First of two parts

THE TRANSITION of the US vehicular fleet from the still-common internal combustion engine to battery electric power is taking place in real time. This transition to electric is not the solution to many of the unsustainable externalities of auto mobility, and indeed may exacerbate some (causing more particulate matter emissions, for example), but it is a very effective solution to reducing tailpipe carbon emissions.

For that reason alone, advancing the adoption of electric vehicles at scale is a useful strategy in the larger effort to reduce greenhouse gas emissions and reduce fossil fuel use. As the quarter-century mark of what is no longer a new century approaches, it is a useful time to assess our progress in the US and understand more clearly where this transition finds itself at this moment in time.  In this article we will explore the apparent EV purchase slowdown and the consumer incentives designed to incentivize buying.  In a following article, we will explore what is, for the EV transition, the existential issue of charging infrastructure.

Unlike the internal combustion engine vehicle, which rapidly gained broad acceptance and adoption 100 years ago, the transition to EVs will be slower than many people expected.  As many articles have recently observed, early adopters and innovators have bought EVs.  From the perspective of demand, the next bracket of buyers, who are not inherently risk takers when it comes to making such a significant purchase, will need more convincing to persuade them to buy an EV, resulting in the growth rate slowing down. From the supply side, we are seeing news about manufacturers cutting EV production and delaying new launches due to slowing demand.

This slowness is neither surprising nor worrisome, despite the recent media narrative that appears to have taken root. That narrative is sending up red flags of caution about the speed of the EV transition and its implications for auto manufacturers, carbon emissions, climate change, and everyday drivers. This is very much a media narrative rooted in the US context. Surely if the production of the electric version of America’s best-selling automobile, the F-150, is being cut in half, there may be legitimate reason to be concerned. Or are there different reasons for this growth slowdown and is what we are seeing a minor blip in the EV transition?

Let’s start with a simple and obvious reason for the EV sales slowdown. Electric Vehicles still cost a lot. Despite a rash of EV price reductions in 2023, EVs still have a hefty price premium. In November 2023, EVs were almost $8,000 more expensive than the average non-luxury car. EVs also come in only a limited number of affordable options. While the EV versus internal combustion engine price differential in the premium SUV segment is negligible, in the critical & affordable compact SUV segment, EVs are still 20 to 30 percent pricier than their internal combustion engine counterparts.

EV offerings in the sub-$35,000 segment are almost zero. Recent decisions like GM’s announcement that it will stop manufacturing the lower-cost Chevy Bolt, will exacerbate this.   Other models have been announced but are not yet widely available, especially the base variant of most of them, which further drives up the price.

Manufacturing affordable EVs in America remains a point of concern, and a look at the list of new EVs coming over the next three years is not very promising for a few reasons. First, a lack of affordable options, as most models will be priced starting at $50,000. Second, the relatively affordable Evs, such as the Mini electric and Fiat 500e, will lag in one critical component informing EV adoption: battery range.  These lower-cost options will offer a battery range of about 110 miles, and few mass market buyers will replace their “do-it-all” internal combustion engine vehicle for options like that.  

Other factors may contribute to buyer reluctance to take the plunge. For example, an unintended consequence of manufacturer price cuts to incentivize sales is massive depreciation. New EVs lost 30 to 40 percent of their value in one year and topped the table for cars with maximum annual depreciation. Many new car buyers will be wary of that, especially when the car is already pricey to begin with. Also, battery technology that promises to get better year-on-year can cause hesitation in putting down one’s hard earned money on an asset that loses so much value in the first few years of ownership.

But wait, you say, what about all those tax incentives being offered to buyers? Many EVs qualify for the $7,500 tax rebate, made available thanks to the Biden administration’s Inflation Reduction Act. The rebate will be given at the point of sale beginning in 2024, though the number of vehicle models qualifying for the credit has been reduced under new battery-sourcing guidelines. Not much analysis has been done on the effectiveness of these incentives, and we await reliable data that demonstrates how well they may nudge people to purchase an EV.

Incentives have their purpose, but they can also have unintended and unwelcome effects. Norway has long been hailed as the poster child for EV adoption and a successful incentive-based conversion with share of EVs in new vehicle sales going from 1 percent in 2014 to 83 percent today. That market penetration has been driven by incentives on registration fees, tolls, parking etc. However, this has resulted in unintended consequences. Norwegians now own 10 percent more cars per capita than 10 years ago, with those who could afford a second or third car buying an EV, maximizing the benefits they reap. The US seems to be heading down a similar path as most EVs are out of reach of the average buyer and 90 percent of households with an EV are already multiple internal combustion engine car owners.

Increasing the vehicular fleet has significant, lasting negative effects since (as we previously noted) EVs bring with them every negative externality of conventional internal combustion engine vehicles except tailpipe carbon, nitrogen oxide, and sulfur oxide emissions. Hence limits should be put in place to ensure that EV incentives do not result in increasing per capita car ownership or serving as a redistribution of wealth to the rich. More stringent limits on price of the car, household income, limit on the number of EVs that qualify per household, and additional fees that scale with weight ought to be considered.

Is there a better approach to decarbonizing the vehicular fleet? Can it be done in a way that might provide more benefits to consumers and increase the transition away from internal combustion engine vehicles? An argument can be made that, if more people bought plug-in hybrids, this would move the decarbonization needle faster.  Plug-in hybrids with smaller batteries and a 50-mile range (enough to meet the daily commutes of a significant portion of commuters, plus the option to run on gasoline if the charge runs out) can be a good stop-gap arrangement to meet carbon dioxide reduction targets. This does not mean we stop R&D and incentives on full battery electric vehicles; we are just increasing our menu of carbon dioxide reduction solutions. This solves multiple issues:

  • The battery needed to make one battery EV can be instead used to make 10 plug-in hybrids. That translates into more carbon dioxide emission reduction per KWh of battery used.
  • Plug-in hybrids and hybrids are reliable and a proven technology, and reasonably affordable with the Corolla Hybrid starting at $22,800 and Prius Prime Plug-in Hybrid at $32,675, before incentives.
  • We can use this time to build out the EV charging infrastructure in a way that inspires driver confidence.
  • Battery supply chain, chemistries, and other innovations will mature leading to more stable prices and supply.

We question whether the current path – where all stakeholders, from government to private sector manufacturers, are “all in” on battery electric vehicles – is wise. Pushing US consumers to switch to EVs and hoping/praying it works is not a strategy. Having a wider range of cleaner options that suit different consumer needs, budgets, and environments may be a better way to pave the pathway to a world of battery electric vehicles. 

Bhuvan Atluri is the program manager for MIT’s Mobility Initiative and James Aloisi is a former Massachusetts secretary of transportation and director of the MIT Transit Research Consortium.