Despite a growing number of plug-in electric vehicles on display at this year’s North American International Auto Show in Detroit, industry analysts say the segment has failed to reach the “aspirational” levels many had hoped.
Electric vehicles now must compete with sub-$2 a gallon gasoline prices, while Midwestern states like Michigan continue to lag behind places like California with more progressive incentives meant to encourage EV purchases. Despite those challenges, the sector’s volatility and its low-volume sales haven’t really hurt West Michigan auto suppliers, which currently have plenty of business opportunities in an era of high capacity utilization.
“The growth of plug-in electric vehicles has been impressive, but it’s not at aspirational levels that President Obama articulated a few years back,” said John DeCicco, a professor at the University of Michigan’s Energy Institute who has studied transportation issues since the 1970s. The recent EV sales growth also occurred during a period when gas prices inched near $4 a gallon, DeCicco added.
In 2011, Obama announced a goal of one million electric vehicle sales by 2015. The latest figures show sales are still reportedly below 300,000 units. Additionally, the number of “green” car sales reportedly dropped 16 percent last year, according to Forbes.
“With the mode we’re in now, it’s going to be more of a struggle” to increase those numbers, DeCicco said. “Some of the expectations set up around electrification always were unrealistic.”
Mike Wall, director of automotive analysis with IHS Automotive in Grand Rapids, agrees that the number of electric vehicles on the road has fallen short of expectations from five to 10 years ago.
“Since oil prices collapsed, it’s been a slow slog thus far in driving incremental volume,” Wall said. “We’re seeing more models come out, but it’s tough to grow the overall pie when you’re looking at (gas) prices of $1.75. It’s been a little tricky, no doubt.”
Given the struggle to reach any large volume of EV sales — for example, Tesla sold 50,580 vehicles globally, while General Motors moved 50,866 Chevrolet Suburban SUVs in North America alone — the claims remain overhyped about EVs lowering greenhouse gas emissions compared to gasoline-powered cars and their ability to give a jolt to parts suppliers, according to DeCicco and Wall.
Supply chain implications
For suppliers across the state, Wall said automakers originally quoted part volumes at levels that were “a lot higher than what ended up happening in reality. Suppliers had to navigate those.”
“This happens even in non-electric vehicles, too. You see some models come out that don’t do as well,” Wall said. “Given the market dynamics and the oil price spike coming back down, the immediate near term left suppliers with a little more volatility on these programs.”
Jim Teets, president and CEO of Grand Rapids-based ADAC Automotive, said EVs and hybrids “haven’t really impacted our product and sales.”
ADAC specializes in exterior vehicle components like mirrors and door handles. Teets also serves on the board of the Original Equipment Suppliers Association, a trade group for auto suppliers.
“Unless you have a component or a powertrain-type part that’s really affected by hybrids, I really don’t think suppliers are being affected that much,” Teets said.
Wall said even those affected by slower-than-projected growth would likely easily recover given the capacity constraints in the supply chain. The median capacity utilization rate for respondents to OESA’s January Supplier Barometer stood at 85 percent.
“Suppliers in general are pretty savvy about those things. It’s never easy, but they find a way to learn how to make money on programs that had lower-than-expected volumes,” Wall said. “It may be the case when one under-performs in the product suite but they make up for it elsewhere.”
Similarly, DeCicco downplayed the impact that spikes or declines in electric-vehicle production have on the supply chain.
“Often, the jobs and competitive implications of technology changes in the sector is also an area that tends to get overhyped,” he said. “Firms are always competing with each other. The supply chain is really rich with many levels of people involved.”
However, Wall also noted that federal mandates like Corporate Average Fuel Economy (CAFE) standards could continue to benefit suppliers, particularly those in powertrain development and lightweight materials.
Moving the needle on emissions?
DeCicco from the University of Michigan said it’s also unclear at this point how much greenhouse gas emissions are being displaced by electric vehicles. While EVs can offer lower emissions directly from the vehicle, the comparison with gasoline vehicles is complicated based on the source of energy used to charge the vehicles.
Theoretically, EVs charged with electricity from a clean energy source have lower associated emissions than those charged with electricity from a coal-fired plant, for example.
“But we are in a situation where we don’t really know,” DeCicco said of how much electric vehicles have decreased overall emissions.
Recent studies have concluded that — from “cradle to grave” — electric vehicles on average account for lower greenhouse gas emissions than their traditional internal combustion engine counterparts. The Union of Concerned Scientists reported last year that battery-powered electric vehicles on average produce less than half of the climate change emissions of comparable gasoline vehicles.
Much of the comparison, however, depends on how clean the state or regional electric grid is.
“The extent of benefit varies depending on where you are, with benefits being greatest in states with cleaner electric grids,” DeCicco said. He added that gasoline vehicles also have become increasingly more fuel efficient as automakers brace for tighter CAFE standards that ramp up to 54.5 mpg by 2025.
“I do not know of any evidence that electric miles are going to make significant inroads other than in fairly concentrated pockets where the technology is complemented with adequate charging infrastructure and incentives,” DeCicco said. “I don’t see this having a statistically significant impact on emissions and petroleum consumption at the national level anytime soon.”
However, clean-energy advocates point to a string of upcoming coal plant closures in Michigan as well as the federal Clean Power Plan as signs that emissions related to EVs over the life of the vehicle will continue to decrease.
The road ahead
Charles Griffith, director of the Ann Arbor-based Ecology Center’s climate and energy program, characterized the EV industry’s growth as “in a good place, evolving slowly but consistently.”
“It’s unfortunate that electric vehicles become a politicized topic, so whenever sales are down, you get some people spreading information that the market has tanked and no one cares about electric vehicles anymore,” he said. “You have to keep countering that misinformation with what’s actually going on in the market, which is primarily positive.”
Moving forward, Wall sees electric-vehicle volumes on the road “to be fairly light due to the cost of batteries, oil and gas prices and range.”
“Until we see a shift in, say, doubling the range on batteries or chipping the price in half, it’s going to be tough to get serious traction in the low (cost) oil environment we find ourselves in,” Wall said. “And frankly, we expect this to last for the medium or perhaps long term given the mix of demand and supply on the oil side.”
Wall said programs to watch include the new Chevrolet Bolt, the automaker’s first push at a mainstream electric vehicle that can go up to 200 miles on a charge. General Motors introduced a production version of the Bolt last month at the Consumer Electronics Show (CES) in Las Vegas and again at NAIAS in Detroit.
Griffith called the Bolt a “potentially breakthrough vehicle” because of its longer range and relatively lower price point compared to competitors’ models like the Tesla Model S.
“I firmly believe that part of this discussion is range. If you’re increasing to 200-300 miles, that’s a big deal,” Wall said, particularly for markets like Michigan that have longer driving distances than more condensed metropolitan cities.
For now, though, DeCicco said “realities of the technology and the electric sector” mean the potential benefits and projected growth of electric vehicles are being promoted “more than is warranted.” While the electric grid is getting cleaner, gas-powered vehicles are also getting more efficient and having progressively lower greenhouse gas emissions.
“You have some really fundamental hurdles that work against electrification ever totally scaling up,” DeCicco said. “Because it’s not going to be totally scalable, in spite of all of the PR and press playing to the excitement, it creates the appearance that it’s going to get bigger than it actually will get.”