The electric vehicle (EV) market is poised for an explosion in sales, with market share expected to grow more than four times between now and 2025. More than 100 new EV models are forecast to enter the U.S. market in that short time span, fueling a shift in market share from a niche-like 2% in 2020 to a more mainstream 9% level in 2025.
Yet this dizzying growth rate is far from guaranteed. The recent J.D. Power 2021 Electric Vehicle Experience (EVX) studies on the subject confirm that many consumers remain skeptical about EV technology and about the price/value offering of EVs in comparison to conventional gasoline-powered internal combustion engine (ICE) vehicles.
Still, despite the fact that a large portion of the American buying public has doubts about purchasing an electric vehicle, there's been incredible optimism in the industry and in the media about their prospects in the last couple of years, even more so than before. Part of that is fueled by actions outside America. When looking at regulations in other parts of the world, especially Europe and China, there is a huge acceleration helping to drive the level of production and availability of EVs in the United States.
Of course, availability doesn't necessarily translate into sales. Predicting future sales levels is complicated by the fact that, historically, it's very difficult to ascertain what actual demand for electric vehicles is because the first generation EVs were short-distance commuter vehicles with very esoteric styling. They targeted early adopters, weren't especially practical, and weren’t aligned with the bulk of vehicles being sold. Based on this perspective, the goal of EV makers is to remove the "specialty vehicle" label and push into the mainstream.
American Consumers are Skeptical of EVs
J.D. Power studies point to today’s consumer skepticism being at least partially the result of “early EV” technology and design limitations. What we know through our surveys and analysis is for every 10 new-vehicle shoppers out there, two of them are seriously considering an EV. Certainly, EV optimists would see that as a good thing, but then again, another two of those 10 shoppers are definitely not considering an EV. Instead, they are strongly committed to buying an ICE vehicle.
The 20% of shoppers who are seriously considering EVs are the biggest opportunity for EV makers during the course of this decade. Converting half of them into EV buyers would result in a 10% EV market share—five times the current rate of purchase.
Further, some demographics seem more predisposed to purchase an EV than others. Four of every 10 EVs sold are purchased in the state of California. The EV consideration metrics of Californians are about 10 percentage points higher than the rest of the country.
Barriers to Achieving High Share
EVs have many barriers to surmount to achieve mainstream status in the U.S. market. In the automotive industry, it's all about the product. The U.S. market is being dominated by crossovers, SUVs and pickup trucks. While there are very few battery-powered offerings in those segments, that is certain to change in the next few years.
General Motors and Ford have both gone on record about plans to introduce electric-powered pickup trucks to be joined by EV pickups from Tesla Motors and start-up Rivian. Ford (Mustang Mach-E) and Volkswagen (ID.4) have recently introduced battery-powered crossover SUVs in high-volume segments.
Other barriers exist as well. Research has told us over and over again that the top three reasons for the non-consideration of EVs are the charging infrastructure, driving range on a charge and vehicle price.
Looking at the shoppers who are somewhat unlikely to consider EVs, about one in three say they would need to see public charging stations available at least every 50 miles to become more inclined to consider buying EV. While the U.S. has a long way to go to build out a charging infrastructure of that density, according to the J.D. Power 2021 U.S. EVX Public Charging Study, the same study also points out that most EV owners today rely on their home charging stations as their most convenient choice in charging. Communicating this simple truism can help change the minds of prospective buyers.
A similar case can be made regarding purchase price. While consumers are naturally apprehensive about paying for pioneering new technology, paying a premium for an EV which they perceive as being all-new tech is an even taller hurdle. The opportunity again lies in communication. To do battery-electric vehicles justice, one can't look at the EV value proposition just in terms of sticker price. It really must be viewed from a total cost of ownership perspective. Federal tax credits, state and local subsidies, and manufacturer incentives lower the overall ownership cost, as do the savings on fuel and maintenance. In the future, resale value might also offer cost of ownership savings versus ICE-powered cars.
When that information is conveyed to potential buyers the picture changes quite a bit. But they need to be coaxed into moving beyond the more traditional approach of looking at the sticker price to determine value.
EV Market Values
Historically there has been a massive deficit between EV and ICE vehicle value retention. However, in recent years that gap has narrowed significantly. J.D. Power has observed a steady rise in this metric since 2015—when retention rates for three-year-old EVs were only 20%—to 42% today.
While a sizeable gap remains, it is quickly closing with gas- and diesel-fueled trucks and cars currently retaining 65% of their original value after three years, up from 51% in 2015. We estimate that by 2024 the retention gap between EV and ICE vehicles will be reduced to just three percentage points. Ultimately, advancements in battery and charging technology have helped accelerate growth in used EV prices during the past several years. Moving forward, increases in EV range will be the primary driver behind improvements in retention and residual value outlook for the sector.
Setting New Expectations
While there are definite challenges facing EV makers as they try to win more EV market share, there are some definite paths forward. First, manufacturers must reframe the EV experience for their potential buyers. The perception has to be migrated from "I'm taking a chance" to "This will be a great experience."
Speaking of many EV owners today, they are extremely positive about their product and its benefits. The product technology enthusiasm from these early adopters needs to be communicated to potential buyers. Only then will perceptions evolve from the mindset and the expectations created by more than a century of gasoline-powered vehicle ownership and the infrastructure that supports it.
One way to accomplish that is to enable more consumers to experience an EV firsthand. Despite the fact that EVs have been on the market almost continuously for more than two decades, most consumers have never driven, ridden in, or even sat in an EV. The results of that are telling. Only 7% of people who have never been in an EV seriously consider purchasing one. But among the people who have physically been in an EV, their consideration is nearly three times higher at 20%.
This speaks directly to the opportunities for automakers, retailers and other stakeholders to change the EV narrative. A key goal should be to get people into these vehicles through test drives, ride-and-drive events and auto shows. Should that take place, the number of people who seriously consider purchasing an EV will increase significantly.
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Jonathan Banks is Vice President and General Manager of J.D. Power Valuation Services.