Sales of electric cars soar dramatically despite shortages

Sales of electric cars soar dramatically despite shortages

Americans are buying electric vehicles at a record pace, undeterred by rising prices and long delays for delivery – further indication that the internal combustion engine twilight is on the horizon.

According to Cox Automotive, an industry consultancy firm, battery-powered vehicles accounted for 5.6% of new car sales from April to June, still a small slice of the market but double the share of a year ago. Overall, new car sales fell by 20%.

Companies like Tesla, Ford Motor, and Volkswagen could have provided more electric cars if they had been able to build them faster. Carmakers have struggled with a shortage of semiconductors, which are even more essential for 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, Ford’s chief financial officer, who sold 15,300 electric cars from April to June, a 140% increase over the previous year. “The demand for electric vehicles is far beyond what we can supply.”

At the same time, the popularity of electric vehicles has taken the industry by surprise and highlighted shortcomings that could slow the switch to battery power, which is considered essential for containing climate change.

One of the lessons for Ford and other automakers is that switching to electric vehicles requires them to fundamentally redo their factory and supply networks. To make the transition, they have started subscribing to advanced battery manufacturers, for example, and are negotiating directly with mining companies to secure scarce raw materials. Ford is planning a $ 5.6 billion complex near Memphis to build electric vehicles.

According to AlixPartners, a consulting firm, automakers and suppliers have announced plans to invest more than $ 500 billion worldwide by 2026 to upgrade factory networks and supply chains. But it will take several years for the production capacity to meet the demand.

The lack of public chargers is another obstacle, especially for apartment dwellers who do not have private garages or driveways to connect to. Numerous companies are competing to build networks, and the Biden administration is providing funding, but they are catching up.

“The market is ahead of the charging network,” said Cathy Zoi, 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 if fuel economy is taken into account. The average price for an electric vehicle in the United States is around $ 66,000, compared to $ 46,000 for all new cars. One reason is the cost of batteries, the price of 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 will have to appeal to a much larger segment of the market,” said John Bozzella, president of Alliance for Automotive Innovation, an industry group. “That for me is where the challenge lies.”

While sales of electric vehicles in the United States are growing rapidly, Europe and China remain well ahead. Battery-powered vehicles account for over 10% of new cars sold in Europe and around 20% in China. Government quotas and subsidies play an important role, but there is also a greater selection of low-priced models.

Government policy also plays an important role in the United States. California requires manufacturers to sell a number of zero-emission vehicles, and residents drive nearly 40 percent of electric cars on the road in the United States. But the Biden administration’s efforts to promote electric vehicles nationwide, for example by offering electric car buyers tax credits of up to $ 12,500, have met with strong opposition in Congress.

Sales in the United States will gain momentum as battery-powered cars become more common, said Felipe Smolka, partner of the EY consulting firm that follows 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. Car manufacturers have largely stopped investing in internal combustion engine technology.

“The energy behind this transition is already at a point where there is no return,” said Smolka.

Not all carmakers share the boom in electric vehicles equally. Among mainstream automakers, there is a growing gap between those who started selling vehicles that rival Tesla’s popular models and those who didn’t.

Major automakers like Toyota, Honda, and Stellantis, the vehicle maker Jeep, Chrysler and Ram, are largely absent from the pure electric vehicle market in the United States, although they have announced plans for battery-powered models. Toyota started selling a battery-powered SUV, the bZ4X, this year, but recalled some of those cars in June due to the risk of the wheels coming off.

Being ahead of the market is no guarantee of success. The Nissan Leaf was one of the first electric vehicles to be mass-produced, but sales of the model in the United States were only 3,300 during the second quarter, down 30% from the previous year. Nissan is replacing the Leaf with the Ariya, an electric SUV that goes on sale in the fall.

General Motors, once considered an electric vehicle leader among traditional automakers, was put off the track last year by the recall of its electric Bolt. There was a risk that the batteries could catch fire. GM sold fewer 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 profile. Ford and South Korean carmakers Hyundai and Kia, which are corporate brothers, have been the most popular electric vehicle brands in the US this year after Tesla.

Tesla remains the company to beat, but shows 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 problems affecting the Shanghai plant.

Tesla’s second-quarter sales were up 26% from the previous year, and the company said it built more cars in June than ever in its history, a sign that supply problems are easing.

However, Tesla faces intensified competition in China, which has the largest auto market in the world. BYD, a Chinese carmaker that also produces batteries, sold 70,000 pure electric vehicles worldwide in June alone. In Europe, Tesla followed Volkswagen, Stellantis and Hyundai / Kia in electric vehicle sales during the first five months of 2022, according to Schmidt Automotive Research in Berlin. (Tesla’s Model 3 and Model Y remained the most popular electric cars in Europe.)

Tesla’s lead in the market will fall as mainstream automakers introduce dozens of electric models, Bank of America analysts said in a recent report. They predicted that Tesla’s share of electric car sales worldwide would plummet to 11% by 2025, from 70% last year.

“Tesla’s dominance in this still nascent market segment may be drawing to a close,” said Bank of America analysts.

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