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Four key factors to watch
The US electric vehicle (EV) market surged from a 1.8% penetration rate in 2020 to 7.2% in 2023. While sales have trended upward, EV penetration varies widely by state. Zero Emission Vehicle (ZEV) states, led by California, are spearheading the move to electrification. PwC analysis based on data from the California Energy Commission and S&P Global Mobility recorded an overall 13% adoption rate in 2023 (compared to 21% in California and 5% in non-ZEV states).
But can this momentum be maintained, especially given the forthcoming stricter California Air Resource Board (CARB) and EPA regulatory requirements? The first quarter of 2024 saw the first quarterly sequential decline since COVID-19, casting a shadow on the market’s trajectory. And despite an increase in EV shipments in Q2 2024, overall US EV penetration has remained flat at around 7–8% since Q3 2023 according to PwC’s Electric Vehicle Sales Review, marking four consecutive quarters of little to no growth.
The pressing concerns for original equipment manufacturers (OEMs), auto suppliers, charging infrastructure companies and private equity groups are if the EV market will accelerate or decelerate in the coming years. What if customer demand doesn’t keep pace with the regulatory requirements for EV adoption federal and state governments establish? Despite EV-internal combustion engine (ICE) total cost of ownership parity in certain segments (with government incentives in certain states), the slowdown in adoption suggests that other factors are at play. Let’s clear the air by focusing on four key drivers of EV adoption.
Driving the future of EV adoption
1. Vehicle pricing and model availability
The high upfront cost is a major barrier to EV adoption. The average car sold in the US costs 25%–30% less than the average EV. Luxury EVs have a 31% market penetration, compared to just 3% for non-premium EVs, based on PwC's analysis of S&P Global Mobility data.
These high prices deter many buyers. Around 45% of US demand is for vehicles priced below $45,000, but only 14% of EV models fall within this range. In contrast, 32% of EV models are priced at $80,000 or higher, even though this price range represents less than 5% of demand.
This aligns with PwC's 2024 eReadiness study that reveals 60% of prospective EV buyers in North America are unwilling to spend more than $45,000 on an EV.
Although recent EV price reductions by OEMs have helped narrow the price gap between EVs and ICE vehicles, these cuts come at a cost: EVs’ residual values have depreciated two to three times faster than those of ICE vehicles. This accelerated depreciation can lead to consumer hesitation and slow new EV sales.
At the same time, weakening EV demand over the last two years is contributing to a reduction in lithium-Ion battery prices. Historically, cell prices have fallen due to advances in technology and scaling. In 2023, the decline was driven primarily by increased production capacity, spurred by earlier electrification trends and lower-than-expected global EV demand. The adoption of cheaper lithium iron phosphate (LFP) batteries, especially in segments where their added weight is not a major issue, along with ongoing technological innovations, is expected to further reduce battery prices in the coming years.
Since the battery pack is one of the largest cost components of an EV, falling battery prices should enable OEMs to introduce more affordable models that cater to mass-market customers.
2. Charging infrastructure
PwC's 2024 eReadiness study highlights the lack of public charging infrastructure and long recharge times as major barriers to EV adoption. The limited number of chargers leads to long charging times and limited vehicle range. Only 34% of prospective EV buyers are willing to wait more than 30 minutes for a charge. This is a critical consideration for EV stakeholders because ICE vehicles can be refueled almost anywhere in less than five minutes.
PwC's proprietary model, which factors in a variety of inputs including average EV battery size, city and highway battery range efficiencies and population driving patterns, predicts a need for more than 130,000 public high-speed chargers by 2030 to support a 35% EV sales penetration rate. This is a significant increase from the 37,000 chargers in service as of 2023.
The cost of deploying such a network is substantial — a four-stall 150kW DC fast-charging site can cost around $250,000 to $300,000 in charger unit costs alone, with an additional $50,000 to $100,000 for installation. Additionally, upgrading site grid capacity involves working with local utilities, installing transformers and other make-ready equipment that adds complexity and delays to the infrastructure rollout process.
OEMs recognize this need for expanding the charging network and are adopting a multi-pronged EV infrastructure strategy. This includes strategic investments in direct current (DC) charging networks, OEMs working with charging operators to offer EV charging credit programs and OEMs establishing fully owned charging networks themselves. OEMs are also uniting in adopting North American Charging Standard (NACS), enabling them to collaborate and leverage charging networks across multiple charge point operators.
3. Regulatory environment
Regulations play a crucial role in shaping the economics of EV adoption, including factors such as fuel economy standards, EV incentives and ICE bans. The Inflation Reduction Act (IRA) is a prime example, offering tax credits for EV purchases. New federal greenhouse gas and CO2 emissions standards suggest that OEMs can potentially meet regulations with an EV sales penetration of between 31% and 44% by 2030, depending on the use of hybrids and plug-in hybrids for compliance. Also, state-level requirements, such as the CARB’s ZEV program, which 16 states follow, accounting for about one-third of US light vehicle sales, significantly impact electrification in the US.
Major changes are coming to CARBs ZEV program under the recently adopted Advanced Clean Cars II (ACC II) requirements, which go into effect in 2026 and sharply increase ZEV sale requirements for OEMs. Other major changes in ACC II include the reduction of OEM-banked credits, an increase in monetary penalties for non-compliance (up to $20k per missed ZEV value), allowance of pooling of California credits across ZEV states and closer alignment ZEV credit generation to actual ZEV sales.
To meet these stringent emission requirements and avoid monetary penalties, OEMs must bring EVs in the right segments desirable by mass-market customers. If not, OEMs will have to rely on other alternatives that include using their bank of EV credits (until the credits are exhausted), provide incentives to customers or limit sale of ICE vehicles if the penalties are prohibitive.
4. Doubts about new technology
PwC’s 2024 eReadiness study of current EV owners and prospective EV buyers highlights several factors limiting the widespread adoption of electric vehicles. One significant issue is range anxiety, with more than 40% of current EV owners in North America considering a switch back to ICE powertrains due to this concern. Other concerns factoring into their decisions are higher-than-expected maintenance costs, a driving experience that doesn’t meet expectations and battery life.
Almost half of EV owners reported a reduction in battery duration within the first three years of ownership, with two-thirds indicating that the battery's state of health ranged between 75% and 90% during this period. Reduced battery capacity, fear of unknown damage to the EV powertrain and lack of battery certification were cited as top reasons for not buying a used EV, highlighting the uncertainty surrounding this new technology.
Prospective EV buyers share similar concerns. Uncertainty about battery lifetime, residual values, and costs, in addition to challenges related to charging and overall cost, are major deterrents for those considering the purchase of an electric vehicle.
Leading the charge: Strategic actions for EV market leadership by 2030
Based on the current state of the above key factors, we estimate EV sales penetration in the US will reach 30% to 35% by 2030. To make EVs a winning proposition for all parties involved, industry players should take proactive steps. Here are some strategies for automotive industry C-suite and other stakeholders to consider.
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