We entered 2020 with a common outlook that the automotive industry would see more change in the next five years than was seen over its past 100 years. We are likely to see even more rapid change in 2021 as forces converge to align public policy, capital markets, industry investment, and consumer demand to move electric vehicles’ (EVs) supply and demand toward the elusive inflection point.
Plante Moran’s Mobility Intelligence Center (powered with Auto Forecast Solutions) projects that non-ICE (internal combustion engines) will account for 20.6% of the North American market in 2027, more than double the share of 9.2% in 2020. This “non-traditional” share is a complex mix of hybrids, plug-in hybrids, full-battery electric, and other propulsion types. It is easy to write-off the next five to seven years as little will change and say, “ICEs will still account for 80% of the market,” which is accurate, statistically. Except, this view fails to account for the direction of the curve, which is declining. And the stakes are high for those in that downward demand spiral as the power source transitions from the market share of 90% ICE to 80% and lower in the coming years.
There is a common thread of economics, environment, and equality through US president-elect Biden’s cabinet choices
In the US, the automotive industry, consumer markets, and public policy have not aligned to promote EV product development and consumer demand. However, 2021 will be an important year where several trends converge toward alignment. First, capital market players have already begun to allocate assets towards environmental sustainability themes. These include JPMorgan Chase not financing coal mining companies and BlackRock’s recent announcement that it will increasingly look to support sustainability-related shareholder resolutions. These and other announcements show the financial community is aligning its long-term investment policy with environmental sustainability.
Second, US public policy has not been supportive of the acceleration of EV use. However, in the new administration, there is a common thread of economics, environment, and equality through US president-elect Biden’s cabinet choices, including Janet Yellen as US Treasury Secretary (interest in carbon pricing) and Brian Deese, National Economic Council Director (previous BlackRock Global Head of Sustainable Investing and Paris Climate Agreement negotiator). Secretary John Kerry, the special presidential envoy for climate, and Jennifer Granholm, US Energy Secretary, a proponent of non-fossil fuels, will elevate environmental considerations into most policy discussions.
Third, there is significant momentum in the automotive industry investments in EVs. The announcements of new EV production are too numerous to mention; however, our projections come close to 3 million units built on dedicated EV platforms in 2026. As electrification moves into the mainstream, such as the Ford Mustang and F-150, the emphasis is on lead nameplates within the product line-up. These capital investments are ingrained in capital budgets, as General Motors illustrated by devoting more than half of its capital spending and product development to electric and electric-autonomous vehicle programmes.
The stakes are high for those in that downward demand spiral as the power source transitions from the market share of 90% ICE to 80% and lower in the coming years
The fourth driver is growing demand. Now, it is easy to refute this with low gasoline prices at US$2.25 per gallon. However, the recent momentum has been coming with fleet customers such as Amazon, Federal Express, and UPS that have stated carbon reduction or carbon-neutral objectives in the 2035 to 2050 timeframe. Driven by investor pressures, these stated goals are likely to increase.
As the drivers within capital markets, public policy, industry capital expenditures, and customer demand come together, the theme of the coming year in 2021 will be to “follow the carbon reduction trail” to understand how the EV markets will accelerate to reach the inflection point.
The opinions expressed here are those of the author and do not necessarily reflect the positions of Automotive World Ltd.
Daron Gifford is a Partner with Plante Moran, an accounting and consulting firm based in Michigan. Dave Andrea is a Principal with Plante Moran’s strategy practice and leads the Supplier Relations Analytics practice.
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