Why some car companies expected a faster switch to EVs
Why some car companies expected a faster switch to EVs
Here are two true statements about electric vehicles in the United States: First, nearly 600,000 were sold in the first half of this year, according to Kelley Blue Book. That’s 7% more than in the first half of 2023. Second, that rate of growth is down significantly from a few years ago.
The growth of the EV market is not meeting the expectations some car companies had back in 2022.
So, why did some carmakers expect Americans to jump into EVs so quickly? And why have sales fallen short of those forecasts?
To answer that, it’s worth looking back at the 2022 Super Bowl, the moment when EV hype really hit the cultural mainstream. That year, ads for electric vehicles dominated the broadcast.
There was Salma Hayek and Arnold Schwarzenegger as Greek gods driving an electric BMW around Palm Springs, California. The kids from “The Sopranos” reunited next to an electric Chevy Silverado. Mike Myers reprised his role as Dr. Evil (Dr. EV-il, get it?) from the “Austin Powers” movies, supposedly taking over GM and turning its vehicle lineup electric.
“I’ll help save the world first, then take over the world,” he said, pinky raised to his lips.
To a Super Bowl TV audience of over 100 million, the auto industry appeared to be saying: Electric vehicles are here, they’re cool and you should buy one. Though, in the previous year, EVs made up just a small fraction of new car sales — around 3%. But even that limited share signaled strong growth, up by nearly two-thirds from 2020. That was mostly thanks to one company: Tesla.
“They basically made it obvious that this is now economically viable,” said Tom Narayan, an auto industry analyst at RBC Capital Markets.
Making exclusively electric vehicles, Tesla turned its first profit in 2020, and that profit margin shot up in 2021. Other automakers found themselves playing catch-up.
Meanwhile, car buyers had pandemic relief money in hand, and they could get government tax credits for EVs. All of that made the electric vehicle market’s trajectory look bright to both companies and analysts.
“If you’re looking at the numbers and they’re coming in stronger than you expected, you can’t help but extrapolate that into the future, right?” Narayan said. “Because you don’t have any data point that would suggest otherwise.”
So, extrapolating that consumer demand would keep growing, and feeling pressure from regulators, many carmakers went all in on electric, betting billions of dollars in capital outlays.
Stephanie Brinley, associate director at S&P Global Mobility, said carmakers were thinking, “‘OK, at some point we’re going to probably be an EV-dominant market, if not 100% EVs. If we’re going to be part of that market, we need to invest.’”
Those investments led companies to run those Super Bowl ads and put out ambitious EV production targets, thinking consumers would be there to buy. “The expectation for how quickly EV adoption would happen got set a little high,” Brinley said.
EV sales continued to grow through 2023, but the steep upward trajectory of early 2022 started to bend down, in part because the economy changed.
Interest rates went up, “making it harder to finance anything, including more expensive cars,” said Karl Brauer, executive analyst at iseecars.com.
Plus, inflation was coursing through the economy, “which made it harder for people to go buy a new car, or an expensive car, when they’re trying to buy milk and bread,” Brauer said.
And once they tried EVs, Brauer said, some consumers just weren’t that happy with them. Scott Lambert has seen that in Minnesota, where he’s the head of the state’s automobile dealers association. He said electric vehicles haven’t met two key needs for some drivers in his state: driving in the cold and towing things.
“If you’ve got an electric truck, and you think you’re going to pull your ice house onto the lake on a cold February day, you better plan your day pretty carefully,” he said. “Because you’ll lose a lot of range pulling that ice house, and you’ll lose a lot of range in the cold weather.”
But Lambert thinks those issues could be fixed in the long run as electric vehicle technology advances. Then, EVs might meet more drivers’ needs.
“I really think it’s important to recognize that the EV transition was always going to be a 10-to-15-to-20-to-30-year sort of time frame,” said Brinley at S&P Global Mobility.
Despite the recent slowdown, the auto industry is still betting that EVs are the future. But it realizes the transition is a marathon, not a sprint.
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