Americans are buying electric vehicles at a record pace, unfazed by rising prices and long delivery waits, another indication that the combustion engine’s sunset is on the horizon.
Battery-powered vehicles accounted for 5.6 percent of new car sales from April to June, still a small share of the market but double the share a year ago, according to Cox Automotive, an industry consultancy. Overall, new car sales are down 20 percent.
Companies like Tesla, Ford Motor and Volkswagen could deliver more electric cars if they could build them faster. Automakers have struggled with shortages of semiconductors, which are even more important to electric cars than gasoline vehicles, while prices have soared for lithium and other raw materials needed for batteries.
“The transformation is real,” said John Lawler, chief financial officer of Ford, which sold 15,300 electric cars from April to June, a 140 percent increase from a year earlier. “Demand for electric vehicles outstrips what we can offer.”
At the same time, the popularity of electric vehicles has taken the industry by surprise and revealed flaws that could slow the transition to battery power, which is seen as essential to curbing climate change.
One of the lessons for Ford and other automakers is that the shift to electric vehicles requires them to fundamentally redesign their factories and supply networks. To make the transition, they have begun signing up advanced battery makers, for example, and working directly with mining companies to secure scarce raw materials. Ford is planning a $5.6 billion complex near Memphis to manufacture electric vehicles.
Automakers and suppliers have announced plans to invest more than $500 billion globally by 2026 to revamp their factory networks and supply chains, according to AlixPartners, a consultancy. But it will take several years for production capacity to meet demand.
The lack of public chargers is another obstacle, especially for apartment dwellers who don’t have garages or private driveways where they can plug in. Many companies are racing to build networks, and the Biden administration is providing funding, but they are playing catch-up.
“The market is ahead of the charging network,” said Cathy Zoe, CEO of EVgo, which operates more than 850 fast-charging stations in the United States.
Electric cars remain much more expensive than their gasoline counterparts and are out of reach for many buyers, even when fuel economy is factored in. The average price of an electric vehicle in the United States is about $66,000, compared to $46,000 for all new cars. One reason is the price of batteries, which has risen due to a shortage of raw materials after falling for years.
“To get to 15 percent of the market, or 25 percent, or 50 percent, we’re going to have to address a much broader segment of the market,” said John Bozella, president of the Automotive Innovation Alliance, an industry group. “For me, that’s the challenge.”
While sales of electric vehicles in the United States are growing rapidly, Europe and China remain far ahead. Battery-powered cars account for more than 10 percent of new cars sold in Europe and about 20 percent in China. Government quotas and subsidies play a big role, but there is also a greater choice of lower-priced models.
Government policy also plays a large role in the United States. California requires manufacturers to sell a certain number of zero-emission vehicles, and residents there drive nearly 40 percent of the electric cars on the road in the United States. But the Biden administration’s efforts to promote electric vehicles nationwide by offering electric car buyers tax credits worth up to $12,500, for example, have met strong opposition in Congress.
Sales in the United States will pick up as battery-powered cars become more common, said Felipe Smolka, a partner at consulting firm EY who tracks the electric vehicle market. People will become reluctant to buy fossil fuel-powered cars, he said, for fear that they may become obsolete and lose their resale value. Automakers have largely stopped investing in internal combustion engine technology.
“The energy behind this transition is now at a point of no return,” Mr. Smolka said.
Not all automakers share the electric vehicle boom equally. Among traditional automakers, there’s a growing divide between those that have started selling vehicles that can compete with Tesla’s popular models and those that haven’t.
Major automakers such as Toyota, Honda and Stellantis, the maker of Jeep, Chrysler and Ram, have been largely absent from the all-electric vehicle market in the United States, although they have announced plans for battery-powered models. Toyota began selling a battery-powered sports car, the bZ4X, this year, but recalled some of those cars in June because of the risk of the wheels coming off.
Getting to market early is no guarantee of success. The Nissan Leaf was one of the first electric vehicles to go into mass production, but U.S. sales of the model totaled just 3,300 units in the second quarter, down 30 percent from a year earlier. Nissan is replacing the Leaf with the Ariya, an electric SUV that will go on sale in the fall.
General Motors, once considered the EV leader among traditional carmakers, was derailed last year by the recall of its electric Bolt. There was a risk of the batteries catching fire. GM sold less than 500 Bolts in the first quarter of 2022. In the second quarter, sales rebounded to 7,300, but that was still a 20% drop from the second quarter of 2021.
For companies with a range of electric vehicles, the ongoing technological transformation is an opportunity to raise their profiles. Ford and South Korean automakers Hyundai and Kia, which are corporate siblings, are the most popular electric car brands in the United States this year behind Tesla.
Tesla remains the company to beat, but is showing signs of vulnerability. The company delivered more than 254,000 vehicles in the second quarter, down from 310,000 in the first quarter due to shutdowns and supply chain issues that affected its Shanghai factory.
Tesla’s second-quarter sales rose 26 percent from a year earlier, and the company said it produced more cars in June than ever in its history, a sign that supply problems are easing.
Still, Tesla faces increasing competition in China, which has the world’s largest auto market. BYD, a Chinese automaker that also makes batteries, sold 70,000 pure electric vehicles worldwide in June alone. In Europe, Tesla trailed Volkswagen, Stellantis and Hyundai/Kia in electric vehicle sales in the first five months of 2022, according to Schmidt Automotive Research in Berlin. (Tesla’s Model 3 and Model Y remain the most popular electric cars in Europe.)
Tesla’s command of the market will slip as traditional automakers introduce dozens of electric models, analysts at Bank of America said in a recent report. They predicted Tesla’s share of global electric car sales would drop to 11 percent by 2025 from 70 percent last year.
“Tesla’s dominance in this still nascent market segment may be coming to an end,” Bank of America analysts said.
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