EVs Have Been a Growth Story, But Will That Continue?

Steve Odland: Welcome to C-Suite Perspectives, a signature series by The Conference Board. I'm Steve Odland from The Conference Board and the host of this series. In today's discussion, we're going to talk about electric vehicle adoption in the United States. What are the incentives, the challenges in the EV market?  

Joining me today is Dr. Alex Heil, senior economist and the interim leader of our US Economy, Strategy & Finance Center. Alex, welcome.  

Alex Heil: Thanks, Steve. Good to be here with you.  

Steve Odland:So Alex, you've written a really interesting paper on the EV market, the electric vehicle market, in the United States. What is an electric vehicle? There are multiple flavors to this.  

Alex Heil:Yeah. So I think if we want to differentiate some of the drivetrains, we have the traditional fossil fuel-powered vehicles, and then we have a variety of hybrid vehicles that either includes the plug-in hybrids, meaning those are vehicles that have a small electric engine, a small battery. And there's a combination between an electrically charged drivetrain, as well as a hybrid fossil fuel, partially fossil fuel-powered engine.  

We also have a hybrid that is not a plugin. So a hybrid that would include basically just this sort of transition engine that is partly fossil fuel-driven and partly based on a mechanism by which you get some electric power charged within the process. And then we also have the pure battery electric vehicles. Those are the ones that I think people mostly think about when they think about electric vehicles. Those are the ones with a big battery, you charge them, and then you get certain range out of it. And by the time you run out of range, you have to plug in again. And it's all 100% electricity-powered.  

Steve Odland:So four modes. One is internal combustion, gas or diesel only. Second is electric only, pure electric like a Tesla. Third is hybrid, like a Prius. And then fourth is a plug-in hybrid, which is both. You have batteries to charge and an internal combustion engine. Did I get that right?  

Alex Heil:Yeah. That's correct. It's a range between fossil fuel on the one end and pure battery electric on the other.  

Steve Odland: OK. So just talk about the trends here because EVs, and we're using that broadly to cover multiples of these, they've been really growing recently in share.  

Alex Heil:Yeah, 2024 was a year characterized by a lot of growth in that vehicle market. So electric vehicles, that's battery electric, they grew by a little over 7% to about a million 1.3 million vehicles sold. 

And in order to, we just talked about hybrids, you have to add to that, and another almost 2 million of hybrid vehicles that were sold as well in 2024, bringing the total for those three electrified, in various stages, vehicle categories to a little over 3 million vehicles. 

That's almost 20%, that's around 20% of all vehicles sold in the US, that'sa big number. The battery piece of this is a little under 10%, but it's a number that's been rising relatively quickly, so we've broken through the million-dollar mark with battery electric vehicles, essentially, a couple years ago. And growth has slowed slightly in all of this, so the 7% growth in that market segment is a little less than we had in a couple years prior, but still, overall, it'spretty healthy growth. 

Steve Odland:Yeah, in classical marketing terms, you talk about early adopters on any new technology, and that's what we saw probably for, I would say, for the first half a dozen years or so. And then you have the people who follow on, and I think we're at the high-growth stage here, which means that there's greater trust in the technology, but one of the things that people have been trying to overcome is this range anxiety, and so this level of growth suggests that people are coming to terms with that.  

Alex Heil: I think that's true. I think the latest models of the electricvehicles, they have a lot of range. And certainly enough range to cover most of the average household's trip. But that's even true for plug-in hybrids. So a plug-in hybrid, if you take the sort of the standard model, maybe has a range of 30, 40 miles to a charge. 

But it's true that most trips in the United States, if you look at the average household and their driving patterns, most trips are a relatively short distance. So you can accomplish a lot, even with a relatively small battery capacity. However, you have to qualify this. That's true, especially in the suburban setup, where people have charges at home, they can return to their home base, they can recharge. In more rural environments where distances are longer, that's not always the case. So it also depends on the circumstances.  

Steve Odland: Now, the other barrier has been the upfront costs. When Tesla first came out, they came out with their most expensive model, it was very expensive, it was equivalent to a luxury sedan. And that's just a barrier for most people. Now, as more manufacturers have gotten into it, and the electric-only manufacturers have brought in cheaper vehicles, it's made it more accessible. So how do the upfront costs compare?  

Alex Heil: I think in the US, in particular, it is still true that battery electric vehicles come with a price premium compared to a fossil fuel car, the comparable. That premium, it depends on the type of car you're talking about, could be anywhere around 20% to 30%. You also have potentially higher insurance costs, but if we're just talking about the upfront investment, there's still a premium associated with a battery electric vehicle. That premium has shrunk over time, I think that's certainly true, largely in part because of falling battery cost, but it's still there. 

The current industry view is that, depending on some of the circumstances around further adoption, technological improvements, resource prices, component prices, and so forth, we'reprobably looking at reaching price parity within the next three to four years or thereabouts.  

Steve Odland:The other thing that people have been talking about is, the reason that you go to a battery electric is because it's more fuel efficient and energy efficient, but you've written a lot on the about the electrical grid and the fact that it still is too reliant on fossil fuels, for one thing, but secondly, there's a limit to the grid. Where is the tipping point on that? Where, in order to put a substantially higher number of vehicles onto the grid to charge, that you really have to expand the grid dramatically.  

Alex Heil:Yeah. So I think, just staying with the vehicles for a moment. If you're looking at basically the amortization of some of the emissions that are embedded with the battery, mostly, but also some of the manufacturing, it depends on the type of vehicle. It depends on how many miles a person drives per year, but usually studies, they peg it around, let's say, 15,000, 20,000 miles. So what does that mean? After 15 or 20,000 miles, a battery electric vehicle has broken even in terms of the emissions reductions and then becomes environmentally beneficial completely. 

Soit's basically amortizes that big lump of emissions from the battery. Now I think what we've also seen is certainly the improvement of the battery quality. We've seen improvements in some of the mineral content that is used in some of these batteries. We've seen prices drop. So all of this has contributed to the further environmental improvement of battery electric vehicles, but the point is well taken that if we're looking at the grid overall, a large-scale electrification of transportation, let's say in the passenger space, ignoring freight for a moment in certainly the passenger space will require more electricity demand of electricity capacity. It will increase the load demand.  

We're not at the point yet where we can necessarily say that the grid is up to that particular challenge, but that's true because also the overall energy transition depends on electrification of a variety of sectors, transportation being one of them.So I think that's a challenge going forward, just thinking about how can we make sure that the grid holds up to that particular challenge. 

Steve Odland: Yeah, you could think of it as if there was price parity between an internal combustion engine and a battery electric vehicle, and if the range was acceptable, and if the charging was as plentiful and as fast, there would be no reason that consumers wouldn't move to a battery electric vehicle. They're faster. They're simpler to maintain and so forth.  

So there are some things here that are moving in the right direction, but still are somewhat barriers. Talk about the charging infrastructure as a barrier, and where do we stand on that, as well as the regulatory environment.  

Alex Heil:Yeah, it's sometimes viewed as the "chicken and the egg" kind of a problem, right? You need a charger in order to recharge your car. But it only makes sense to have a vast charging network if there's a sufficient number of vehicles on the road that can utilize this.  

We have as a country, if you look at public charging stations in particular, we've made tremendous progress over the last few years. So the number of publicly available chargers has doubled in the last four years. And that's significant. That is paired with some of these investments that households have made in their own charging. infrastructure. So if you live in a suburban household, you have sufficient space in your garage, you can install a level two charger, which is a relatively fast charger. And you can replenish your vehicle's battery overnight and then be ready to go in the morning. So that's certainly one end of that development.  

The other one is publicly available charges. We've seen some investments being made on the public side, there's been an incentive the prior administration had made on how many billions of dollars were going to be invested in public charges. That was relatively slow to pick up and take off. So as of right now, I think it is probably likely to be a situation where there's not going to be much policy support that public chargers are going to be receiving from the current administration.That's going to be one challenge for the continued growth in electric vehicles.  

But, on the other hand, we have also seen that private chargers, household chargers, they have seen significant growth, as well. And some of those are still being supported financially by, for instance, the incentives from your local utility, or the energy generation firms that provide some of the financial benefits there. I think with chargers, it's a challenge, but it's certainly one that overall, it's being overcome, but it just takes some time. 

Steve Odland: Level one is just, you plug it into an outlet. That takes forever. Level two is a 220-volt, which you have to install separately with the charger.But then there's also DC charging that's all AC, but DC, charging direct current, is actually very fast.And that seems to be the majority of what's being installed in charging. 

Alex Heil: Yeah, I think that the point is that if you're on the road, and you need to recharge your car, you can't wait for eight hours, right? That's really the point. So you need something that can replenish your battery in relatively short order. If someone drives from New York to Washington and needs to recharge along the way, having a DC charger, that makes that trip suitable. You can basically plan a stop along I-95 and then, after a relatively short period of time, be up and running again.  

I think that comes with this entire transition to electric vehicles, fast charge is the way to go. Now, you don't always want to charge your battery in that way because it's a little bit too intense for the battery to take on a day-to-day basis. But it is certainly something that makes your operations a whole lot easier.  

Steve Odland: And if you can plug in with a DC charger, you can plug in and get 80% of your capacity in what, 20 minutes? So it puts it within reason for a longer trip. And so therefore that helps with the adoption, as well. 

Alex Heil: Oh yeah, absolutely. I think this whole issue, you mentioned it in the beginning, is range anxiety. A lot of households have experienced this, that one of the obstacles, just from a behavioral perspective, "How much can I rely on my car being available for a trip?" Especially once we're talking about a couple hundred miles of distance in driving. That certainly provides an obstacle overall. 

I think we've also seen now with new battery composition, new battery chemistry, we've seen improvements in range. We've seen improvements in the extent to which battery capacity falls in cold weather, for instance. That's a big advantage because it used to be the case that, once you reach the winter, there's a lot of capacitythat's lost just because of the temperature alone. But some of the improved battery composition of some of the more recent battery technologies, they do overcome some of those challenges, as well.  

Steve Odland:We're talking about electric vehicles and the economics of those. We're going to take a short break and be right back. 

Welcome back to C-Suite Perspectives. I'm your host, Steve Odland, from The Conference Board. And I'm joined today by Alex Heil, senior economist and interim leader of the US Economy, Strategy & Finance Center.  

Alex, you mentioned earlier, before the break, that most of our conversation was on passenger vehicles, but for commercial travel or freight travel, it's a different deal entirely, isn't it? 

Alex Heil: Yeah, I think that we're talking about these numbers that have been very impressive on the passenger side, several million cars. The projection is that, depending on how you interpret the continued adoption towards the end of this decade, we're going to reach a point where a quarter, 30, 40% of vehicles on the road are going to be battery electric vehicles or hybrids or some combination thereof. 

On the freight side, it's really a different story. We're really in the early stages there. The numbers are much, much smaller for these long-duration trips of trucks. The electrification of that slice of the transportation system creates much bigger challenges. There needs to be much more investment in trucks that can handle that sort of range. 

We need to have the adequate charging infrastructure to service some of these long-distance trucks. And considering how the market is organized, that's not only large companies operating these trucking networks, but also a lot of individuals, sole proprietors, essentially, that are operating a truck. The upfront cost of some of those battery-operated trucks is still prohibitive for a lot of people.  

Steve Odland: And the weight is an issue because it limits the amount of freight that you can haul, as well. You have to balance that out differently.Sothere's a lot there to deal with, but look, there are companies producing trucks that are electric. And the last-mile distributors, Amazon and FedEx and UPS, converting to electric.So there is some progress here.  

Alex Heil: Oh, absolutely. I think the moment that you can rely on a sort of a depot system, like a hub-and-spoke system, where a truck can go back to its home base, to a warehouse, at the end of the afternoon or the end of the night, recharge overnight, and then be back out again the next morning, I think that's very much doable. I think that'svery true.  

And you can see that already, as you indicated, in some neighborhoods, last-mile retail deliveries that are already serviced by battery-operated trucks. I think it's the long-distance market, the New York to Chicago, New York to the West Coast, anything along those kinds of what one has imagined as being the long-haul truck routes. Those are going to be the ones much more challenged by this.  

Steve Odland:Yeah. And then you've got rail, which is a competitive system to trucks. And not much is being done there, but you could see some demand shift or supply shift there, depending on where regulatory policies go between rail and trucks.  

Alex Heil:Rail is, it depends on what the transportation modes are like in their specifics, but rail historically has been the environmentally safer, the less emissions per ton of freight transported type of mode. So there have been benefits there, and that's certainly true. In a world where we're shifting completely to battery-operated trucks, maybe that's going to change. But rail certainly has an advantage in that long-distance traffic.  

Steve Odland: Now, you can't turn on the television or look at a newspaper without reading about tariffs and trade barriers and industrial policy. And all of that does impact the US EV market, particularly as it relates to critical minerals and components to make batteries. Talk about the macro environment here and the potential impact on EVs.  

Alex Heil:Yeah, so I think it's important to just recognize that the biggest cost driver for an electric vehicle is the battery. And the prices of lithium-ion batteries, in particular, have come down dramatically over the last few years. So in 2024 alone, the battery drop price drop was 10%. That's the biggest one since 2017. So that's meaningful.  

Just to give a sense. , and these numbers don't necessarily mean anything without context, but just to give where we are in this, the current price per kilowatt hour of battery capacity is around $115. Industry analysts currently forecast that the moment they're going to hit $100 per kilowatt hour of capacity, we're reaching price parity between fossil fuel vehicles and battery electric vehicles. 

So that's all to say that, in the battery, the materials being used, a lot of those come from other parts of the world. They are not necessarily manufactured in the United States. So trade barriers, trade tariffs are going to be affecting some of those prices. I think the current sense in the industry is that tariffs on imports to the United States, including some of these materials, are, if not increasing prices of battery electric vehicles or the battery component thereof, but at least slow the decline. And I think that's certainly true in that regard.  

Steve Odland: Yeah, and I keep pointing here, you've got rare-earth minerals, but lithium's a big deal. And there is lithium in the ground in the United States, you've got regulatory issues around mining it, but we're dependent on China for a lot of our lithium now. 

Alex Heil: Oh yeah, absolutely. There are mines that have been basically proposed or have been planned out west—Thacker Pass in, I believe, Nevada—is one of them. But most of those materials currently come from China. And we're all aware of the trade tariffs that we're now dealing with and what that actually means for some of these minerals. 

So I think that going forward, not only for component parts, but also for the minerals themselves, we're going to be dealing with an environment where there's going to be upward price pressure, and that's going to make that transition to electric vehicles even more challenging.  

Steve Odland: Which makes the discussions about the deal with Ukraine over some of these minerals very interesting and potentially a game-changer if that comes to fruition. 

Alex Heil:Yeah, there's the minerals part, and that's certainly true. I think the other part that is important here is a focus on recycling of some of these materials that have already been in use in some of these batteries. So if you take the traditional car battery that everybody is used to from decades ago, we have reached a level of recycling in that market that is truly tremendous. I believe it's 98% of that material, lead acid batteries, are being recycled.  

So I think going forward, there's really a lot of growth in the used EV market, and ultimately, there will have to be a plan. There's going to be some plan towards recycling some of these battery components. 

So considering this growth, certainly one of the early challenges now is going to be to think about how to secure access to some of these materials, how to make sure that we have enough battery capacity for these, for the increase in manufacturing. But also then, if you take the longer view, there needs to be some consideration of, oh, we can probably recycle some of these materials that have already been in use in some of these cars. 

Steve Odland:Yeah. And that's lithium. But you and I have talked in the past about the newer technologies. Sodium batteries have high promise at low cost. You also are hearing about solid state development. There are technologies in the pipeline here which could radically change the economics. 

Alex Heil: Oh, that's absolutely true. I think that the technology and the rate of improvements there is fast, and it's going to have a huge impact on the market. The other area that I think is really important to consider is, at some point, we're also going to reach critical mass. And you mentioned the grid before. When it comes to bidirectional charging, which is basically the process by which you connect electric vehicles to the grid, and the battery becomes a support for the grid during high demand times and so forth, there's currently, I believe, a couple electric vehicle models that are able to already do this. They can basically power your home or serve the grid if you have the right infrastructure in place.  

But if you extrapolate from there, and you look at a fleet of electric vehicles that is being used by US households everywhere, that could be a game-changer when it comes to just the amount of storage that is available supporting the grid and make some of these shortages also a little bit easier to handle.  

Steve Odland: One thing you've said before, and you've written about is that the grid capacity is not as acute as it would appear because you're looking at grids, the capacity maxing out in the daytime when there's maximum use, but most of these charging most of the charging happens overnight, which is when the grid is not at capacity. So this actually helps level out use of the grid.  

Alex Heil: Yeah, I think that's true. I think there's a general sense that the grid certainly is undersized considering electrification going forward, but reconductoring the process of improving some of the materials that are used within the grid itself, that can increase capacity by 20%. As you mentioned, just changing the timing of when one connects to the grid in order to recharge vehicles or storage or anything along those lines. I think that can make a difference.  

SoI think there are ways to more efficiently operate the electric grid and the energy system that can certainly get us years into the future without necessarily making big sacrifices there.  

Steve Odland: Now we've talked about learning from what other countries are doing, and certainly there are countries that are that have higher rates of adoption and usage of EVs, Norway being a classic example here. Talk about what we can learn elsewhere and apply here.  

Alex Heil:Yeah, so you mentioned a series of publications that we put out. We published this and we wrote it up, our research in collaboration with our colleagues in Europe and in China, and that has allowed us to gather insights around other markets. We wrote a paper on Norway, wrote a paper on India. We had a real interesting reflection on what other markets are like. China was another regional market that we looked at.  

And these are all very different stories. Norway is, at this point, north of 90% when it comes to electric vehicles as a share of annual car sales essentially. So that's in part due to the significant financial incentive that they have in place and this network effect that, once you have this large number of EVs and a relatively widespread charging network, that really the small country has really pushed into this and leaned into it. 

If you look at other countries, and that'sprobably true for the EV market overall, it's really a China story. You can see a lot of capacity expansion in China. You can see the prices of battery electric vehicles coming down dramatically. 50% of new cars sold in China are now electric. So you can see a lot of this.  

And really, in terms of growth, Chinese manufacturers are now looking for overseas markets. They're looking, they can't enter the US, but they can look towards other parts of Asia, they look at Europe, certainly. And market shares are going to be moving there in their favor relatively quickly, one would think. And that's certainly very impressive, that's very descriptive of what's happening in the market. 

India, on the other hand, is another story, right? They'revery early on in this electrification process. For them, an electric vehicle is still ?a luxury product. That is, affordability is one of the big issues for various reasons. And there, in the intermediate, near-term future, it is much more a question of how you electrify two- and three-wheel scooters. Because that's something that is going to have an immediate effect, especially on air quality in some of the highly populated cities, like Delhi, for instance.  

Steve Odland:Yeah, tuk-tuks. As you said, every story is different. In the case of China. They don't have oil. They're buying it from Russia. They're trying to reduce their dependence on oil. And so therefore, they're building a coal-fired plant, production plant, electricity plant every month. It's a really high rate, which is not good for the environment, but they're going to get there and be able to electrify their fleet and therefore reduce their dependence on oil coming from other countries. 

But every country has a different story. Norway's got mostly hydropower, which is clean and plentiful there. In the desert nations, there's no hydropower. Soit's a different challenge everywhere.  

Alex Heil: Final question. What do you see in terms of projections for EV adoption over the years, and what could influence those projections?  

Certainly, in the very near term, some of the policies enacted are going to make a difference. There's been work put out by academics last year, I believe, that suggested that as a result of an elimination of the tax credit that EV purchasers currently enjoy, the sales might drop by about a quarter or so. 

Alex Heil: Now, that's true. I think overall, some of this is going to be overcome by the continued downward trend in prices. If you look out a little bit further and try to project where we're going to be in terms of the shares of vehicles that are going to be electric as part of the total, I think, by even 10 years from now, we might have reached and gone through 25%. Maybe 30% of all vehicles might be electric at that point, but that requires a relatively quick adoption considering the average age, the life cycle of a car, is 12 years or something like that. 

So it takes a while for fossil fuel vehicles that are sold today to actually be retired. If you mirror this globally, I think you get similar projections. So if the sales share reaches 50% and then goes north of that, I think we may get to the point that, by the end of the next decade, a third, 40% of all vehicles might be electric. 

We've run these numbers in the past, and we've had these conversations, Steve, about what this means for greenhouse gas emissions. I think one of the big factors is just simply it takes a while to turn over the portfolio of cars that is currently on the roads in the United States and completely electrify those millions of cars. 

I think we're going to see more growth in the near-term growth. I think it's going to be slower than it otherwise might have been, but I think EVs are certainly set up for. dominance of that market, especially internationally, if the current projections hold.  

Steve Odland: And it's going to take decades, and we need to plan, which is a point that you've made over and over again. We need a master plan for this, so, Dr. Alex Heil, thanks for being with us today.  

Alex Heil: Thanks so much for having me.  

Steve Odland: And thanks to all of you for listening to C-Suite Perspectives. I'm Steve Odland, and this series has been brought to you by The Conference Board.