A plan floated by President Donald Trump's administration last week to drop the electric vehicle tax credit could have a massive negative impact on the U.S. automotive industry and give an edge to foreign brands just as automakers worldwide are pledging to go "all electric."
One major new study suggests hybrids, plug-ins and pure electric models will account for at least 50 percent of global new vehicle sales by 2030. Trump's tax cut would eliminate a credit of up to $7,500 for electric vehicles such as the Chevrolet Bolt and Tesla's Model 3.
It would be "a mistake (that) will have a significant impact," slowing the adoption of clean and highly efficient battery technology, said Xavier Mosquet, the lead author of a study on electrification by the Boston Consulting Group.
Even worse, Mosquet warned, such a move would have a disproportionately negative impact on domestic automakers and suppliers, especially Tesla and General Motors. The California battery-carmaker had hoped to boost production 600 percent between 2016 and 2018, to 500,000 electric vehicles annually. GM, meanwhile, has seen a surge in demand for the Bolt and is planning to roll out 20 new BEVs by 2023.
Global battle for first place
Foreign-based manufacturers, less dependent on the U.S., would be likely to gain momentum, according to Mosquet and other analysts, because incentives are increasing in many overseas markets, even as countries like China, Germany, India, France, and the U.K. tighten emissions and mileage rules to further promote the switch to battery power.
Over the long term, even cutting incentives may not matter, however, as battery prices are falling and improved battery technology makes electrified vehicles more competitive on their own.
The BCG study noted that since just 2010 the average cost of lithium-ion batteries has fallen from $670 per kilowatt-hour to around $150. And that should hit $70 within five years. For a vehicle like the Bolt, that would mean a reduction in factory battery costs from around $40,000 to barely $4,000. Toyota aims to introduce next-generation solid-state batteries by 2022 that could trim costs another 20 percent while also extending range and reducing charge times from hours to minutes.
Also worth noting: The more that oil costs rise, the more the equation shifts from the internal combustion engine to electrified vehicles. The study assumed that oil prices will hold at $60 a barrel through 2030, but if that rose to $90, sales of battery-based vehicles would rise even faster.
The anticipated surge in sales of battery-based vehicles will reshape the automotive market worldwide, though the mix of technologies will vary from one country to the next. Pure battery-electric vehicles, or BEVs, will gain more traction in places where electricity is cheap and motorists tend to clock lots of miles each year — notably China and the U.S.
BEVs will also prove particularly popular with ride-sharing services, like Lyft and Uber, as another breakthrough technology comes to market. In a separate study, BCG forecast as much as one-third of the miles Americans clock on the road each year will, by 2030, be inside fully driverless vehicles operated by those services. Millions of Americans are even expected to abandon their private vehicles entirely.
But the internal combustion engine won't completely disappear: Conventional drivetrain technology will still make up at least one-third of all new vehicle sales by 2030. The big loser will be diesel. Sales have already begun to collapse in the wake of the Volkswagen diesel emissions scandal — and that downward trend will continue.