertheless expects that plug-in cars will represent 29% of the American automobile market by 2027. Over the next few years, the health of the American transition to electric vehicles depends on the materialization of cheaper models, Cantor said. Consider a range of different models in the $25,000 to $32,000 range, after incentives. This type of vehicle is in the works at Ford, GM, Jeep, Kia and others.
It’s normal for a new technology to experience explosive adoption at first, followed by a slower growth rate. It’s easier to increase sales by 60% or 70% when last year’s sales were relatively low. And it’s harder to sell a new technology to mainstream buyers once the early adopters have burned out.
Still, climate experts are urging policymakers to do more for electric vehicles. As the effects of climate change become more palpable than ever, the world continues to spew record levels of carbon emissions. And in the United States, CO2 emissions from the transportation sector are rebounding rapidly from pandemic-induced lows. Most climate scientists believe humanity is headed for disaster if these trends don’t reverse soon.
“Electric vehicles are yet another classic technological revolution,” said RMI’s Walter. “The difference with climate technology is that it’s a technological revolution, but with a time lag.”
Contact the author: tim.levin@insideevs.com
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