- 1 Definition / Scope
- 2 Market Overview
- 3 Key Metrics
- 4 Market Risks
- 5 Top Market Opportunities
- 6 Market Drivers
- 7 Market Restraints
- 8 Industry Challenges
- 9 Technology Trends
- 10 Pricing Trends
- 11 Regulatory Trends
- 12 Market Size and Forecast
- 13 Market Outlook
- 14 Competitive Factors
- 15 Key Market Players
- 16 Strategic Conclusion
- 17 Further Reading
- 18 Appendix
Definition / Scope
Electric and Hybrid vehicles have boomed in popularity, and for a good reason. As consumers are demanding more efficiency and becoming environmentally conscious; these vehicles provide the perfect solution.
Unlike conventional vehicles that use a gasoline powered engine, electric vehicles (EV) use an electric motor powered by electricity from batteries or a fuel cell. These vehicles are Eco-friendly as the Carbon-based emission is lower and has lower maintenance cost compared to conventional vehicles. The different types of electric vehicles are:
- Battery electric vehicle (BEV) utilizes chemical energy stored in battery packs to power an electric motor. These vehicles can use existing infrastructure to recharge such battery packs but must be plugged in for extended periods of time.
- Plug-in hybrid electric vehicles have both the electric and fuel powered engine. This allows them to drive short distances on electricity and switch to liquid fuel for longer trips. With features like auto start and shutdown, hybrid vehicles avoid wasting energy during idle times like traffic jams and red lights. One of the salient features of hybrid vehicles is regenerative breaking. The energy wasted during braking and coasting is converted and stored in the battery, which is then used by the electric motor.
History of Electric and Hybrid vehicles
The invention of electric cars is more of a series of events than a specific date. The early electric cars found a lucrative market in around the late 19th century. Consumers found them perfect for shorts trips around the city.
Sadly poor roads outside of urban areas made it difficult for early electric cars to venture beyond the city limits. With the rise of the use of electricity, charging batteries became considerably easier to recharge, thus the use of these cars increased. In the late 20th century, scientists began to work on improving EV’s and their batteries. In the last decade, major car manufacturers like Tesla Motors, GM, Nissan, and BMW have released their own long-range highway-capable electric vehicles.
Hybrid vehicles, on the other hand, may have recently rocketed in popularity; however, they have actually been around for more than 100 years. The first hybrid car was invented in 1898 but manufacturing for commercial purposes began a year later. With the rise of famous fuel-powered cars in the early 20th century, mass-produced by Henry Ford, hybrid cars could not secure its place in the market.
However, since Toyota released the Prius in 2000, hybrid cars have soared in popularity, especially in the American Market.
The total electric and hybrid vehicles sales in US for the year 2018 was 348,000 which is 80.8% more than in 2017 with 199,818 units sold. The average market share almost doubled in 2018 to 2.07% from 1.16%.The Tesla Model 3, dominating the 2018 sales, was the first electric car to exceed 100,000 sales in a year.
The recorded number of hybrid vehicles up until 2016 in the United States was over 4 million units. This was the second largest in the world after Japan with over 5 million hybrid electric vehicles. Up until 2016, 11 million cars had been sold worldwide and US sales represent 36% of that sum.
However, this number was not achieved easily. Following the financial crisis of 2007-2008, the sales of hybrid vehicles in the U.S. plummeted. Although there was a short recovery, the numbers couldn’t rise due to low gasoline prices, which increased the appeal for conventional vehicles. American Hybrid sales achieved its highest market share ever in 2013 with recorded three million sales. The count through the end of April 2016 showed that the number increased to 4 million.
Toyota Prius remains the hybrid market leader by far, which has sold 1,643,000 units since 2000, representing 40.8% market share of all hybrid vehicles in the U.S.
California has been the state leading in hybrid sales in the U.S. followed by New York and Florida. Apart from private use, about 10% of the total hybrid in the U.S is owned by the U.S. General Services Administration.
|Base Year||2018||Researched through internet|
Although hybrid vehicles market is booming in popularity it is not short of potential market risks.
- With the rapid development of technology, anyone with decent investment can enter this market; hence, the threat of new entrants is high in this industry. Especially in the American market, where big corporations are looking to diversify, this poses high risk of increasing competitors.
- The hybrid vehicles are not 100% green. Their battery systems use Lithium-ion batteries, may contain chemicals that can be harmful to the environment when released. This factor may hinder the appeal for green vehicles, as they can also hamper environment. Hence, there exists the threat of consumers switching to conventional vehicles.
Top Market Opportunities
The need for sustainable future has led to changes in multiple industries. Environmental degradation caused by vehicles has come under spotlight in recent times. After the Second World War, US experienced rapid economic growth, population growth and sub- urbanization. This led to increase in number of highways and vehicles. One result of this dramatic increase was air pollution through vehicle emissions. These emissions mostly contribute to the depletion of ozone and particles, deposition of acids, and health issues such as respiratory problems and visibility impairment. Carbon dioxide emission has increased by 18% since 1995 amounting to total of 6870 million metric tons of green house gases emissions in US alone up until now. Considering the changing dynamics, it can be asserted that the global market for hybrid cars would ascend at a sharp rate in the years to come.
Furthermore, the use of hybrid cars as commercial vehicles is a trend that has been gathering momentum over the past few years.The total sales of EVs and Hybrid Vehicles jumped by 26% from 2016 to 2017 and by massive 81% in 2018. Demand for electric cars are rising as many Americans are looking to reduce their transportation emission footprint. To cater such demand, industry giants like Volvo, Jaguar and BMW are also launching their new electric cars next year.The US government predicts that electric cars will represent 30% of the automotive industry in United States by 2040.
The immense scope for growth for hybrid vehicles in the American market is to tap into passenger vehicles market.Currently, passenger EVs in the US make up around 6% of its total passenger vehicles market. This figure is predicted to rise to 16% by 2025 in the US. With lower battery cost and new technology, number of passenger vehicles are expected to rise in the near future.
The purchase of an EV instead of a conventional vehicle has become a more attractive option, in both monetary and non-monetary terms. The factors influencing EV purchase are generally, market-specific (government subsidies and regulations) and non-market specific (battery range).
Market-specific factors have huge influence in American Market. The United States federal government has initiated a tax credit and tax exemptions for electric and hybrid vehicles to decrease the upfront cost of EVs and to encourage technological development. The tax credit ranges from $2,500 to $7,500 for each vehicle depending on its battery capacity and weight. Majority of the states in the United States are using rebates, tax exemptions, and tax credits to encourage electric vehicles purchases.
Non-market-specific factors influence the consumers directly by offering products at reasonable price. For instance, battery cost is expected to decline from initial US$1000 per kilowatt hour to US$200 in 2020. Tesla Motors and Panasonic are expected to accelerate this price development through mass production.
EVs are relatively more costly than their conventional counterpart as their battery technology is expensive. This is because batteries need to be able to hold massive amounts of charge to make the cars practical for long range drives. Manufacturers are using expensive materials to build such batteries, most of which are tough to procure. Their sticker price includes the billions of dollars spent on research and development to switch from a century old gasoline powered cars industry.
For instance, Tesla’s Model S 100D costs $94,000 with battery alone costs around $15,000. The transmission exhausts, and all the peripherals cost around 22–24% of the total vehicle cost which amounts to high sticker price for EVs. Even less expensive popular EVs such as Tesla Model 3 costs about $35,000 and Nissan Leaf $30,000.
EV manufacturers still have a lot of convincing to do with consumers. People are worried about the battery life and running out of charge while travelling. In conventional vehicles, running low on gas is not a problem as there is plenty of gas station in the US. On the contrary, charging an electric car isn't quite so simple. Most electric cars in the market can only go about 100 miles on a single charge. The security of being able to charge on the road is very important to consumers and not having such assurance has made customers all over America skeptic about electric vehicles.
Lack of infrastructure investment
Infrastructure investment in billion is needed in the near future to make electric vehicles a lasting success. Corporations must direct their investment towards expanding charging points.
US Department of Energy forecasts that there will be 15 million EVs in the United States by 2030. Currently, there are 55,000 public charging points in 19,300 stations available across the United States. These numbers, however, are not enough to support the foretasted EV growth. There will be a demand for at least 627,000 outlets in public locations. It is equally essential to increase the supply of public charging in highways for long distance trips.Hence, heavy investment is required to encourage EV adoption.
Furthermore, to achieve sustainable growth, manufacturers have to improve battery performance and the batteries' re-usability which calls for high investment in R&D. Without evolving features and technologies, consumers might return to conventional vehicles.Batteries having greater energy density to store more electricity and having safety features without the risk of overheating are some of the needed changes in Ev technology. A recent study by the United Nations Department of Economic and Social Affairs showed that US only holds 22% total patent registrations for lithium ion batteries, a critical component of EVs, while Japan owns 52%. It is imperative for US manufacturers to enhance their core competence with research and innovation. The industry can only be sustained by enhancing technology and lowering costs.
For new manufactures, investment and consumers mindset are the biggest barriers.
Electric vehicles are not as green as one might think
Many electric car components have little recycling value which is especially true for the lithium-ion batteries. Nickel and cobalt are used in electric cars manufacturing. These natural resources generate high levels of air, soil and water pollution when being mined and smelted. Although alternative fuel cars contribute to zero tail-pipe emissions, they still produce emissions via the power plants during production.For instance, while manufacturing a midsize and midrange EV, it produces typically over 1 ton of global warming emissions to the total manufacturing emissions, resulting in 15 percent greater emissions than in manufacturing a similar gasoline vehicle. However, during the life of the both vehicles, EV will produce 51% lower emissions compared to a gasoline vehicle. Although, EV is better in long run, it still adds to high carbon emissions during its production.Thus,it is challenging for the manufacturers to satisfy Eco-conscious media and consumers and to create a long lasting brand value.
Improvement in battery technology
In the recent years, energy densities of batteries have been improved by approximately 400%. As a result, the cost of lithium-ion batteries has also been lowered. Automobile manufacturers like Tesla Motors have aimed to break the regular cost of USD 100/kWh by 2020. It is also to be noted that battery costs have reduced by 73% in the last decade and is projected to decrease by in the next seven years.
To address the concerns shown by consumers over the driving range have been rapid charging infrastructure has been scaled up with increased installations and lesser charging periods. Charging stations in public spaces and at workplaces have improved. To increase customer’s convenience, charging facility at home has also been made available. EVs can be charged at home at night when not in use thereby avoiding the costlier peak hour charging rates.
The average sales price of EVs in the US in 2017 was $35,000 and $34,000 in 2018. The pricing strategy for charging electric cars has not really changed throughout the years. Major reason behind this is the stable price of electricity. Electricity in America is domestically produced. The average cost of electricity in the US is 12 cents per kilowatt hour. Fully charging an electric car costs approximately $2.75 which runs for about 100 miles. This is significantly cheaper than gas prices. Electric cars cost more up front but they are cheaper to operate and the biggest savings will be in gasoline.
The cost of electric vehicles has continued to drop steadily in the last few years. Lithium-ion battery prices have decreased an estimated 80% since 2010, and are estimated to fall another 45% by 2021. EVs have a margin of about 15% of the total vehicle cost to compensate for battery pack cost. With the decrease of battery prices vehicle prices will fall as well, since battery costs nearly as half of the price of an EV.
Policy support has been vital for the success of EV in the US market. Some of the subsidies and incentives offered by the US government to encourage EV purchase are as follows:
- American Recovery and Reinvestment Act (2009) have funded $2.4 billion for research and industrialization of batteries and EVs
- Federal funding for 36,500 charging stations has been given
- Availability of Electric vehicle purchase loan with lower interest rate
- Purchase subsidy up to 20 % and 80% in Illinois and Hawaii
Market Size and Forecast
USA has the third largest EV market in the world. In 2018, 348,000 units of EVs and plug in Hybrids were sold in the US.
As of January 2018, there are 13 battery-electric vehicles and 26 plug-in hybrids available in America. Tesla’s has the largest electric vehicles market share in the U.S. and it is the only manufacturer with three BEV available (Models S, X and 3). The Model 3 introduced in July 2017, has become Tesla’s most successful model so far with over 145,000 deliveries in the US.
In 2018,US electric and hybrid vehicles represented 2.07% of the total EV sales worldwide.
In next three years, EVs and Plug-in Hybrids are projected to represent 5% of the total sales.This number is projected to rise significantly over the next few years with an estimation of 3 million unit sales in 2025 representing 21.88% of total world sales.Generous subsidies, tight regulation and EVs popularity will continue to drive growth in this market. The roll-out of more attractive, better-performing EVs by the key market players like Tesla, Toyota Prius, BMW and Jaguar in the near future is another major driver for sales uptake in the United States.
The biggest competitors for US electric vehicles manufacturers at the moment are Chinese car manufacturers, In 2017,1.3 million electric and hybrid cars were sold in China which is more than in the rest of the world combined. In 2018, Chinese sales were three times higher than in US and this gap is predicted to get more wide.
Conventional car manufacturing giants like Volvo and Jaguar intend to have electrified power trains into their vehicles. This is good news for customers but increased competition for US electric vehicles manufacturers.
Incumbent car manufacturers have a competitive edge over new entrants in terms of customer loyalty; however, adapting to new technology and switching between suppliers are becoming more essential to stay in this market.
Key Market Players
The major US electric vehicles brands currently holding the majority of market shares are:
Tesla Model 3
Tesla Model 3 is surpassing best-sellers like BMW 3 series and Mercedes C-Class. With starting price of $35,000, Tesla Model 3 is one of the most affordable vehicles in the US. As of 2018, Tesla Model 3 holds 39% US electric vehicles market share.
Tesla Model X
The Model X has sold over 24,900 units in 2018, with 17% increase in total sales from 2017. Its starting price is $80,700. It is a luxury SUV with large seating space which easily accommodates seven adults. It holds about 36% market share of the total luxury car market segment in the US.
With the starting price of $33,220, Chevrolet Volt is the fifth most popular US brand in the world. It sold more than 18,000 units in 2018. However, Volt’s sales have dropped by almost 23% from 2017.
Electric and hybrid vehicles have the potential to surpass the fuel-powered vehicles market in the future, especially due to declining EV costs, growth in charging station access, and acceptance by the public. Government should impose tighter fuel economy standards to help discourage pollutant emissions rapidly while also imposing EV promotion policies.
Manufacturers, on the other hand should focus on ramping up production volume and using economies of scale to reduce production cost and sale price. Sustainable marketing strategy along with large R&D investment is essential to have an edge in this competitive industry.
- EV : Electric Vehicles
- BEV: Battery Electric Vehicles
- kWh: Kilowatt Hour