EV Adoption in the US: A Supply, Rather Than Demand Issue

One of the comments you often hear from legacy automakers and the anti-electric vehicle camp is that “consumers don’t want EVs.”

 “There are no customer requests for BEVs. None. There are regulator requests for BEVs, but no customer requests.” – Klaus Frölich, via Forbes

These electric vehicle “nega-Bobs” will usually tout that either only 1% or 2% of vehicles purchased in the US (or elsewhere) are electric. Yes, EV sales are still a small percentage of overall vehicle sales, but it is important to look much deeper at what’s driving the current state of EV adoption. A major omission in these statements around the lack of consumer demand is the point in time we are at in the EV adoption cycle. And add in multiple supply factors and it puts the consumer demand question in an entirely different light..

Electric Vehicles Are NOT (Yet) Analogous to Smartphones

Saying that consumers don’t want EVs is a bit like saying in 2005 that consumers don’t want smartphones. The choices and price of smartphones were very limited at that point to devices such as the Palm Treo (of which I owned and still have the one at the right sitting in a drawer) and Blackberry.  When the iPhone and multiple Android smartphones became available, the huge increase in functionality with mobile apps made these devices immediately apparent to consumers that they were a huge leap beyond what regular cell phones could do. Within a few years of these new devices coming to market, sales of smartphones took off.

Current electric vehicles simply don’t offer all of the improved benefits over internal combustion engine-powered vehicles like smartphones provided versus landline and cell phones. One, and many EV advocates do, could make the argument that the Tesla Model 3 is analogous to the Apple iPhone, but I believe it may be more akin to a device like the Palm Treo. The Model 3 might be comparable to the iPhone from a technology perspective, but its sales impact – as significant as it is – is still relatively small. The Model Y might change this, but ultimately it may take an EV from a legacy automaker like Ford or Toyota to create the “iPhone effect.”

Supply Issues Are the Root of the Demand-Side Issue

There are several factors on the demand side that in fact are limiting American consumers’ appetite to buy electric vehicles. These include:

Availability by State: If electric vehicles are not available at dealers across the US, it is pretty difficult for consumers to buy them. As such, it is no coincidence that the states with the most EV models available in their states, also tend to have the highest sales shares for EVs. Conversely, states with the fewest EVs available have the lowest EV sales share. Now, much of this is due to demographics and psychographics of residents of these states, but it is clear that automakers de-emphasize EVs in many states, contributing to very low sales in those states.

EV Models Available Per State (2018)Top-Bottom 6 States-Whole#
EV Models Available Per State (2018)Top-Bottom 6 States

Range: For consumers even remotely considering an electric vehicle, range is most likely the first consideration hurdle before they get to price and other factors. For most US consumers, 250-300 miles of range is the minimally acceptable starting point. But in fact 300-400 miles of range will be required for mass adoption and particularly the late majority and laggard consumers in the US. By the end of 2019, however, the available BEVs will have a median range of only an estimated 225 miles.

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But by 2023 I expect BEVs available in the US to have a mean range of 300 miles, which will begin to significantly reduce the fear of range anxiety and make EVs much more acceptable to the mass market.

2009-2023 BEV Mean & Median Range-April 30 2019
2009-2023 BEV Mean & Median Range-April 30 2019

Body Types: One of the current issues is simply a mismatch between US consumer demand and EV vehicle body types. For one, there currently is not a single electric pickup truck available. Pickups accounted for 17% of US vehicle sales in 2018, using data from GoodCarBadCar.

New-Updated EVs Available in the US 2019 & 2020-Body Type

Secondly, small SUV/CUVs are the hottest segment today in the US. In 2018 the Toyota RAV-4 ranked as the number 4 selling vehicle in the US, the Nissan Rogue/Rogue Sport was the number 5 best-selling, followed by the Honda CR-V. The Chevrolet Equinox crossover came in at #8, and Ford Escape at #12.

Tesla Model Y - blue - front and side
Tesla Model Y | Source: Tesla
Volkswagen I.D. Crozz
Volkswagen I.D. CROZZ | Source: Volkswagen

Fortunately, in the next few years we will see electric pickups from Rivian, Tesla and Ford reach the US market. Though these BEV pickups will likely be priced significantly higher than the typical pickup which will limit sales to higher-income and early adopting households. Additionally, BEV crossovers such as the Tesla Model Y, Volkswagen I.D. CROZZ, and “Mustang-inspired” Ford CUV along with the Ford Escape PHEV should sell well.

Source: Statista

Number of Models: According to Statista, as of July 30, 2019 there were 293 models available for sale in the US. At the same time there were 41 EVs available – 15 BEVs and 26 PHEVs – or 14% of total available models. However these numbers are skewed as BMW offers 6 EVs, Hyundai and Mercedes-Benz 4, and Tesla, Kia, and Volvo have 3 EVs available in the US.


AutomakerBEVsPHEVsTotal
BMW156
Hyundai224
Kia *123
Mercedes-Benz044
Tesla303
Volvo033
Honda112
Porsche022
Chevrolet **112
Audi101
Fiat101
Ford011
Jaguar101
Mini011
Mitsubishi011
Nissan101
smart 101
Subaru011
Toyota011
Volkswagen101
Chrysler011
Acura000
Alfa Romeo000
Buick000
Cadillac000
Dodge000
GMC000
Genesis000
Infiniti000
Jeep000
Land Rover000
Lexus000
Lincoln000
Mazda 000
Ram000
Total152641
Mean1.142.433.57
Median001

(Note: The existing Kia Soul is not currently available but the new version will be soon. And the Chevrolet Volt has been discontinued, but dealers are still selling existing inventory so is included.)

The implications are that when a consumer walks into a car dealership in the US, only 21 out of 35 major brands will offer at least one EV out of their total portfolio of models. Twelve brands offer only a single EV. And in a majority of states, various brand dealers may not even offer EVs that are available at dealers in states like California and other ZEV states.

Many Automakers Simply Don’t Offer EVs: In 2018, 14 automaker brands had zero sales of electric vehicles in the US. This wasn’t because of a lack of demand by consumers, but because these 14 automakers didn’t offer a single EV for sale.

Currently, in the US, out of 35 major brands, the number of brands without an EV remains at 14 with Subaru launching its Crosstrek PHEV, but Cadillac discontinuing the CT-6 PHEV. (Lincoln and Land Rover are launching PHEVs in the next few months.)

Low Supply of Models: Highly-rated CUVs like the Hyundai Kona and Kia Niro BEVs are not widely available. These automakers either planned poorly and didn’t secure adequate battery supply or they intentionally are keep availability low. These two models should be selling in the same range, or likely even higher than the Chevrolet Bolt.

Jan-July 2019 US Sales: Chevrolet Bolt, Honda Clarity PHEV, Hyundai Kona BEV, Kia Niro BEV

Further, Honda recently pulled back availability of the hot-selling Clarity PHEV to ensure adequate supply for dealers in California.

Price Differential: EVs cost $17,000 more than the overall average of all vehicles. More telling, however, is the price differential (delta) across most of the vehicle type categories. On average EVs cost just under $6,000 more than ICE vehicles in my analysis – but well above $10,000 more in several categories.

While there were only two EVs in each of two categories – High-end Luxury Car and Luxury Full-size SUV/Crossover – that EVs actually cost less on average. Again, not a big surprise but interesting to note that the more expensive EVs also tend to be more competitive. This likely speaks to part of the reason why Tesla’s Model S and X have historically sold well. While both are very expensive vehicles, they are actually very competitively priced within their categories.

Category Price Comparisons - All vs EVs KBB-EVAdoption
Category Price Comparisons – All vs EVs | KBB Data/EVAdoption analysis

Manufacturing Cost Differential – EVs Are Sold at a Loss: The biggest supply issue is simple – electric vehicles cost more to produce and most all EVs today are sold at a loss. Automakers are in the business to make a profit, so their only motivations currently to sell EVs are to 1) Meet government regulations around emissions and average miles per gallon in key markets like China, the EU and California; 2) Build supply, design, and manufacturing competencies in preparation for when EVs are competitive with ICE vehicles on price and range; and 3) Counteract electric vehicle competitors such as Tesla and the German automakers who are launching several luxury/performance EVs.

According to an article in GreenCarReports, consulting firm AlixPartners “pegs the cost of building new electric cars at almost $9,000 more than conventional cars, and plug-in hybrids at an additional $5,700.” In this McKinsey report, the management consulting firm says that there is currently a $12,000 difference in cost between a typical BEV and ICE.

An article in Electrek quotes GM’s CEO Mary Barra from a company earnings conference call commenting on the profitability of EVs:

“I would say early next decade, but I wouldn’t put any more specificity on EV profitability than that. We’ve talked about the fact that with our next generation of development, we want to make sure we have obtainable, profitable, desirable, and with the appropriate range. And so that is the work that we’re doing.” – Mary Barra, CEO of GM

In the end, getting electric vehicles to become profitable for automakers is the key issue to drive supply, which in turn will lead to a huge uptick in demand by consumers.

California is a Leading Indicator in the US

In California electric vehicles are in very high demand, with current sales market share running at just under 8%. The state’s perennial high cost of gas, the lowest percentage of pickup owners, culture of environmental concerns and high solar installations, and number of higher-income households in Los Angeles, San Jose and San Francisco markets are some of the key drivers of EV adoption.

The Tesla Model 3 has been an ideal match for these factors and in the first half of 2019 it was the third-highest selling vehicle in the state behind the Honda Civic and Toyota Camry, according to the California New Cars Dealers Association.

This simply proves that when an electric vehicle is widely available and meets the needs of consumers within a market, there simply is not a demand issue. Once the factors above are resolved and available EVs are actually more in line with the needs of the market (and profitable for automakers), sales will begin to take off. Consumers want electric vehicles, just not most of the ones currently available, many of which are in fact not widely available.

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One thought on “EV Adoption in the US: A Supply, Rather Than Demand Issue

  • September 2, 2019 at 8:10 am
    Permalink

    Another excellent article. Thanks!

    IMO, the other thing that needs to happen to enable BEV sales is to get sufficient fast charging stations in more states/communities. There are exactly 0 where I live (unless you count Level-2, in which case there are 6 in our town of 50,000 people). So I drive a PHEV. Seems like the BEV/PHEV battle, and EV adoption in general, will be ultimately decided on how fast the charge station buildouts accelerate. Range anxiety to allow for BEVs can only be mitigated when ubiquitous charging is available, as it is in California.

    BTW – Please check the colors in the table of body types. I think SUVs and Sedans are reversed.

    Reply

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