Although U.S. sales of electric vehicles (EVs) have grown as total industry sales have expended over the past few years, they still remain a tiny sliver of the market, at less than 5 percent. It’s not for a lack of trying on the part of carmakers. They unleash more new plug-in and hybrid models every year, and this is a trend that’s bound to increase in the next decade or two, despite flat EV sales growth.
Making more of something with limited demand seems counterintuitive for an industry desperate to turn a profit. As with the historic U.S. response to soccer, EVs simply haven’t caught on here. Why would automakers continue to turn out more of something selling in such relatively small numbers? Sure, federal fuel economy regulations play a role in motivating carmakers to develop and market high-mileage electric vehicles, but there are other influences at play.
If it were up to just the United States, there wouldn’t much of a soccer-ball industry. Yes, the popularity of soccer has been steadily increasing over the past 20 years, but it has been slow. But, fortunately for soccer-ball producers, the rest of the world has a different view of the game, and a vastly greater acceptance of it. The same can be said for EVs. Like soccer balls, EV sales are global.
China Now the Big Dog
China has surpassed the U.S. as the world’s largest and most influential car market. With 28 million new-car sales last year, China beat U.S. sales by more than 10 million units, and they’re just getting started. Estimates peg China’s annual auto production at around 30 million units by 2020 and 35 million by 2025. Many experts believe U.S. new-car sales will be flat or maybe even in decline by then.
China is all-in for EVs. An April story in Forbes predicted the sales of NEVs (alternative-fuel vehicles including EVs, hybrids and fuel-cell vehicles) to reach 4 million units by 2020. By 2025, NEVs will account for 30 percent of market share in China.
You know who’s building and selling cars in China? Ford, GM and FCA (Fiat Chrysler Automobiles).
India Is Charging
India isn’t quite there yet, but most industry watchers expect it to soon elbow its way into the third largest new-car market position. Earlier this year, India’s energy minister released plans that call for every car sold in that country to be electric-powered by 2030. With a pollution problem that’s killing more people than are being killed by pollution in China, India is desperate to do whatever it takes to scrub the air.
Dollars and Sense
Carmakers are doing everything they can to take advantage of the economy of scale — that is, lowering the cost of a component by using it on more units. To make a buck in the auto industry today requires globalizing as much as possible. Whether it’s a platform, drivetrain or widget, using it in as many applications as possible saves money and increases profits.
As other markets demand electric vehicles, auto manufacturers will respond by creating more of them. The end result will be a relentless conversion from gasoline-fueled vehicles to EVs in U.S. showrooms. It’s inevitable.
What it means to you: It won’t happen overnight, but more EVs are coming. To stay profitable, carmakers will have to appeal to the markets in China, India and Europe. That means more electric.