2020 a 'landmark' year for electric vehicles

For the moment, set aside the biggest concerns about the COVID-19 pandemic's lingering and lasting negative impacts on the auto industry. Forget about the financial hits and the manufacturing losses.

Look closely at the electric vehicle segment. What you see is what Brett Smith calls "a landmark moment."

This is the year that EVs staked their claim to the future of the industry. While automotive sales are down 17 percent overall, EV sales are holding on, down just 4.8 percent. It's the best-performing segment of 2020, and that is exceptional in a year like this, said Smith, director of technology at the Center for Automotive Research.

"Electrified is down less than any other segment out there," he said during a CAR webinar hosted Nov. 17 to explore the state of the auto industry in the wake of the U.S. presidential election. "That's a big moment. You would think that in a recession, in a down moment, that an expensive vehicle like that would have trouble in the market.

"It may not be growing as much as the excitement around it, but as a segment, it is clearly growing and clearly becoming an important part of this market."

A major reason for the growth is the undeterred investment from OEMs in EV technology.

During traditional economic downturns, auto makers pull back investments in and marketing of new and developing technologies. When financial resources dwindle and the work force is tight, auto makers typically turn attention to managing the short term. They invest in technologies and products that will drive enough profit today to get to tomorrow.

But 2020 isn't a typical recession, and this isn't a typical auto industry.

It's a far cry from the industry that faced financial and inventory challenges in 2008-09, because traditional auto makers today are only part of the equation. A number of diversified companies are vying for a place in the market. Tech companies like Google and manufacturers like Tesla are raising the stakes in the electrification game, and that means nobody can afford to pull back on their investments.

Not even during a recession wrapped in a pandemic.

"We are seeing the industry double-down, triple-down or even quadruple-down in their commitment" to electrified technology, Smith said.

The relative success of EV sales this year is the culmination of a 3- to 4-year trend that analysts, including Smith, expect will accelerate.

EVs made waves in the last decade when consumers gravitated toward alternative fuel technologies, which were buoyed by advancements in hybrid electric technology and high gas prices. At the start of the millennium, the popularity of electric vehicles tracked with gas prices. As the cost for each gallon of gasoline rose, EV sales took off. When gas prices fell, EV sales fell, too.

That is, until 2016.

After peaking around $4 per gallon in 2011 and 2012, gas prices began to drop. By 2016, the price of gasoline fell to around $2 per gallon. It has fluctuated since, hovering between $2 and $3.

Smith notes that at the same time gasoline prices held steady, EV sales climbed, going from 300,000 units sold in 2016 to around 650,000 units sold so far this year.

"In 2017, we start to see that segment become something independent of fuel prices, which is another really big step," Smith said. "I think we are starting to see all of that talk, all of that excitement over the last 20-25 years over battery electric vehicles, starting to come to fruition. This is a fundamental point for this industry."

Hybrid technology has been the bedrock of the EV segment in terms of propulsion. It is likely to play a pivotal role in the years ahead, but battery electric vehicles are poised to gain more of that market share.

In 2017, EVs accounted for about 3.2 percent of the overall vehicle sales, and hybrids represented two-thirds of those sales (about 2.1 percent overall). Meanwhile BEVs and plug-in hybrids accounted for 0.5 percent and 0.6 percent of the overall sales, respectively.

So far this year, Smith said, EVs account for 4.8 percent of the total vehicles sold, and hybrids dominated, accounting for almost 3 percent of overall sales on its own. BEVs accounted for 1.5 percent.

By 2025, CAR expects EVs to account for 18 percent of all total vehicle sales, and by 2030, they should have roughly 28 percent of the market share. BEVs and mild hybrid electric vehicles are expected to account for the largest shares of the EV segment by then, according to Smith.

Right now, though, auto makers have some major policy hurdles to clear if they plan to push EVs further. On a federal level, there has been little consistency for auto makers in terms of emission standards and targets. Especially between the Obama and Trump administrations, the standards shifted dramatically. Trump's team revoked emission standards put in place by the Obama administration, and it is expected that the Biden administration will return to Obama-era guidance. That lack of consistency makes it difficult for auto makers to plan, Smith said.

But he's beginning to think it's not going to matter in the long run.

"All of that policy stuff leads me to wonder: What if, while all of those politicians are playing their games, technology made the game irrelevant?

"Over the last 3-5 years, we have seen technology advance in electric vehicles, in batteries specifically, but (also) with motors and power electronics and other things," Smith said. "Well, not yet have they made policy irrelevant, but they are looking like they will make it irrelevant in the not-too-distant future. Or at least, that's where the car companies want to be."