Federal policy and pandemic shape US electric vehicle outlook

The novel coronavirus has had a big impact on the EV segment, but the outlook also hinges on the results of November's presidential elections. By Ian C Graig

The coronavirus is having a major impact on virtually every aspect of the US economy, and the market for electric vehicles (EVs) is no exception. EV sales, like overall vehicle sales, fell sharply in the spring of 2020 as the economy contracted and consumers and companies cut back on spending. While the broader economy and the automotive market have rebounded some during the summer and autumn, passenger vehicle sales, including sales of EVs, will be down for the year. Looking beyond 2020, most analysts believe the long-term US outlook for EVs remains bright due to advances in EV batteries, the availability of a growing number of EV models, and increased investments in EV charging infrastructure. The pace of growth in the US EV market will also be affected by federal government policy, which will depend in part on the outcome of the November presidential and Congressional elections.

Automotive World Magazine – October 2020

A sudden downturn

North American passenger vehicle sales were down almost 35% year-on-year through the first half of 2020—and the decline in sales of EVs was even larger. EV sales to personal customers slumped as buyers were hesitant to buy models whose price tags are generally higher than their non-electric competitors. Automotive fleets that were starting to boost EV investments before the coronavirus delayed new EV orders as revenues fell due to the pandemic. The situation in the US is thus very different from that in Europe, where sales of battery-powered vehicles rose during the first half of 2020, driven by tough European emissions targets and EV mandates.

The decline in EV sales in the US is partly attributable to trends in California, the key US market for the segment. On 19 March, California became the first state in the nation to issue a statewide stay-at-home order in response to the coronavirus, and 34% of California dealerships reported as of early April that sales had declined 80%-100%. EV sales in California had been strong in the first quarter but dropped by about 45% year-on-year during the second, according to estimates by the California Energy Commission.

The pace of growth in the US EV market will also be affected by federal government policy, which will depend in part on the outcome of the November presidential and Congressional elections

Another challenge facing EVs in the US is low gasoline prices: the Energy Information Administration (EIA) reports that, while the national average price of regular gasoline was US$2.60 per gallon at the start of 2020, it had fallen to US$1.81 in late April and today is US$2.18. The same pattern is seen in California, where a gallon of regular gasoline cost over US$4.00 at the start of the year, fell to US$2.65 in late April, and today is US$3.10. The EIA projects the national average price of gasoline will decline to US$2.03 per gallon in December and average US$2.28 in 2021–well below pre-pandemic prices.

Low gasoline gas prices are lessening one of the big appeals of an EV: a lower cost of ownership due to lower fuel costs. The impact may be largest on plug-in hybrids, where fuel-cost savings are a major driver of demand, and less on battery-electric EVs, where the purchase decision is driven as much by other factors (advanced technology features, environmental concerns, etc.). But low gasoline prices will slow a shift toward EVs in the US.

EV boosters point to the one potential benefit of reduced vehicle emissions due to the coronavirus: a dramatic improvement in air quality and increase in clear skies in cities like Los Angeles and New York, which can serve as a reminder of the environmental and health benefits of reducing vehicle emissions. This side effect of the pandemic is fuelling interest in cleaner transportation alternatives, though use of mass transit (an important market for EVs) has fallen sharply this year.

The market for EV charging infrastructure has been less affected by the coronavirus and the economic downturn. Charging station operators reported sharp declines in the amount of time customers were using their stations during the spring, but there has been a rebound in activity as driving increased. On a side note, most EV chargers in the US are located in parking lots of restaurants, hotels, offices, etc.

The coronavirus seemingly has not eroded the commitment of key states to further development of charging infrastructure, which remains relatively undeveloped in the US. Construction of new charging stations that was temporarily on hold early in the pandemic has resumed. Charging infrastructure projects are also largely funded through longer-term contracts by governments, automakers, power utilities, and electrical equipment companies–though state budgetary pressures due to the coronavirus could cause funding issues in the future.

Charging station operators reported sharp declines in the amount of time customers were using their stations during the spring

How fast a rebound?

While forecasters see a rebound in the global EV market in late 2020 and 2021, the rebound will clearly be strongest in Europe and China. The rebound in the US market will likely be less pronounced, though US EV sales could get a boost from the introduction of new models by Tesla, Ford, and General Motors, potentially including several electric versions of popular pick-ups. Delays in EV purchases in the US could build demand for EVs in future years, particularly since it gives automakers more time to introduce new models.

Even with these new models, the US will lag other EV markets over the near term due to consumer preferences and lower fuel prices but also due to government policy. The Trump administration has eased fuel economy and greenhouse gas (GHG) emissions standards for light vehicles and is trying to overturn California’s zero-emission vehicle (ZEV) mandate, which helps drive EV sales in California and the dozen other states that follow its vehicle emissions rules. As a result of the administration’s actions, which face fierce court challenges from states and environmental groups, automakers in the US are under less pressure to boost EV sales and meet stringent emissions standards than in other markets.

EV advocates have called on Congress to take steps to boost federal incentives to stimulate EV demand. Most notably, they have called on lawmakers to expand the US$7,500 federal tax credit by raising a cap that currently prevents buyers from the two largest US producers, Tesla and General Motors, from qualifying for the credit. The Trump administration and many Congressional Republicans have opposed any such changes and managed to block past efforts to expand the availability of the EV tax credit, but Democrats vow to keep trying.

California also gives rebates to consumers for buying EVs, and the state is considering alternative incentives like ‘fee-bates’ to drive ZEV sales. Any new ZEV programme enacted by California, or an extension of the current programme, would require a new waiver from the Environmental Protection Agency, which California likely would not receive from the Trump administration–but could receive if a Democrat is elected president in November. California this week announced that it would adopt policies to ensure that all in-state sales of new passenger vehicles would be zero-emission by 2035.

The Trump administration has eased fuel economy and greenhouse gas (GHG) emissions standards for light vehicles and is trying to overturn California’s zero-emission vehicle (ZEV) mandate

EV advocates also want Congress to expand funding for EV charging infrastructure through either coronavirus-relief or infrastructure legislation. The Senate and House have both considered proposals for funding a nationwide EV charging network, as well as proposals for a new EV charging infrastructure loan programme, policies to encourage electrification of corporate fleets, and extension of a credit for installing EV chargers that is due to expire at the end of this year. California, Oregon, and Washington are also collaborating on building EV-charging corridors, a regional policy being considered by states on the East Coast as well.

The outlook for future actions on these and other issues with a direct impact on the EV market will clearly be affected by the outcome of this year’s presidential and Congressional elections. The Democratic presidential nominee, Joe Biden, has proposed a major increase in federal support for vehicle electrification, including investments in charging infrastructure, electrification of the nation’s fleets of transit and school buses, customer purchase incentives, and greater federal investment in R&D related to ‘clean’ automotive technologies. Biden has also vowed to propose new stringent GHG emissions standards for vehicles. While President Trump has not offered a detailed policy agenda for his second term, the policies proposed by Biden differ significantly from those implemented by President Trump during his first term.

Like markets around the world, the EV market in the US seems destined to grow in the coming years even though the speed of growth has been slowed by the coronavirus. Looking ahead, growth in the EV market in the US will be driven by fuel prices, improvements in batteries and other key EV technologies, the availability of more and lower priced EV models, and the rate of recovery from the current economic downturn. But federal government policy will also have impact on the pace of growth in the US EV market, at least until EVs no longer need government incentives to achieve price parity with non-electric vehicles. The near-term outlook for the EV market in the US will be thus also be affected by the outcome of this November’s elections, which could help determine whether the federal government expands the types of incentives that are helping to boost EV demand in Europe and elsewhere.

About the author: Ian C. Graig, Chief Executive of the Washington-based policy research consultancy Global Policy Group, has written for Automotive World on a wide variety of US public policy trends and their implications for the automotive industry