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EV’s – The West Coast Impact

Over the last year, electric vehicles have continued to gain momentum with both consumers and manufacturers.  This week, Washington became the second state following California to ban new sales of internal combustion engines. Washington even went a step further than California and will not allow the registration of vehicles with internal combustion engines made after 2030.  Today’s Energy Market Insight will explore the current state of electric vehicle sales and help put in context the significant changes required of auto manufacturers to align auto sales with potentially restrictive state goals for new auto sales.

Electric vehicle sales have continued to gain momentum and capture market share despite setbacks in total new sales in 2020.  However, gaining momentum and market share is easy to do when the size of current electric vehicle sales is small relative to total new car sales. The chart below highlights total US new car sales and electric vehicle sales from 2017 to 2020 and an estimate for new sales for 2021.

Total new car sales averaged 15.6 million from 2017-2019 prior to Covid supply chain and economic disruptions in 2020. New car sales for 2021 are expected to bounce back from lows experienced in 2020 reaching nearly 13.5M new car sales for the year. However, Electric cars make up but a small fraction of these new auto sales. In 2020, new electric vehicle sales totaled just 300,000 or 2.41% of all new cars sold. Based on early sales data for 2021, electric vehicle sales should hit a new record in the US this year but only account for about 400,000 of total cars sold or just over 3% of all new car sales.

Washington state comprises a very small share of total electric vehicle sales today and even total US sales. On average, Washington state accounts for about 250,000 new car sales per year or nearly of all the electric cars sold in the US in 2020. The loss of Washington by itself is but a small piece of the US automobile market but highlights a potentially growing trend and new target date for the sunset of internal combustion automobile sales in the US.

Auto manufacturers though will have to significantly ramp up their production capacity of electric vehicles should other states or federal mandates follow suit. The chart below shows auto sales in the US for 2020 by manufacturer.

General Motors (GM) is the largest manufacturer of new cars in the US with over 2.5 million cars sold in 2020. GM is followed by Toyota and Ford each with over 2.0 million cars sold. The development timelines for these 3 manufactures provide key insights into just how fast new electric vehicles can be deployed into the US market.

Of the three manufacturers, GM has set the most aggressive targets for zero emissions vehicles. GM intends to launch 30 new electric vehicles by 2025 and expects to have completely phased out gasoline and diesel motors by 2035 for light duty vehicles. Assuming GM can both maintain market share and the total level of cars sold, GM could be selling nearly 2.5M electric vehicles by 2035 more than 8X the pace of all electric car sales in 2020. However, the next two largest manufactures have more limited but still aggressive scopes of electric vehicle development. Toyota intends to be selling 70% of all new car sales as electric by 2030. Ford has announced plans to electrify all its European Auto sales by 2030 but has not yet set such a target for US car sales. However, given the rapid development timeline for Europe, the US may not be far behind in terms of goals for a mostly electric fleet of new car sales.

Even if the 3 manufactures hit their goals, converting the US automobile fleet to entirely electric would still take years. The US Automobile fleet was comprised of more than 276 million cars in 2020. If 70% of cars sold in 2035 are electric vehicles, then the US would be adding approximately 10.5 M new electric cars. Assuming the total fleet stays the same size through time, then it would take nearly 20 years for the fleet to convert to over 70% electric. 

While it’s clear that electric vehicles are coming down the road for the American consumer in mass, the conversion of refined product demand into electricity demand may still be years away. For more on the outlook for electric vehicle adoption and implications for the US energy supply mix please see BTU Analytics’ upcoming Long Term Natural Gas Outlook.

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Anthony (Tony) Scott has built an in depth understanding of the North American energy market by providing investment advisory services and leading teams of analysts focused on the North American energy complex. Mr. Scott has conducted hundreds of consulting engagements assisting producers, marketers, midstream, refiners and private equity understand how rapidly changing natural gas, natural gas liquids, and crude oil markets in North America would impact their assets.

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