It isn’t range, or charging time, or lack of charging stations holding back EV adoption.
With Ford’s recent production cut for the F-150 Lightning all-electric pickup, many industry analysts are expressing doubt about the continued growth of demand for EVs in America.
With pickup trucks representing the highest volume and highest profit margin segment in the U.S. auto industry, why is demand for an electric version slowing?
Access all episodes of End of the Line on Engineering TV along with all of our other series.
* * *
Episode Transcript:
In a move that has surprised some people — but few in the automotive industry — Ford is scaling back production of their all-electric F-150 Lightning. For some reason, this is good news for a certain political faction in America that feels the electrification of the vehicle fleet is a bad idea, but I think it suggests something very different, and very important.
Let’s boil it down to simple facts: electric vehicles emit no CO2. Electric vehicles emit none of the other pollutants that come from internal combustion engines, either. Electric motors are far more efficient than internal combustion engines. Electric vehicles are higher in performance model-for-model compared to their internal combustion engine counterparts. Electric vehicles have lower maintenance costs than internal combustion engine vehicles.
That’s all good stuff.
Now here’s the bad: electric vehicles are much more expensive than their equivalent internal combustion engine counterparts. EV driving range is much lower. EV charging time is far longer than refuelling an ICE vehicle. When the batteries wear out, the repair costs are astronomical. And electric vehicles are dependent on a charging infrastructure which is not as widely available as filling stations.
So, with all these pros and cons, is there a single make-or-break factor that is the rate-determining step toward EV adoption? I say yes, and that factor is simply the MSRP.
Even the cheapest electric vehicles have out-the-door transaction costs that are at least 20% more expensive than internal combustion engine equivalents. That’s an amount of money which can’t be made up in gasoline savings.
But more importantly, this transition is happening at a time of normalized interest rates. After two decades of prime rates in the 2% range, a lot of us came to think that this was the new normal. It isn’t. Paying 7% or 8% or more for a car loan once was the historical norm, and it is again.
And even with car loan terms in America now stretching out to six or seven years, those kinds of interest rates still mean monthly car payments that can be $700, $800 or $900 a month.
On top of that is the increasing cost to service other debt, like home mortgages and credit cards, and you have a prescription for some epic belt-tightening for the American consumer.
According to Statista.com, the average age of cars and light trucks in America is 12.2 years. The Federal Highway Administration reports that the average American drives just over 14,000 miles per year. So, the average vehicle in the fleet has something like 170,000 miles on it, with perhaps 1/3 of those well over that figure.
That is solidly into the timeframe for expensive failures of critical components in the engine or transmission, and the residual value of those vehicles is very unlikely to exceed the repair cost. It can easily cost $5,000 to replace a transmission today. There are ¼ of a billion vehicles on American roads. That’s right, 250 million. Annual sales are just under 14 million, of which over 10 million are light trucks. The age of the vehicle fleet means that many of those sales are not voluntary; rather, they are replacing end-of-life vehicles. And with high inflation and higher interest rates, a significant proportion of consumers that might want electric vehicles will instead buy internal combustion engine cars or light trucks, to keep the monthlies down.
With loan terms as long as six or seven years, the statistics suggest that they will in turn be driving those vehicles for a dozen years or more. This has the effect of pushing back electric vehicle adoption by a decade for many that would otherwise take the plunge.
And it has nothing to do with range, charging station availability, or carbon footprint. This is about the math that really matters: in the pocketbook.
