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US EV consumer demand not matched by production capacity as registrations rise: S&P Global Mobility

20 May 2022 Amena Saiyid

Electric vehicles (EVs) including hybrid options gained ground in the US in the first quarter of 2022 owing to consumer demand for emissions-free automobiles, but S&P Global Mobility analysis of the latest figures show EVs still account for only a fraction of total automobile registrations.

And while there is increased public interest in EVs, production is not keeping up because it is constrained by the same supply-chain issues affecting all light-vehicle production, such as a shortage of semiconductors, according to Stephanie Brinley, principal analyst for S&P Global Mobility.

"If there were more EV production today, we would see more sales," Brinley told Net-Zero Business Daily by S&P Global Commodity Insights 19 May.

For the rest of 2022 and likely into 2023, S&P Global expects sales and registrations of EVs to be limited by constraints on production capacity and vehicle availability. However, it found, "the growth of EV registrations is forecast to continue, but it may be 2024 before there is a natural level of demand."

EVs a key element of decarbonization

President Joe Biden has made electrification of the transportation sector through greater EV manufacturing a key element of his push to decarbonize the economy because the transportation sector is responsible for 27% of US GHG emissions (or 1.63 billion mt CO2e in 2020), according to the latest US Environmental Protection Agency data.

S&P Global forecasts that EVs will represent about 37% of US light-vehicle sales in 2030, reflecting that "we do see continued growth for the EV sector."

Besides, Brinley said, some people still have range anxiety about EVs and still others have concerns about how much they cost. Another analyst opined that people are worried about finding easily accessible charging stations.

In Q1 2022, S&P Global reported 16 May that the US market share for registrations of electrified passenger cars, pickup trucks and vans increased by 4.5% to 153,651. After accounting for hybrids, the share of new registered EVs jumped to 447,306, or 13.23% of total light vehicle registrations.

In contrast, the share of registrations for new cars running on gasoline or on a blend of 85% ethanol and gasoline (E85) was 83.28% in Q1, compared with 87.54% for all of 2021.

Better choices of EVs

Registrations of electrified vehicles have been increasing in recent years, with more and better choices of EVs, plug-in hybrid EVs (PHEV), and full-hybrid EVs (FHEV) aligning with growing consumer interest in these vehicle types, Brinley said.

Hybrid EVs typically use a battery pack to supplement the internal combustion engine, reducing the amount of gasoline required while lowering emission and fuel costs. The difference between a PHEV and a FHEV is that the former has a larger battery range than the latter. Also, a PHEV needs a convenient spot to charge the battery pack to run in EV mode, although it can run on gasoline alone.

However, supplies of EVs are still too low for a consumer to just walk into a dealership and drive out with a brand-new EV, in any of the many varieties.

According to Brinley, supply chain constraints are one reason, but not the only explanation for why that is the case.

There is no question that supply chain constraints, particularly the semiconductor chip shortage, have affected production of some EVs such as the Ford Mustang Mach-E and some Tesla models.

The shortage of semiconductors, which serve "the backbone" of technologies running EVs, smart phones, and laptops, among other uses, began during the 2020 COVID-induced lockdown and continued through 2021. Compounding the shortage of semiconductors was the shutdown of car factories in the US during the pandemic-induced lockdowns.

Vehicle inventories were low to begin with at the start of 2021, and later in the year when production resumed was "when the supply chain disruptions became really apparent," Brinley said.

However, production of EVs is increasing, though some automakers are still constrained on supply chain issues, as with all light-vehicle production.

The expected growth in electric car numbers will only exacerbate this reliance on semiconductors, according to a trade group, the Semiconductor Industry Association.

Even without the semiconductor shortage, Brinley said EV production was being ramped up slowly.

Several automakers have been expanding their EV product offerings in 2022. At least 37 new EV models were launched this year, according to S&P Global.

Automakers have a pre-order and registration system at work for EVs that Tesla pioneered. They use the process to gauge interest and demand, and many have reported more interest than they expected, according to Brinley.

As an example, Ford announced in January it was planning to double investment in F-150 Lightning production to 150,000 units after the reservation process began, but Brinley said much of that investment will not result in increased capacity until 2023 and 2024.

Ford's total investment in EVs now exceeds $30 billion and includes plans to ramp up production of the Mustang Mach-E to 200,000-plus units per year by 2023, and at least 600,000 by 2026.

Ford rolled out the F-150 Lightning in showrooms on 26 April, and it stopped taking orders after 200,000 were received. On its website, Ford said, "we've closed orders for the 2022 F-150 Lightning," inviting customers to "be the first to know when the 2023 F-150 Lightning is ready to go."

The GMC Hummer EV also began a slow rollout in Q1 to gauge public demand for the product.

Kia began deliveries of its all-electric EV6 in February, and Hyundai rolled out an all-electric sports utility vehicle known as the Ioniq 5 in April. South Korea-based Hyundai says deliveries will be limited in the US.

"It's only May so it's not like there was a stockpile of EVs sitting around and they are gone," Brinley said, adding that "all the cars that were pre-ordered are already spoken for."

There's no inventory of Teslas sitting around in a showroom, she said.

How affordable are EVs?

Another key issue is affordability. Although EVs undeniably fulfill individual and national net-zero aspirations, they are still out of the reach of many consumers.

"EVs still tend to be more expensive than their [internal combustion engine] counterparts, and the recent lack of EV supply didn't really help," Jesse Torpak, chief analyst for California-based Autonomy, a firm that allows people to subscribe to an EV rather than buying or leasing one, told Net-Zero Business Daily in an 18 May interview.

Tesla Model 3, the cheapest model that the world's number one EV manufacturer has to offer, is currently priced at $40,390. Ford's F-150 Lightning ranges in price from $39,974 for its barebones "pro" model to $90,874 for its luxury model.

However, Torpak pointed out that the 2019 Tesla Model 3 model is currently selling for $49,000, far more than what it was originally priced at.

In addition, new automakers Rivian and Lucid, as well as Tesla, have recently announced price increases as a result of higher material costs.

Looking at registrations, Tesla continues to dominate the US market. In Q1, Tesla Model 3 registrations totaled 46,200 units, but S&P Global analysis shows that non-Tesla EV registrations are closing the gap, totaling 43,700 units in that same period. However, Brinley noted that Tesla is still far ahead of the pack as the non-Tesla registrations include at least 30 other EV models.

Aside from the affordability issue, the other factor curbing easy US adoption of EVs is a lack of charging stations. A National Renewable Energy Laboratory report released in January said nearly three times more EV chargers need to be installed each quarter along highway corridors or in publicly accessible spots to meet Biden's goal of having 500,000 charging ports in place by 2030.

Cheaper to drive

An 11 May study by the Zero Emissions Transportation Alliance (ZETA) uncovered that EVs are far cheaper to drive and result in greater cost savings than gasoline-powered cars. In the US, "gas-powered vehicles are three to five times more expensive to drive per mile than EVs," the study said.

Given gasoline prices are reaching record levels, ZETA made the case that EV purchases make more sense. On 19 May, trade group AAA reported that the US average price of gasoline reached $4.58 per gallon as a result of increased demand and lower stocks.

The US Energy Information Administration said total domestic gasoline stocks decreased by 4.8 million barrels in the week that ended 13 May to 220.2 million barrels, while gasoline demand increased from 8.7 million b/d to 9 million b/d.

Tax credits for consumers

EV adoption would increase even further, ZETA said, if Congress enacts strong tax credits that reduce the sticker price of such vehicles.

Speaking 18 May at Politico's second annual sustainability summit, Fast-Tracking a Sustainable Future, US Senator Debbie Stabenow, Democrat-Michigan, agreed that more tax credits are need for consumers as well as manufacturers of EVs and batteries to get more people into EVs.

Stabenow said she was involved in creating consumer tax credits in 2009, where each auto company can offer tax credits to purchasers of 200,000 plug-in EVs.

Currently, the US Internal Revenue Service offers a tax credit of up to $7,500 for a plug-in vehicle purchase that can be claimed when taxes are filed.

"GM and Tesla have hit that credit and Ford is not too far off and we need to extend that," said Stabenow who represents a state that is home to major US automakers including Ford and GM.

Besides, she said, "we have to find a way for this tax credit to be taken at the point of sale rather than when you file taxes."

ZETA backs the lifting of the tax credit cap and applying the tax credit at the point of sale as one approach for incentivizing consumers to buy more EVs.

At the same summit, ZETA Executive Director Joe Britton said: "We need strong consumer incentives to give certainty to our domestic supply chain, win a clean transportation future, and create good-paying jobs."

Posted 20 May 2022 by Amena Saiyid, Senior Climate and Energy Research Analyst

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.


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