The Fuse

2020 a Crucial Year for EVs

by Nick Cunningham | January 02, 2020

Electric vehicles (EVs) are poised for a breakout year in 2020, as major automakers plan on rolling out a wave of new models to entice motorists.

EVs continue to see declining battery costs and rising sales. But the task ahead is a daunting one. Displacing the internal-combustion engine (ICE) will be a long-term project, and sales showed signs of slowing at the end of last year, suggesting that the industry still has to overcome significant hurdles. But 2020 could mark an important year for the EV industry.

The “year of the electric car”
Industry analysts have said that 2020 could be the “year of the electric car,” due to the onslaught of new models set to roll off assembly lines. For instance, the number of EV models available in Europe will jump from 100 to 175. That number will double again to 330 by 2025, offering motorists a long list of choices and price points. In the U.S., in late 2020 there will be 104 EV models on offer, up from 79 in the fourth quarter of 2019, according to Axios.

The newest wave of EV models largely come from incumbent automakers, which can be viewed as the culmination of a multi-year response to the initial EV plunge made by the likes of Tesla, which currently accounts for the largest number of sales.

More EV models should accelerate sales. So too will expanded recharging infrastructure. According to research from GM, the number one reason why consumers decide not to buy an EV is the lack of charging stations.

Policy will also help. The European Union ushered in new regulations that tighten up the CO2 requirements for auto sales, requiring automakers to lower their average fleet-wide emissions profile. In fact, Europe may take over from China as one of the fastest growing markets for EVs with sales projected to expand by 35 percent in the first nine months of 2020, according to Bloomberg New Energy Finance.

A wave of country-level supports are stoking demand, such as 6,000-euro subsidies in Germany. In addition, a recently unveiled proposal for an EU-wide European Green Deal aims to make the continent “climate neutral” by 2050. The EU hopes to add more meat to the bones of the proposal this year and the details will be important, but the world’s largest economic bloc will likely roll out new incentives to accelerate the EV push.

But plenty of obstacles remain. EV sales doubled in 2019, but slowed dramatically in the second half of the year. In November, global EV sales hit 176,500, or 26 percent less than a year earlier. The second half of 2019 looked worse than the same period in 2018. The slowdown can largely be chalked up to changes in EV incentives in China, highlighting the great degree to which the market still depends on policy support.

In the U.S., policy support is also going in the wrong direction in some respects. The $7,500 federal tax credit is on its way out as automakers hit key sales thresholds. Meanwhile, due to lobbying from the oil industry, some U.S. states have slapped new fees on electric vehicles. Beginning on January 1, 2020, eight states implemented new fees. “At the high end are Ohio and Alabama, $200; at the low end is Hawaii, $50. In California, which accounts for close to half of U.S. EV sales, a $100 fee will take effect in July 2020,” Raymond James wrote in a research note. “While these are small amounts in the grand scheme of things, they will surely not help, at a time when U.S. EV sales (including plug-in hybrids) are ending 2019 at less than 2.5% of new auto sales.”

At the same time, the entire global auto market is contracting, and may have already hit a semi-permanent peak. Sales fell in each of the last two years, and is expected to post a third straight year of decline in 2020. There are various explanations for this phenomenon, but EVs were dragged down in the second half of last year as well.

E-Buses and trucks
The outlook for electric buses is arguably much better, aided by fleet purchases, improving economics and new mandates. Amazon made headlines last year when it ordered 100,000 electric vans from Rivian. Amazon aims to have its fleet be 100 percent renewable by 2030.

Commercial and municipal buses and trucks have predictable routes, fleet-level recharging infrastructure, and longer time horizons for expected payback. That allows the transition to fully electric to unfold much faster than for passenger EVs. “In contrast to passenger cars, there is no such thing as range anxiety for fixed-route fleets, whether transit buses, school buses, or delivery vans/trucks in urban areas,” Raymond James said. “In this context, we estimate that 6-8% of U.S. transit bus newbuilds are electric in 2019, as compared to only 2% for passenger/light-duty vehicles.”

Because of these differences, mandates may also be faster and easier to pull off. By 2029, all new buses in California are required to be zero-emissions, and state regulators are drawing up an analogous mandate for trucks.

Automakers make the switch
Even as EVs continue to capture only 2-3 percent of the auto market, the automakers themselves could really begin to accelerate the transition. Due to a combination of regulations and public pressure on climate change, automakers have announced massive investments in EV manufacturing capacity.

Daimler said that it would cease work on developing the next generation of the internal combustion engine, and instead entirely shift its focus to electric vehicles. The company may improve existing engines, but it will no longer develop new ones. Volvo announced in 2017 that it would become completely electric. VW said it would spend 33 billion euros on EVs by 2024.

All told, global automakers plan on spending around $300 billion on electrification over the next decade. Many analysts see EVs hitting an inflection point in the next few years, with unsubsidized EVs beating out the internal combustion engine on cost. There is a great deal of debate about the timing of this event, but few doubt that a tipping point lies ahead.

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