Electric Vehicles May be Inevitable, but Policy and Pace Matter

The global shift to electric vehicles is in high gear, but it remains uncertain whether the US will reap the benefits of being a global leader in this transition. Putting the brakes on progress now would put hundreds of billions of dollars and hundreds of thousands of jobs across the US at risk, and it would allow foreign manufacturers to gain a competitive edge over the US auto industry. Scaling back deployment of electric vehicles (EVs) would also undermine efforts to limit climate change.

Our recent research demonstrates that the US EV market has not quite reached a self-sustaining level, where EV adoption accelerates without government policies and incentives, thereby replacing the market for internal combustion engine vehicles (ICEVs). For EVs to reach such mass market adoption, the proportion of on-road vehicles (not new sales, a common misconception) must reach about 16%. We are currently at about 2%. In order for the US to reach this important threshold in a timely manner, policy matters.

Reaching Mass Market Adoption

The automobile, cell phone, digital camera, and computer were all once new technologies that many expected to fail in replacing their incumbents. Initially, each faced significant deficiencies–often called “early market issues”–and individuals and companies were skeptical that they could ever displace the dominant technologies of the time. However, all of them eventually reached a critical mass where their adoption became self-sustaining. They not only replaced incumbent technologies but became so widespread that their early struggles are often forgotten.

In 1903, Henry Ford’s lawyer was famously advised, “The horse is here to stay, but the automobile is only a novelty—a fad,” and discouraged him from investing in the Ford Motor Company. Just 11 years later, 50% of vehicle sales were automobiles, and within another decade, nearly 100% of passenger vehicle sales were automobiles. This rate of adoption is comparable to the growth of EVs in many regions. For example, California may go from 1% of new vehicle sales to 50% in approximately 16 years, while Norway achieved the same milestone in just 8 years. Despite this rapid growth, skepticism about the future of EVs persists.

This skepticism may stem from EVs being in a similar place to where those past technologies once were. First, they are experiencing early market issues, including some that ITS-Davis researchers have identified and are exploring solutions to, such as unreliable charging stations and consumers switching from EVs back to ICEVs. Second, many automakers do not see EVs as profitable yet. Also, since they haven’t yet become the social norm for personal transportation, the population that owns an EV is limited, and prospective EV buyers may not know other owners they could talk to about EVs. Finally, true demand may be hard to detect in an early market.

As with other new technologies, however, there are signs that EVs are on the right track to achieve a self-sustaining level of adoption. Despite early-market skepticism, there are indicators that the EV market in the US and globally is growing and will continue to grow. Network effects are driving adoption in some local clusters; Norway and Iceland may have already reached a self-sustaining EV market; and sales continue to grow in most leading EV markets. The replacement of ICEVs by EVs appears inevitable; it is no longer a question of if, but, rather, when. Billions of dollars have been invested in EVs globally, their sales ratios are high in other markets (53% in China, 20% in the EU), and the sales of ICEVs peaked a few years ago, in the US and around the globe, while EV sales continue to grow.

Policy Matters

Thus far, policy has been essential to EV market growth, including consumer incentives and regulations on vehicle supply. And EV adoption will eventually reach a self-sustaining point, where consumers choose EVs over ICEVs without these policy interventions. But there is a societal incentive to kick EV adoption into overdrive. Unlike some past innovations, EVs are not merely a technological advancement. We need them, along with other changes such as grid decarbonization, to mitigate climate change. Also, there is an economic necessity to spur adoption: because so many other markets and companies are pursuing EVs, the US needs to continue investing in EV production and improvements to remain globally competitive. Indeed, several automakers recently published a letter asking the incoming Trump administration to maintain current tax incentives so that they can compete with other countries and regions that are prioritizing EV innovation.

Without supportive policies, US EV market growth would likely slow, climate change targets would become harder to meet, and some automakers would fall behind their international competitors and risk the same fate as Kodak, Blockbuster, and the over 10,000 companies that were involved in the production of horse drawn carriages.

Continuing or expanding current state and federal regulations and policies will help the US stay competitive and reap the climate and economic benefits of EVs. Specifically, we need to:

• maintain foundational federal greenhouse gas emissions standards and the historic federal allowance for states to implement their own EV sales regulations;
• continue providing incentives, especially the federal EV tax credit to encourage consumers to purchase EVs and support automakers in selling them.
• continue support of the growing EV industry in the US, through measures such as those in the Inflation Reduction Act that support EV and battery manufacturing;
• continue the National Electric Vehicle Infrastructure Program and federal tax incentives that supports the roll-out of EV charging

The foundations of the long-term success of EVs and their eventual, full displacement of ICE vehicles globally are already in place. California remains committed to its EV goals and has pledged to do as much as possible to replace any reduction in federal support for EVs. Other states and nations are likely to stay the course as well. At this critical time, it is crucial for the US, as the world’s second leading automobile manufacturer, to continue supportive federal policies that protect current EV jobs, prevent the loss of EV and battery investments, limit climate change, and help develop a globally competitive auto industry.

—

Scott Hardman is an associate research faculty and assistant director of the Electric Vehicle Research Center at ITS-Davis.

Roland Hwang is policy director at ITS-Davis.