U.S. electric vehicle progress: more tortoise than hare?
Battery technology, charging stations, safety and costs among key issues.
Retail gasoline prices at the pump have more than doubled over the past 21 months, and Russia’s February invasion of Ukraine continues unabated. This has exerted considerable upward pressure on crude oil and natural gas prices, as Russia (along with the U.S. and Saudi Arabia) is one of the three-largest energy producers in the world. Consequently, interest in electric vehicles (EV) has spiked here in the U.S., with EV searches on Google surging to a record high in March and rising 43% on Cars.com from January to February. While the Biden administration has set a target for at least half of all vehicles sold by 2030 to be electric-powered (versus just 5% today), legitimate concerns relating to battery technology, charging stations, safety and costs suggest that a more deliberate pace—measured perhaps in decades rather than years—may be the more prudent course of action.
EVs are pricey According to the New York Times, the average price for an electric vehicle is $66,000 (with some models priced well above $100,000), compared with a $46,000 average price for all new combustion-engine vehicles in the U.S. To be sure, there are customer waiting lists that stretch a year or longer for many popular EVs. But with average annual personal income in the U.S. just over $60,000, typical EVs are out of reach for many. Most customers tend to be a college-educated professionals who earn more than $100,000 annually, live on the East or West coasts, own at least one other gas-powered vehicle and their own homes. In fact, a 2021 study by Cox Automotive concluded that 51% of car shoppers said that EVs were too expensive to seriously consider.
Because the ideal target audience to purchase EVs is roughly the top 10% of America, it’s been a struggle for the Biden administration to make electric vehicles more affordable to widen their appeal. President Biden proposed rebates and tax credits totaling $12,500 (including a $4,500 incentive for consumers who purchase union-made American EVs). But Sen. Joe Manchin, the West Virginia Democrat who has blocked other Biden initiatives, rejected that idea, citing the long waiting lists.
At-home charging important Most people buying EVs charge them at home in their garage. But the bottom third of Americans do not own their own homes. Apartment-dwellers are unlikely to buy EVs because they have no place to charge them. A typical 120-volt household outlet (Level 1 charging) yields only 3-5 miles of additional range per recharging hour. For a few thousand dollars more, homeowners can upgrade to a 240-volt outlet (Level 2 charging), which yields 15-40 miles of range for each recharging hour. Driving-range concern is one of the most significant hurdles to broader EV adoption.
Last month, the Biden administration proposed building 500,000 much faster Level 3 charging stations across America by 2030. They will be placed along interstate highways every 50 miles and no further than a mile off the exit. The project will be paid for using the $7.5 billion from the bipartisan infrastructure bill signed into law last year. States would be required to provide at least four of the fastest type of recharging ports (DirectCurrent fast chargers) at every charging station to let multiple drivers plug in simultaneously.
It's all about the batteries The average price paid for an EV has risen by 22% from a year ago, largely due to the increased cost of raw materials associated with the batteries that power these vehicles. Prices for lithium, nickel and cobalt have nearly doubled since the pandemic began. One result is profit margins on EVs are slim compared to gas-powered cars because of the large battery packs needed to power them; these packs account for as much as a third of a vehicle’s total cost. Shortages also are an issue, affecting both production and costs. Rivian Automotive is forecasting an EV battery supply shortage due to limits in the mining and processing of raw materials, and the building of battery cells. Elon Musk says Tesla may start to mine and refine the necessary raw materials directly. And its not just raw materials. Carmakers also are experiencing a critical shortage of semiconductor chips, heavily used in new vehicles.
Growing safety concerns Even when EVs are turned off, there are fire risks from battery explosions. In the past decade, at least 31 recall campaigns covering 3.3 million vehicles have been launched with “park outside” orders, keeping the vehicles away from structures for safety reasons. Nearly 60% of these recalls occurred within the past two years. That said, to date, fully electric cars have experienced the fewest fires (25 per 100,000) compared to hybrids at (3,475 per 100,000) when it comes to fires from all causes, including collisions.
Is hydrogen an option? The bipartisan infrastructure law includes $8 billion to create four regional “hydrogen hubs.” Hydrogen fuel-cell vehicles operate by converting hydrogen from natural gas into electricity, and hydrogen is a plentiful source of energy as the U.S. is the so-called Saudi Arabia of natural gas. But hydrogen fuel-cell vehicles cost about a third more than already expensive battery-powered vehicles, which are much more efficient.
The future is electric While new car sales fell by 20% in the second quarter, EVs accounted for 5.6% of those sales, doubling their market share from a year ago. Industry forecasts see EV sales doubling from current levels yet again next year. Ford recently reorganized its auto operations into two separate businesses—profitable gasoline-powered vehicles and fast-growing EVs—with a goal of selling 2 million EVs annually by 2026. General Motors plans to be all-EV by the end of the decade, and has 77,000 prospective buyers for its upcoming Hummer EV, which has a longer driving range and faster charging times than competitors. Volvo said that EVs accounted for 7% of its second-quarter sales (hybrids accounted for 24%), and they are planning to be all-electric by 2030.
While the 3 million EVs currently on the road represent a slim 1% share of the automotive market—there are 290 million gas-powered vehicles in use, with an average life of about 12-13 years—this share is growing rapidly, aided lately by elevated gas prices at the pump that have accelerated demand and adoption of the gas-free vehicles. Sure, problems exist with relative cost, safety, battery technology and recharging infrastructure. But there’s no question that the future is electric, and that we will successfully hurdle these concerns over time. Now, however, may be the time to slow down, allow EVs to grow organically and make better energy and transportation decisions based upon current developments.
Research assistance provided by Federated Hermes summer intern Julian Oliveros.