EVs Still Faster Off-the-Line Than Forecasts

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Forecasts for electric vehicle (EV) sales keep ratcheting up, but never quite manage to catch up with superspeed reality. While automobile sales overall are dropping — like a stone in Europe — EV sales continue to shoot up. The obvious result is that EVs’ portion of total passenger vehicle sales is soaring, and plausible dates for 50% and then 100% conversion are moving steadily forward. Factors being overlooked or underplayed by still-too-conservative forecasters include the financial and managerial pressures on automakers to move quickly off internal combustion engine (ICE) vehicles and into EVs. These companies’ fear that those who hesitate will be lost, strengthens with recession looming. Consumers are being similarly drawn to EVs and away from “old-fashioned” ICE cars. The speed of the US shift to EVs and pent-up demand for electric delivery vehicles and vans underscore growing momentum. Make no mistake: EVs are coming to get gasoline and diesel demand — with rapid acceleration.      

"Unstoppable Momentum" is how EI New Energy described China’s 2022 EV market. Neither Covid-19 closures nor tax breaks for ICE vehicles could stop EV sales from leaping 115% in the first half, to capture 22% of China's personal vehicle market. The EV market share had hit 27% by June, up from 17% at end-2021. It makes the Chinese Association of Automobile Manufacturers’ forecast of 56% full-year EV sales growth look cautious, to put it mildly.

Nothing is selling very well in Europe at the moment, but EVs are the exception that proves the rule. The European Association of Automobile Manufacturers reported first-quarter 2022 registrations — a surrogate for sales ahead of the availability of full sales data — up 61% for battery-only EVs (BEVs), against an 11% drop in car sales overall and a modest slide in plug-in battery vehicle sales. Together, plug-in and BEV's had a combined market share of just over 20% there in the first quarter, and that share is probably notably higher by now.

The US is this year’s surprise (for some) EV overachiever. Preliminary sales figures were up by as much as 60% year on year in the first quarter, despite a drop of well over 10% in car sales overall. EVs grabbed over 5% of the light-vehicle market, up from barely over 4% in 2021. Anybody want to bet that the EV portion won’t be at least 8% by year’s end? As 2022 opened, even optimistic forecasts from the EV cheerleader squad were for a 37% “surge” in sales in 2022.

Automakers Under Pressure

Why are EV sales holding up so well in an otherwise depressed auto market? Sky-high gasoline and diesel prices doubtless help, but the momentum had been building before oil markets ignited. Once automakers decided that ever-tightening standards for carbon emissions — sometimes expressed as mileage caps — couldn’t reasonably be met by making ICE vehicles more efficient, even in the medium term, the game was basically up for gasoline- and diesel-powered cars.

Volkswagen’s (VW) diesel-emissions cheating scandal solidified that auto-industry decision. VW now regularly touts its determination to overtake Tesla as the world's top EV maker, although for the moment, it looks like losing that title to China’s BYD, which is poised to possibly even beat Tesla this year.

The more investment conventional automakers promised to push into EVs, the clearer it became that their future was electric and spending on upgrades for ICE models was pouring money down a drain. Analogous arguments have become familiar to everyone in the oil industry: Payback on investments takes time, and that time doesn’t exist for a product that is on its way out.

Even so, it takes time to convert or build factories, establish new supply chains, and develop models to suit a world in which tastes in personal vehicles are strikingly diverse. Choices must be made. It has been clear for years that there would be a geographically staged launch of a full slate of models in the big markets: Europe, China and then the US. Each would have a big year for opening up to EVs, in that order starting in 2020 in Europe. With some allowance for hiccups related to a global pandemic, economic policy mayhem surrounding that pandemic, and now a war in Europe, that’s what happened.

The spread of EVs outside the West and Northeast coasts that previously constituted Tesla country is one of the big, visible signs that the US is reaching its own version of unstoppable momentum. Elon Musk’s decision to build a high-profile Tesla factory in Texas and personally move to the politically conservative state helped in this process. Even more important may be Ford’s release this year of the “Lightening” electric version of its best-selling F-150 pickup. Ford registered a 222% jump in EV sales this May from year-ago levels, and that was thanks largely to red-hot sales of its Mustang Mach-E crossover. The Lightening F-150 is just starting down what could be a wide path into the Middle American marketplace.

Where Next? Everywhere

Energy Intelligence Research & Advisory unit’s latest EV Outlook suggests that South Korea and Japan may be other areas of resistance that will soon move into the EV fast lane. India is forging a different path to electrified transport, focused initially on two- and three-wheeled vehicles. Delivery trucks and vans are poised to be another big area of growth for EVs in the next year or two, with retailing giants such as Amazon and Walmart struggling — and sometimes paying upfront — to get their hands on more of such vehicles as soon as they’re available.

It’s everywhere you look. A year ago, a 2035 deadline for last sales of ICE personal vehicles looked like a stretch. Now, with the EU set to join California, the UK and others in mandating this ICE end-date, odds are that the effective end will come much sooner. Major carmakers will aim to beat the target because stuff happens, and the cost involved in missing the critical deadline is too great to play it close.

What that implies, among other things, is that the auto companies won’t have money or management time to spend developing new ICE models in the interim. Gasoline cars will quickly start to look and feel old and stodgy, while consumers will be deluged with advertising about the groovy new EVs available. But that doesn’t mean the remaining new gasoline cars are likely to be cheap, since the impetus is to sell more EVs and use old-style autos as cash cows.

It’s a situation not dissimilar to that of the oil industry, as it has held off jumping into new upstream investments despite $100 per barrel-plus prices. By the time you pay back the money it costs to develop new production, will enough people still want to buy the resulting output to make it profitable? Quite possibly not.

For the automakers, who have a clearer vision for a post-carbon future than their counterparts in oil, the case against investing in yesterday’s cars, pickups and vans is all the stronger. Anyone want to bet that EV sales hit a 50% global market share around 2025 and something not far off 100% by 2030?

Sarah Miller is a former editor of Petroleum Intelligence Weekly, World Gas Intelligence and Energy Compass.

Electric Vehicles, Mobility, Oil Demand
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