Save the Date: November 10–12, 2020

 

EVs and COVID-19 Disruption

What effects will the global pandemic have on the sales of electric vehicles (EVs)?

By: Kevin Clemens, Aug 13, 2020

Production of Tesla’s Model 3 in China was only briefly interrupted by the pandemic. China sales have come on strong since production has resumed. (Image source: Tesla)

The global COVID-19 pandemic has had a devastating effect on worldwide vehicle sales. The International Energy Agency (IEA) has estimated that global new car sales will decline by 15% this year. Clean Technica has reported a 24% decline in European sales, while vehicle sales fell 17% in China in the first half of 2020, according to a blog post by automotive analyst and China expert Michael J. Dunne. Stephanie Brinley, Principal Analyst, IHS Market told Design News, “The COVID-19 pandemic and its economic fallout will have impact on the automotive market in total. IHS Markit forecasts global sales will drop 21% in 2020, to 71 million units, and for US sales to drop to 13.3 million units. A global recession will mute recovery, and sales volumes of 2019 are not expected to return for years.”

“The niche for EVs just got smaller”

Electric vehicle (EV) sales are also being affected by the pandemic—in China, in the first half of 2020, EV sales were off by more than 40% according to Dunne. Brinley notes that the reduced market size will also have an effect of EV sales numbers. “For EVs, this means that a growing but still niche market just got smaller, and upside potential could be pushed out further in terms of volume even as share will increase. The recession will impact demand as well as consumer buying power; even for those who see EVs as preferable, affordability may be an issue,” she told us.

Billions have already been spent

Most car makers worldwide have already made significant recent capital investments as they work to electrify entire product lines. These investments are not only in electric motor, controller, and battery hardware, but also into mines and refining companies to produce the raw materials needed to produce lithium ion batteries on a huge scale. The ramp-up time for raw materials extraction can easily be several years, requiring billions of dollars. This large amount of capital investment cannot be ignored, and so carmakers are moving forward with their EV plans, even in the face of a worldwide recession.
“Tesla demonstrated that there is a buyer for an aspirational EV product. OEMs the world over are putting billions into developing really compelling options and increasing choice,” said Brinley. “These vehicles remain more expensive than comparable ICE (internal combustion engine) models and charging infrastructure is not as robust as it needs to be yet. Range anxiety remains a concern for many buyers. There remains a need for consumer education and experience with the solution to tip to a higher-volume proposition, as well as a need for EV choices and availability. The element of choice and availability is being addressed, as are new EVs coming, in new segments and creating more choices. This will drive EV growth, but likely slower than the hype might suggest,” she added.

2020: What might have been

In fact, 2020 looked promising to be the breakout year for electric vehicles, worldwide, as well as in the US. In 2019, US sales of EVs had finally reached around 1.4% of the total new vehicle market, and a host of new, longer range EVs with significantly more consumer appeal were set to hit the 2020 showrooms and finally begin to challenge the dominance of Tesla in the EV sector.
“OEMs committed to making a meaningful change to their vehicle lineups from the majority ICE to either all EV or sharply reduced ICE are in this for the long haul, creating a change that will take decades to materialize,” Brinley told Design News. “Established automakers have an edge here, as they do have revenue from traditional vehicles to take these long-range decisions. However, startups have a benefit in not having to invest in ICEs concurrently and not having legacy production facilities to convert or support. It is risky for any automaker, but the EV market won't be made or broken in the next four years.”
But COVID-19 is proving to have a paralyzing effect on new EV launches—like start-up Rivian’s electric pickup, GMC’s new electric Hummer, and the refreshing of the Chevrolet Bolt—which have all been delayed until 2021. Meanwhile, the Rivian-based Lincoln EV has been cancelled outright, and deliveries of the recently launched Ford Mustang Mach E has been unofficially delayed by at least a couple of months.

Could EVs have unexpected advantages?

Almost paradoxically, there are those who predict that electric vehicles won’t exhibit the same sort of sales hit. The IEA, for example, predicts that sales for this year will roughly match the 2.9 million EV sales from 2019, dependent upon possible second COVID waves and economic recovery. The source of some of the organization’s optimism can be found in its International Transport Forum Transport Brief on Covid 19 (June 2020).
“Opportunities for self-reinforcing cost reductions in EV production will persist. These result from increasing scale of battery production as well as battery technology improvements and will make it easier for BEVs and PHEVs to compete with vehicles using internal combustion engines in terms of total cost of ownership,” the Transport Brief notes.
It further goes on, “The interest in, and need for, policy action on priority objectives such as mitigating climate change, improving local air quality, improving economic productivity, and fostering industrial development will continue. These priorities require support for innovation, including industrial progress in the EV and battery value chains. Governments around the world are expressing their strong determination to insure citizens and businesses against the negative economic impacts of COVID-19, and to provide an economic stimulus to reverse the forced slowdown.”
The IEA study also indicates that as oil prices will progressively increase and the global economy recovers from COVID-19, the financial advantages of EVs returns. And as countries return from lockdowns, the latent demand for new vehicles might be met by EVs.

Charge at home: Clean the air

There are inherent advantages over gasoline-power (ICE) that EVs can provide that might provide other reasons for the optimism expressed by the IEA, even during a time of pandemic. Reinhard Fischer is senior vice president of strategy for the Volkswagen Group of America and helps plot the company’s course. In a recent VW media release, he provided some insights on why, in the COVID era, electric vehicles make more sense.
According to Fischer, “With charging stations at home, there is no danger of infection at gas stations. The handle of a gas pump is a highly contaminated surface that drivers regularly touch, even before COVID-19.” As more than 80% of EV owners do their charging at home, this is a significant advantage for an EV compared to a gasoline alternative.
Fischer also points out an advantage that COVID has unexpectedly provided: Clean air. “We all are experiencing the positive changes to the air quality that we are breathing right now as fewer vehicles are on the road. Scenic views once prohibited by smog are now more visible. People have realized that a decrease in combustion engine-driving may translate to cleaner air. We are seeing some of these effects. I predict municipalities will want to hold on to the cleaner air for their inhabitants and increase regulations on the local level.”

Because I want one

Not all the reasons to buy an EV are simply rational. In China, where EVs have taken a beating during the first half of this year, Tesla has been an exception. The company delivered 15,000 Model 3s in June and almost 50,000 during the first six months of the year. Tesla began manufacturing its Model 3 at the company’s new Gigafactory plant in Shanghai in the middle of China’s COVID outbreak. In his blog, Michael Dunne points to some reasons why Tesla has had such rousing success.

Volkswagen’s ID.4 electric concept reinforces the company’s strong commitment to an electrified future. (Image source: Volkswagen of America)

Dunne notes that because of its strong partnership with the Shanghai government, Tesla was one of the last manufacturing plants to close, and one of the first to reopen, a distinct advantage that reduced some of the effects of the pandemic shutdown.
Another factor, according to Dunne is that, “China is home to the world's largest luxury market, 50% larger than the US. Tesla is winning luxury buyers away from BMW, Audi, and Mercedes, just as it has done in California. China's urban wealthy love the exclusivity of the Tesla brand and the allure of its advanced technologies.” Dunne notes that demand for luxury cars jumped by 27% in June, even while the overall market fell 6%.
By reducing the price of its entry level Model 3 to $38,400, Tesla buyers could qualify for state and local subsidies on electric vehicles. Although most Chinese buyers preferred higher trim level Model 3s, with prices closer to $50,000, being able to brag about getting a deal from the government is a big thing in the Chinese psyche, according to Dunne.

Bigger than COVID

How the COVID-19 pandemic will play out with respect to electrification of transportation is impossible to predict. As noted by IHS Markit’s Stephanie Brinley, “The shift from ICE to EV is a fundamental undertaking that has a much longer time horizon than the COVID-19 pandemic—even though it is also true that the pandemic is the single most disruptive event for the automotive industry in decades and it will have aftereffects that last for years.” As suggested by IEA, when the auto industry recovers from this disruption, it is reasonable to assume that consumers might find their pent-up demand for new vehicles might be best met by electric vehicles. “The COVID-19 pandemic will have near-term effects on the economy, which will have more impact on EV market development than changes in consumer attitudes," said Brinley.

Kevin Clemens is an engineering consultant who has worked on automotive and environmental projects for more than 40 years.