Key takeaways
Electric vehicle (EV) adoption hinges on accessibility and cost, as lower prices, more charging stations and longer driving capacities will attract more customers.
Government and business incentives, along with massive spending on charging infrastructure, have made EVs more affordable and spurred growth in their manufacturing and consumer markets.
Electric and hybrid vehicles will force major changes across oil and gas, as well as in automotive and technology supply chains.
The hybrid and electric vehicle manufacturing industry has rapidly evolved into one of the fastest-growing industries in the United States. This surge is fueled by unique disruptors, like robust government backing, favorable public perceptions and swift technological advancements, that have created fertile ground for both startups and established car manufacturers.
Hybrid vehicles, encompassing both hybrid electric and plug-in hybrids, dominate the market with nearly 70% revenue share, while traditional hybrids alone account for more than 50% of the market. Although electric vehicle sales exhibit strong growth and volatility, the sales trajectory of hybrid vehicles mirrors the steady, reliable expansion typically seen in well-established industries.
While Tesla set the stage for EV production as an electric-exclusive manufacturer, traditional combustion vehicle manufacturers have gained ground, leveraging existing relationships and infrastructures to enter hybrid and EV markets. In fact, Tesla’s share of the pure electric market was 55% in 2023, down 10% from 2022. Even so, the Model Y, Tesla’s new, more affordable product, accounted for more than 33% of all EV sales. This trend suggests lower-cost models will drive sales, though other automakers fear a race to the bottom as companies sell EVs for a loss to boost sales figures.
Are electric vehicles the answer to internal combustion engines?
Policymakers and EV startups have long touted electric vehicles as the successors of internal combustion engines (ICEs); however, range, accessibility and cost will remain major mitigating factors in adoption. According to the National Automobile Dealers Association, the total cost of ownership (TCO) of an EV is nearly $10,000 higher than an ICE vehicle. An average EV costs consumers $60,000; even after credits and subsidies, electric vehicles remain significantly more expensive than ICEs and hybrids.
Similarly, EV charging infrastructure has remained a major pain point for vehicle adoption. According to the US Department of Energy, California leads the way with more than 52,000 public and private charging stations, while New York, Texas and Florida have around 10,000 stations each. However, most stations in these states are level 1 or 2 “slow” stations, rather than “fast’ direct current chargers. The lengthy charging times offered by slow stations, coupled with limited battery capacities, have prevented more widespread EV adoption in most states.
The development of charging infrastructure has also faced roadblocks. Infrastructure is largely unavailable in lower-income regions. Charging can take hours, leading to long backlogs at working stations. The are nonfunctional, with unresponsive screens, payment failures and broken connectors. So, even as charging infrastructure expands, it remains inaccessible to most potential EV buyers.
Instead, the future may lie with plug-in hybrid (PHEV) and hybrid electric (HEV) vehicles. On average, slow chargers can charge of the time it takes to charge a fully electric vehicle. Moreover, hybrids are proven commodities, amassing solid sales growth since the turn of the century; these alternatives present strong options for risk and cost-averse consumers.
On the other hand, EV sales growth has slowed, causing major automakers to delay electrification plans. Ford reported a $4.7 billion loss on its EV segment, delaying the next generation of EVs until management can ensure profitability. The company has notably delayed deliveries of its US EV truck plant until 2026. Similarly, GM has pulled back on plans to build 400,000 EVs by 2024. GM has also discarded plans to collaborate with Honda on affordable EVs. Likewise, Mercedes Benz announced it deadline by 2025.
In general, manufacturers have struggled to break into new markets. Consumers who want EVs already have them, and automakers have struggled to garner interest from middle-class and lower-income households. Instead, hybrid vehicles, touting greater fuel economy at lower prices, have continued to dominate consumer markets. Similarly, Ford expects to quadruple hybrid sales over the next five years. Electric vehicles are coming, but manufacturers will need to adapt to the current speed of adoption.
How external factors impact the industry
Government policies are vital in shaping EV and hybrid markets. Federal, state and local governments have passed various policies to support EV buying and manufacturing. On the consumer side, tax credits and incentives have made plug-in hybrid and electric vehicle purchases more affordable without compromising dealer and manufacturer profit. Many regions have also offered tax credits for at-home charging installations.
Government agencies have also placed regulatory pressure on automakers and automotive supply chains. Increasingly strict Corporate Average Fuel Economy (CAFE) standards have forced popular automakers to reevaluate current fleets, often cutting the least fuel-efficient names in favor of electric alternatives. Most notably, Chevrolet, Ford and Dodge have altered or discontinued legacy muscle cars to meet standards.
The current administration has also taken a hard stance on EV adoption. As a part of President Biden’s Investing in America agenda, the Department of Energy has allocated more than $15.5 billion to retool existing factories into EV and battery production centers. Automakers can earn points based on domestic production, work environment and other factors. This agenda also includes an ambitious zero-emission vehicle (ZEV) sales target. However, cooling adoption rates and significant pushback from autoworkers and manufacturers have reduced expectations to 35% of new vehicle sales.
In general, adoption rates will hinge on consumer confidence, gas prices, inflation and available charging infrastructure. Stronger market conditions, highlighted by falling inflation expectations and rebounding consumer confidence, will encourage consumers to trade up to the traditionally more expensive EVs over the next decade. Buyers may increasingly value long-term fuel savings more than upfront costs, especially as rising tensions in Eastern Europe and the Middle East threaten oil supply chains.
Industry impact
The transition to electric vehicles (EVs) and hybrid models is reshaping the automotive industry and beyond, presenting a unique set of challenges and opportunities for various sectors. From energy and raw materials to manufacturing and retail, the ripple effects of the EV revolution are far-reaching. Understanding these dynamics is crucial for stakeholders across the spectrum, as they prepare to either capitalize on new prospects or brace for the impact of change.
Industries set to win:
Lithium Battery Manufacturers: With the surge in electric vehicle (EV) and hybrid production, the demand for lithium batteries has skyrocketed. These manufacturers stand at the forefront of the transition to green energy, benefiting from substantial investments from automakers. Their growth is fueled by advancements in battery technology, including increases in energy storage capacity and reductions in charging time, positioning them as central players in the future of transportation.
Keys to success:
- Prioritize Fast-Charging Technology: Pour resources into advancing the technology behind fast-charging lithium batteries, drastically cutting down the charging time for electric vehicles (EVs). Alleviating the primary concern of prolonged charging periods can position your company as a leader in the market, appealing to customers who value their time and convenience.
- Develop Battery Swapping Solutions: Investigate the potential of battery swapping technology, which permits EV drivers to replace their empty batteries with fully charged ones at designated stations. By creating standardized battery modules that are compatible with these swapping systems, your company can tap into new sources of revenue and establish strategic alliances with infrastructure providers.
Information and Technology Companies: The integration of advanced technologies such as head-up displays (HUD), advanced driver assistance systems (ADAS), and other innovative features in EVs has created a booming market for semiconductor, information and technology firms. These companies are collaborating with automakers to enhance the driving experience, making vehicles safer and more connected. Their expertise in software and hardware development is crucial for the next generation of smart vehicles.
Keys to Success:
- Engaging with Automotive OEMs: Establish key partnerships with automotive original equipment manufacturers (OEMs) to jointly create tailored technology solutions for electric vehicle (EV) platforms. These partnerships should aim at embedding advanced features like autonomous driving capabilities (ADAs) and sophisticated infotainment systems into EVs, thereby augmenting safety and enhancing the overall user experience.
- Cybersecurity Measures for Connected Vehicles: Craft comprehensive cybersecurity strategies to shield connected EVs from cyber threats, preserving the security and privacy of data exchanged within the vehicle and with external networks. Implementing thorough cybersecurity protocols not only builds trust in your technological solutions but also reduces the risks posed by potential cyberattacks.
Industries set to lose:
Combustion Engine Manufacturers: The shift toward EVs and hybrid vehicles represents a significant threat to companies specializing in combustion engines. As the automotive industry evolves, the demand for traditional engines is decreasing, leaving these manufacturers facing a potential decline. The challenge is accentuated by the industry’s pivot toward investing in electric propulsion technologies, diminishing the relevance of internal combustion engine expertise.
Keys to success:
- Advancing Lightweight Material Technology: Prioritize the research and development of advanced lightweight materials to enhance the power-to-weight ratio of combustion engines. By reducing engine weight, we can achieve better fuel efficiency and performance, positioning these engines as more attractive options in an industry prioritizing lower environmental impact and operational costs.
- Emissions Control Systems: Develop innovative emissions control technologies to comply with strict regulatory standards and mitigate environmental impacts of combustion engines. Enhance exhaust after-treatment solutions, including selective catalytic reduction (SCR) systems and particulate filters, alongside advanced combustion techniques, to reduce emissions and meet emissions regulations effectively.
Automobile Parts Manufacturers: Electric vehicles have fundamentally different requirements compared to their gasoline-powered counterparts, which impacts manufacturers of parts like spark plugs, radiators and exhaust systems. With EVs employing fewer moving parts and systems like regenerative braking, many traditional components become obsolete. This shift necessitates a significant adaptation for parts manufacturers, who must innovate or diversify to survive in a market increasingly dominated by electric propulsion.
Keys to success:
- Expansion into Electric Vehicle (EV) Components: Consider broadening your product range to include components tailor-made for electric vehicles. Concentrate on manufacturing essential parts like electric motors, battery packs, power electronics and charging infrastructure, all of which are crucial for the functionality and efficiency of EVs.
- Focusing on Energy Storage Technologies: Position yourself as a leader in energy storage technology by specializing in the production of lithium-ion batteries, ultracapacitors and fuel cells. Build expertise in critical areas such as battery cell production, battery management systems and thermal management solutions to meet the increasing demand for energy storage across both electric vehicles and stationary applications.
Final thoughts
Electric and hybrid vehicles have a clear path to overtaking internal combustion engine vehicles over the next decade, especially as government policies reward automakers on the leading-edge of EV innovation and early adopters in consumer and commercial markets. Regardless, charging availability, EV affordability and driving ranges will remain limiting factors for this product’s proliferation.
Many companies will prioritize hybrids as a profitable, eco-friendly middle-ground between EVs and ICEs while developing cost-effective electric vehicles. Companies must partner with key suppliers and innovators to capture consumer demand in this rapidly expanding market and curb the industry’s extensive volatility. Savvy financial positioning, cultivating strong reputations and activity in M&A markets will be crucial to success.
Source from IBISWorld
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