Vehicle Electrification in the U.S

Thoughts on Vehicle Electrification in the U.S.

Brian Daugherty

Chief Technology Officer, MEMA 248.430.5966 │ bdaugherty@mema.org

We are well aware of the media hype surrounding the future of electrified vehicle sales and the more than $300B being invested globally by vehicle OEMs on battery electric technology and vehicle launches over the next several years. However, last year only 2.5% of new vehicles registered in the U.S. were gasoline/electric hybrids and only 1.8% were full battery electric vehicles (BEVs). More than 252,000 BEVs were registered in the U.S. in 2020 – up from 227,161 in 2019 – and Tesla models accounted for close to 80% of them. This is a slight, yet somewhat impressive, increase in Tesla’s U.S. BEV market dominance from 2019 since it is hard to maintain an 80% market share selling anything for very long.

In the U.S., we expect to see 125+ BEV models on the market within the next several years with some projections of 140 models in 2025. Consumers will soon have many more purchase options – everything from full-size trucks and large SUVs to compact cars. As the competition heats up, the BEV market will continue to grow, and Tesla’s share of the market will naturally decrease. I still expect the BEV market to grow much slower than many in the media predict for a wide range of reasons including cost, consumer acceptance, lack of OEM battery capacity, the pains of planning charging, and range anxiety. Did I mention cost? Many of the new U.S. BEVs are targeting the $50K and up market, but it is very unclear how large that market can be. And it will be very interesting to see how many $100K+ BEVs will be sold, but I am betting on not that many. The availability of lower priced BEVs will continue to increase as more mass-market vehicles are available, but whether OEMs can make any money is still a big question.

Like any vehicle segment, we will see winners and losers among the many U.S. BEV models. However, the losers may lose a lot. If you take 125 to 140 models and subtract the estimated Tesla share of the annual U.S. BEV sales volume (I assumed a reduced 40% share for Tesla in 2025), you end up with an estimated average of 4000 to 7000 units per year for the others depending on the year. After you also subtract out the non-Tesla models with sales over 40,000 units, you have some exceptionally low annual average sales numbers for the remaining models.

Everyone is playing to win, but the opposite is more likely for most BEV models. In the past, many suppliers did not care which engine option was chosen since their parts were on all models regardless of powertrain. But most of these BEV models are on their own dedicated platforms, which means all suppliers will be affected if volumes differ significantly from OEM contract forecasts. This means everything from doorhandles to roof liners, but especially the Class A surface part suppliers that are not supplying multiple models.

One of the other narratives in the media is that BEV sales are growing slowly due to lack of available highway DC fast charging capacity. So, if we just build more DC fast chargers, will everyone buy BEVs? In most areas of the country, charging stations are rarely full – except during holiday travel – so where are the constraints? Also, well over 80% of vehicle charging occurs at home and most of the remainder occurs at or near work. It also costs up to 3 or 4 times more for a vehicle

to charge at a DC fast charger which – along with convenience – is the reason BEV owners charge at home. Even with the higher charging prices, it is difficult to pay back the capital cost of the DC charging station unless it is used constantly.

I believe the main reason for slow sales growth is that a BEV still costs a consumer an additional $15K or more than an equivalent internal combustion engine (ICE) vehicle, and it requires a change in “vehicle lifestyle.” Given these two factors, U.S. consumers may remain reluctant to make the switch. No matter what happens, we will see a dramatic increase in U.S. stop-start and hybrid vehicles sales as OEMs work to meet increasing fuel economy standards.

A Slow Transition

Another interesting aspect is that the electrification transition is going to take quite some time. The U.S. has over 260 million – and some estimates are as high as 290 million – vehicles in operation. The average age of a vehicle on our roads is approaching 12 years which means that most vehicles will be on the road for 25 years or more. As an aside, many articles confuse average vehicle age with vehicle lifespan and they are obviously very different, yet this leads some pundits to predict a faster transition. Given this longevity – which continues to gradually increase as vehicles are better designed and manufactured – we will have internal combustion engine powered vehicles in the car parc for a very long time. Pick your own number, but even if BEVs account for 20% or more of the overall vehicles sold in the U.S. within a decade, the transition in the car parc will be gradual given that there are so many ICE vehicles already in operation.

If you would like to discuss this or any other vehicle technology topic, please contact me. I would be happy to hear your thoughts. Please also consider having the top technology executive from your company join our OESA Advanced Technology Council (see page 14 for details).

Contact Brian Daugherty at bdaugherty@mema.org to learn more about new vehicle technology trends and its impact on the industry. Also learn about the quarterly Mobility Supplier Forums held in Silicon Valley and the OESA Advanced Technology Council. Both are designed to keep industry stakeholders informed of new vehicle technology.