Will 2021 Be The Year Of The Electric Vehicle?
“Automobile sales last year were hammered by the Covid-19 economic lockdowns, lost production, and caution by buyers. EV sales performed well. With more models and healthy subsidies, EVs are primed to soar.”
On January 2nd, Tesla released its fourth quarter and full year 2020 sales and production figures. The company set a sales record in the fourth quarter with 180,570 cars, although it fell 450 vehicles short of its goal of selling half a million cars in 2020. Tesla’s sales last year represented a significant achievement, but 2020 was a much better year for electric vehicles (EV) than most expected once Covid-19 exploded on the scene. Tesla also announced that it had begun production of its Model Y SUV in its Chinese plant in Shanghai, and that it expects to deliver its first cars soon.
InsideEVs.com reported on a study by Industrial Securities about the output from the new Giga Shanghai Tesla plant. According to the study, Tesla’s current production is around 8,000 cars per week, including 5,000 MIC (made in China) Model 3 and 3,000 MIC Model Y. At that rate, Tesla will produce roughly 400,000 cars in 2021, nearly the output of its two plants in 2020. Plans call for Tesla to gradually increase the production rate to 15,000 cars per week, or about a 750,000 annual production rate.
Reportedly, the plan calls for Tesla to sell 425,000 MIC cars, composed of 180,000 Model 3 and 245,000 Model Y, while also exporting an additional 100,000 Model 3/Y. Since Tesla has said that all the locally made Model Y vehicles will be sold in China, the export figure would represent all Model 3 units. That suggests production of around 525,000 cars, which would exceed the 2020 output from the company’s existing California and Chinese plants.
Only a couple of days later, Norway, Europe’s leading EV market, reported its auto sales data. For the month of December, EV sales totaled 17,910 units, up 198% year-on-year, and represented an 87% market share of new car sales. The EV sales were split 77/23% between all electric (BEV) and plug-in hybrids (PHEVs). For the preliminary annual statistics, 76,800 BEVs and 28,904 PHEVs were sold, roughly a 73/27% split. EV sales for the year represented a 74.8% market share.
When we examine the monthly EV sales data for Norway, it is interesting to see that sales were up year-over-year in January and February, but then trailed during March through June, during the height of the Covid-19 pandemic. Starting in July and continuing every month for the balance of the year, EV sales exceeded prior years. As seen from the chart (next page), the final four months, and especially in December, the outperformance of 2020 EV sales was significant.
Exhibit 2. Norway Leads World In EV Sales Percent SOURCE: insideEVs.com
Another interesting chart shows the history of EV sales in Norway since 2014. Monthly sales are represented by black bars, with the prior year sales in the grey dashed-line. At the far right of the chart, one can see the strong 2020 fourth quarter sales outperformance. The more telling line is the yellow one showing EV market share by month. It appears that 2020’s pace of market share accretion accelerated from the pace of 2014-2019.
Exhibit 3. EV Share Of Sales Soared Last Year SOURCE: insideEVs.com
The latest development in European EV sales, as reflected by Norwegian data, is the rapid increase in the number of EV models available for purchase. We have listed the models and the December and year-to-date sales total for the leading models in Norway. This increase in models available is believed to mark an inflection point in the evolution of the EV market in Europe, and eventually worldwide. As people have more models with a wider price-range to choose from, it is believed more buyers will become interested in EVs. Of course, seldom does the discussion focus on the importance of subsidies, which is critical for expanding the range of potential buyers.
Exhibit 4. EV Model Choice Helps Boost Market SOURCE: insideEVs.com, PPHB
Automobile writers are ecstatic about the 2021 EV market, as they see the plethora of new models entering the market as the primary driver for sales. Almost every existing auto manufacturer has one or more EV models coming to market. In addition, a handful of start-ups and Chinese companies will be producing EVs, although some models will only be available in China. We were intrigued with two new models in particular when we perused the write-ups of new arrivals this year. The Lightyear One comes with solar panels covering all of its upper portion, which will help keep the battery charged. We have no idea how well that will work, but it is an interesting idea. Importantly, the car is estimated to have a range of 450 miles on a single charge, but we don’t know if that anticipates some solar recharging.
Exhibit 5. Lightyear One With Embedded Solar Panels SOURCE: insideEVs.com
For the sport car aficionado, Lotus is introducing its EV. The initial production run of 130 vehicles is already spoken for, with the first deliveries scheduled for later this year and then into 2022. The Lotus Evija comes with a price tag of between $1.8 and $2.35 million, depending on options selected, although it looks like the basic model has all the necessary accoutrements one would want.
The 2021 Lotus Evija is built around a single-piece carbon fiber monocoque chassis, which significantly reduces the overall weight. The car tips the scale at only 3,700 pounds. The key to the Evija’s performance is four separate electric motors – one for each wheel. Combined with a 70-kWh lithium-ion battery pack, the four motors generate a whopping 1,973 horsepower, which makes this Lotus supercar the most powerful production car in the world. It can race from zero to 60 miles per hour (mph) in under three seconds and max out north of 200 mph. Despite that performance, the Evija is only one of the fastest cars in the world. That honor belongs to the Hennessey Venom F5, with a top speed of 301 mph.
Exhibit 6. The 2021 Lotus Evija – One Of The Fastest Cars SOURCE: autowise.com
Although unique and racing car EVs draw much media attention, for automakers, the global market share battle depends on vehicle cost, performance and styling (models). Performance has improved, as measured by the average distance EVs can travel on a single battery charge. Costs are improving slowly, as battery costs decline, but these vehicles still require subsidies and remain out of the reach of much of the world’s car buyers.
With all the major automakers delivering new EV models this year, the selection issue is rapidly becoming a non-issue. What was interesting is reading how a California politician wants to inject styling into the regulations for vehicles including EVs. He is upset so many cars today all look alike. We understand he was upset in trying to find his car in a shopping mall’s parking lot. However, as engineers will tell him, there are only so many ways vehicle designs can be tweaked without sacrificing drag ratios and fuel efficiency, an area where regulators continue to pressure auto companies to improve.
While the 2021 global economic outlook remains cloudy due to the recent uptick in Covid-19 cases, most forecasts call for a better sales year than last. Some forecasts are calling for even greater increases in EV sales this year compared to last. Investment firm Morgan Stanley projects global EV sales to rise by more than 50% this year, compared to internal combustion engine (ICE) vehicle sales that will only grow 2% to 5%. Of course, we are talking about dramatically different market sizes.
Last year, U.S. auto sales are likely to have fallen by about 15% from 17 million units to only about 14.4-14.6 million. That is the lowest U.S. sales have been since 2012. Around the world, results are mixed, with China recovering as its economy is snapping back from the virus lockdown. In the United Kingdom, 2020 sales fell to 1.63 million units, a 30% decline from 2019, and the worst annual sales decline since 1943. EVs represented about 10% of sales, or roughly 160,000 units. As the country plans to ban ICE vehicle sales in 2030, the country has only nine years to shift from EVs representing one in ten vehicles sold to 10 in 10. Can that happen; more importantly, will it happen? We are inclined to take the under in this bet, but always recognize the power of the state to shutdown anything, as we have seen with respect to responses to the coronavirus.
One reason for our caution about EV projections is that most forecasts in business and commodity markets prove wrong. While a few beat the projections, most fall short due to a variety of factors. Mostly, it is due to misreading the pace of consumer behavior and the rate of technological change. A critical assumption underlying EV forecasts is the projection for continued declines in battery costs. (The topic of battery technology is worthy of a deep dive in a future article.) While battery costs have fallen in recent years, and rather sharply, it has largely been due to increases in volumes that reduce per-unit costs, but also falling lithium chemicals prices. We are now seeing the first uptick in lithium prices as the mining industry is pressured to expand capacity to meet projected demand increases.
Benchmark Mineral Intelligence, who tracks the lithium chemicals market and EV battery technology, remarks that for the last six months of 2020, all the lithium chemicals prices it was collecting were flat-lining. On the other hand, China was showing upticks in prices. China is considered the bell-weather for lithium chemicals pricing. This pricing upturn is the first time in over two years that prices have increased. Is it possible that the projections for falling battery costs are derailed? The price rise may also push automakers to opt for newer battery technologies, assuming they can be perfected, which could lead to safer, more powerful and cheaper batteries. But that is not a given at the moment. Is China’s lithium chemicals price trend a potential Black Swan for EVs?
Exhibit 7. Bell-Weather China Sees Lithium Price Hikes SOURCE: Benchmark Minerals
A new forecast from one EV watcher calls for U.S. sales to increase by over 70% in 2021. As impressive as that increase is, it still represents less than 600,000 vehicles. If we assume that auto sales recover half of their lost sales in 2021, the EV sales projection equates to a 3.8% market share. That would be a slight market share reduction from 2020, but not a surprise assuming overall auto sales rebound in 2021.
Exhibit 8. 2021 Projected To Be Record EV Sales Year SOURCE: cleantechnica.com
The reception of the new 2021 EV models, baring a dramatic cost reduction, will tell us much about whether the industry in on a rapid-growth or a moderate-growth trajectory. As forecasts from EV and traditional automakers suggest, dramatic battery cost reductions will not come until about the middle of this decade. That will leave a relatively short time period for the industry to reach the market share targets politicians are putting in place now for the transformation of the domestic vehicle sales market to one that is totally electric.
Regarding global vehicle sales, China remains the dominant market. It is interesting that after boosting subsidies for ICE vehicles in 2019, while reducing them for EVs, as the government was attempting to stimulate its economy, it was forced to announce a shift in April 2020. The government announced it was extending its subsidy scheme without cuts until the end of 2022 to boost EV sales. It had originally planned to cut EV subsidies by 10% in 2020, and by a further 20% in 2021 and 30% in 2022. The stimulus shift helped China sell 1.109 million EVs in the first 11 months of 2020, an increase of 3.9% from the same period in 2019. This year will provide an interesting window into the industrial business strategy of the Chinese government with respect to clean energy technology and EVs. These are areas that China has identified that it wants to dominate globally. That will be the topic of a future article.
It is estimated that there are roughly 1.2 billion vehicles (passenger cars, light-, medium- and heavy-duty trucks, and buses) on the world’s roads today. It is further estimated that about 95% of them are light-duty vehicles. With the three million EVs sold in 2020 added to the total in the fleet as of 2019 (~7 million), there are roughly 10 million EVs on the road. That represents 0.9% of the global light-duty vehicle fleet. That is a far cry from the number of EVs that will impact transportation’s carbon emissions. It also demonstrates why the oil business is not going away for decades.
Exhibit 9. China Dominates Global EV Market SOURCE: Sproule/Boost Energy Ventures
Two charts from a report by Sproule and Boost Energy Ventures focusing on the incoming Biden administration and its potential to impact green energy in the U.S highlight some challenges for EVs. The first chart shows the projected purchase price parity between EV SUV/Crossover and EV Mid-Size Cars and similar ICE vehicle models. In both cases, the forecasters expect the parity to be achieved mid-decade, assuming battery costs continue to decline, as they expect.
Exhibit 10. Forecast Looks Promising For EVs SOURCE: Sproule/Boost Energy Ventures
The second chart shows a projection of EV sales under three scenarios and their impact on the U.S. EV fleet. In the forecast, even using the high case, in 2030 there would be about 22 million EVs in the fleet. Again, the reality is that there are 260 million light-duty vehicles in the U.S. fleet, so in 2030, EVs will still only account for 8.5% of the fleet. To achieve that number, the automobile market will be in turmoil for years, something EV supporters accept as a necessary evil in order for EVs to become a much more significant percentage of the domestic light-duty vehicle fleet by 2050, which will aid in reducing carbon emissions. Just don’t look for significant reductions over the next decade.
The headline of this article asked whether 2021 will be the year of the EV. Based on the number of new models being introduced, the likelihood that the Biden administration and other foreign governments will support EVs with broader incentives, and the prospect of additional mandates by various governments restricting ICE vehicle sales and even use, 2021 will be an important year in the evolution of the EV market. It will also mark a pivotal year for the energy business.