Car Buying – Electric Vehicles and SUVs Compete for Manufacturer Attention
You wouldn’t think that auto manufacturers would focus on electric vehicles and SUVs simultaneously. After all, it seems like they couldn’t possibly be on trend at the same time. One uses no fuel at all, the other is a gas-guzzler. One has a small footprint, the other most definitely doesn’t.
The truth is that carmakers aren’t entirely sure what the market will do in the next few years, so they’re hedging their bets.
Buying Electric Vehicles vs SUVs – The Controversial Subsidy
The IRS currently offers a subsidy of up to $7,500 for new electric vehicles made by manufacturers who have sold fewer than 200,000 plug-in models. Right now, only General Motors (GM) and Tesla have hit that benchmark, but Toyota and Nissan are likely to hit it by 2021.
Unfortunately, by the time that happens, there may be no subsidy left to expire. In December 2018, the current presidential administration announced that it would be ending this and other renewable energy subsidies. There’s no timeline or official plan in place yet, though, because the White House can’t end the subsidy without the approval of Congress.
Attempts to Save the Subsidy
One senator, Dean Heller of Nevada, has proposed an extension that would last until a full phaseout in 2022. Many automakers would prefer it if the electric vehicle tax credit continued full stop since it would give the EV industry the boost it needs to grow. As it is, EV battery systems still drive prices up and the charging network for EVs isn’t quite where it needs to be.
Environmentalists are also on board with automotive makers incentivizing the EV over the SUV.
Passenger cars make up a large part of a category known as light-duty vehicles, which produce 60 percent of all greenhouse gas emissions in the transportation sector. That’s more than aircraft and medium- to heavy-duty trucks combined.
The Case for Electrification
The vast majority of today’s cars burn fossil fuel, which will always produce carbon emissions. Electricity, by contrast, can be produced completely cleanly with zero carbon. With investment in research, it is possible for engineers to determine a blend of sources that can do it.
Also, once we connect cars to the electrical grid, every advancement made on that grid will make cars cleaner by increasing the efficiency of the network that powers it. That’s right – an electric car can get more efficient over the course of its lifetime. It’s possible, but it requires governments to invest in electrifying transport and other high-emissions industries.
More Challenging Legislation
Meanwhile, the administration has also recommended the freezing of fuel efficiency standards after the 2020 model year. Not only is this likely to increase fuel consumption by 2 to 3 percent and increase emissions, putting public health at risk; it is also going to make it less lucrative for carmakers to invest in electric technologies.
And then there’s the United States-Mexico-Canada agreement. This proposed replacement for the North American Free Trade Agreement, or NAFTA, will impose vehicle tariffs on cars that don’t meet a minimum for US-produced parts. That could make any car on the market more expensive than it is now, but the impact could be worse on EVs.
Today’s EVs run on lithium-ion batteries, and 90 percent of lithium is produced in South America and Australia and then processed in China. All of that international travel would incur huge tariff costs, which would then be passed on to customers.
What Carmakers Are Doing
Investing in EV Growth
Even with all of the threats to the EV market, manufacturers haven’t stopped investing in them. In October of 2018, the auto industry celebrated the millionth plug-in car sold worldwide. The Edison Electric Institute and the Institute for Electric Innovation, the next million will hit the road by 2021 and that more than 18 million will be up and running by 2030.
Manufacturers at all price points are jumping on the bandwagon. There are 13 automakers, including Hyundai and Honda, set to hit the 200,000 benchmark some time in the 2020s. And higher-end makers like Porsche, Volkswagen, Audi, and Mercedes-Benz are developing all-electric vehicles that will be on the market by 2025.
Meeting Consumer Demand
Carmakers also know that car buyers are still opting for larger cars. In 2017, two-thirds of all cars sold were SUVs and trucks – the biggest gas consumers out there.
And then there are the crossovers, the latest trend in high-end cars. So-called because they’re a blend of an SUV and a sedan, they made up 56 percent of all luxury vehicle sales in 2017. These high-end cars can stand up to the kind of price hikes that happen when you manufacture more cars and parts in the US. That means that more are coming off of luxury assembly lines.
Lower gas prices are also making it possible for drivers to keep buying bigger cars. January 2019 began with a national average gas price of $2.24 per gallon, the lowest national average in three years.
Beyond Our Borders
The US can’t make up its mind, but the world definitely can. China is leading the pack with a larger market for EVs than the US and Europe combined. Much of this growth is a direct result of government subsidies and benefits, including nationwide perks for cars with electric vehicle plates.
The market for EVs in Europe has grown as well. Germany and Norway are doing the best, the former having doubled its EV market from 2016 to 2017.
The US is still close to the bottom of the adoption scale, just ahead of South Korea and India. Of course, it is possible that if investment in EVs continues to grow, we could start to catch up. Meanwhile, carmakers will continue to serve both markets.