Americans are buying electric cars at a record pace, unfazed by rising prices and long delivery waits, further evidence that the twilight of the internal combustion engine is on the horizon.
Battery-powered vehicles accounted for 5.6 percent of new car sales between April and June, still a small share of the market but double the amount from a year ago, according to consulting firm Cox Automotive. Overall, new car sales fell by 20 percent.
Companies like Tesla, Ford Motor and Volkswagen could deliver more electric cars if they could build them faster. Automakers have struggled with shortages of semiconductors, which are even more important for electric vehicles than gasoline-powered cars, while prices for lithium and other raw materials needed for batteries have soared.
“The transformation is real,” said John Lawler, chief financial officer of Ford, which sold 15,300 electric vehicles between April and June, up 140 percent from a year earlier. “The demand for electric vehicles far exceeds what we can offer.”
At the same time, the popularity of electric cars has caught the industry by surprise and revealed flaws that could slow down the transition to battery power, which is seen as essential to curbing climate change.
One lesson for Ford and other automakers is that the transition to electric vehicles will require them to fundamentally overhaul their factories and supply chains. To make the transition, they have begun underwriting advanced battery manufacturers, for example, and are working directly with mining companies to secure scarce raw materials. Ford plans to build a $5.6 billion facility near Memphis to produce electric vehicles.
Automakers and suppliers have announced plans to invest more than $500 billion globally by 2026 to modernize their factory networks and supply chains, according to consulting firm AlixPartners. But it will take several years for production capacity to meet demand.
The lack of public chargers is another hurdle, especially for apartment dwellers who don’t have garages or private driveways to plug into. Numerous companies are competing to build the networks, and the Biden administration is providing funding, but they are struggling to catch up.
“The market is ahead of charging networks,” said Kathy Zoe, chief executive of EVgo, which operates more than 850 fast-charging stations in the United States.
Electric vehicles remain much more expensive than their gasoline counterparts and out of reach for many buyers, even when fuel economy is factored in. The average price of an electric car in the United States is about $66,000, compared to $46,000 for all new cars. . One reason is the cost of batteries, which have risen in price due to a shortage of raw materials after falling for many years.
“To get to 15 percent of the market, or 25 percent, or 50 percent, we’re going to have to address a much broader segment of the market,” said John Bozzella, president of the industry group Alliance for Automotive Innovation. . “That’s a problem for me.”
While electric vehicle sales are growing rapidly in the United States, Europe and China remain far behind. Battery-powered cars account for more than 10 percent of new cars sold in Europe and about 20 percent in China. Government quotas and subsidies play a big role, but there is also a greater choice of inexpensive models.
Government policy also plays a large role in the United States. California requires manufacturers to sell a certain number of zero-emission vehicles, and its residents drive nearly 40 percent of electric vehicles on United States roads. But the Biden administration’s efforts to promote electric cars across the country, offering tax credits of up to $12,500 to electric car buyers, for example, have run into stiff opposition in Congress.
Sales in the United States will pick up as battery-powered cars become more common, said Felipe Smolka, a partner at consulting firm EY who tracks the electric car market. He said people would be reluctant to buy fossil-fueled cars because of fears they might become obsolete and lose resale value. Car manufacturers have largely stopped investing in internal combustion engine technology.
“The energy behind this transition is already at the point of no return,” Mr. Smolka said.
Not all car manufacturers are equally involved in the electric car boom. Among traditional automakers, there is a growing gap between those who have started selling cars that can compete with Tesla’s popular models and those who have not.
Major automakers such as Toyota, Honda and Stellantis, the maker of Jeep, Chrysler and Ram, are largely absent from the pure electric car market in the United States, although they have announced plans for battery-powered models. Toyota began selling the bZ4X battery-powered SUV this year, but recalled some of the vehicles in June due to the risk that the wheels could come off.
Getting to market early is no guarantee of success. The Nissan Leaf was one of the first electric cars to go into mass production, but sales of the model in the U.S. totaled just 3,300 units during the second quarter, down 30 percent from a year earlier. Nissan is replacing the Leaf with the Ariya, an electric SUV that will go on sale this fall.
General Motors, once considered the EV leader among traditional carmakers, was derailed last year by the recall of its electric Bolt. There was a risk that the batteries could catch fire. In the first quarter of 2022, GM sold less than 500 Bolts. Sales rebounded to 7,300 in the second quarter, but that’s still a 20 percent decline from the second quarter of 2021.
For companies with a line of electric vehicles, the ongoing technological transformation is an opportunity to raise their profile. Ford and South Korean automakers Hyundai and Kia, which are corporate siblings, were the most popular electric car brands in the United States this year, behind Tesla.
Tesla remains the company to beat, but it is showing signs of vulnerability. The company delivered more than 254,000 vehicles in the second quarter, down from 310,000 in the first quarter due to shutdowns and supply chain issues that affected its Shanghai plant.
Tesla’s second-quarter sales rose 26 percent from a year earlier, and the company said it produced more cars in June than at any time in its history, suggesting supply problems are easing.
Still, Tesla faces increasing competition in China, which has the world’s largest auto market. BYD, a Chinese automaker that also makes batteries, sold 70,000 pure electric vehicles worldwide in June alone. In Europe, Tesla trailed Volkswagen, Stellantis and Hyundai/Kia in electric car sales in the first five months of 2022, according to Schmidt Automotive Research in Berlin. (Tesla’s Model 3 and Model Y remain the most popular electric cars in Europe.)
Analysts at Bank of America said in a recent report that Tesla’s market leadership will erode as traditional automakers launch dozens of electric models. They predicted that Tesla’s share of global electric car sales would plummet to 11 percent by 2025, from 70 percent last year.
“Tesla’s dominance in this nascent market segment may be coming to an end,” Bank of America analysts said.