The automotive industry has undergone numerous changes and challenges over the past few years. One area that continues to evolve is the move toward electrification. In 2021, sales of electric vehicles (EVs) in the United States more than doubled to surpass half a million units, but the industry still faces many challenges as it transitions to EVs. Geopolitical strife, semiconductor shortages, limited charging infrastructure, and increased battery and raw material demand are among the barriers to wider EV adoption.
EVs experienced substantial growth in 2021 as their global market share climbed to 11.9 percent of the light-vehicle market, demonstrating a clear acceleration in adoption. EVs saw a massive increase in sales in all segments in 2021. Plug-in hybrid electric vehicles (PHEVs) experienced the most significant sales percent change with a rise of 65.3 percent, followed by battery electric vehicles (BEVs) with a 63.8 percent increase.
Fuel cell and hybrid models saw the least growth in 2021, albeit still strong, with 40.7 percent and 37.4 percent increases, respectively. This growth comes despite challenges that have plagued the automotive industry over the last three years, including the global pandemic and supply chain bottlenecks due to semiconductor shortages.
Some 2022 and 2023 projections now show that the Ukraine war and semiconductor shortages are expected to reduce global production by more than 5 million vehicles. The duration and severity of these disruptions are unknown due to the dynamic nature of the conflict, but, given their reliance on semiconductors and processors, EV production will certainly be negatively impacted.
Government policies and incentives have been one of the main driving forces for global EV markets, but the growth in 2021 also shows a very active year on the part of the automotive industry. In 2020 and 2021, many countries—and automakers around the world—set targets to phase out sales of internal combustion engine (ICE) vehicles within the next two decades.
In August 2021, the Biden administration set a target for 50 percent of new car sales to be emissions-free by 2030. President Biden’s $1 trillion infrastructure package includes $7.5 billion toward a nationwide network of 500,000 EV charging stations by 2030 to increase consumer confidence. Despite government incentives and record sales, the EV market still faces many challenges.
Automotive manufacturing employment is still lagging behind pre-pandemic employment levels. According to the U.S. Bureau of Labor Statistics, motor vehicle and parts manufacturing employment prior to the pandemic stood at 831,200 at the end of 2019 and at 794,500 at the end of 2021.
In addition to reduced production volumes, a persistent labor shortage is also driving these statistics. As the automotive industry transitions to include more EVs, there are many considerations in how workers and the employment landscape will be impacted.
One concern is that EVs have substantially fewer parts than ICEs and require about 30 percent less labor to manufacture, according to recent estimates.
The industry can offset the projected job losses by increasing the proportion of vehicle parts manufactured domestically and selling more vehicles assembled in the U.S. The evolution towards electrification will also require workers to possess new and emerging skill sets. The automotive industry will need to support workers as they adapt to meet the demand of the EV market to ensure that they remain competitive with Europe and China, where governments are helping their domestic automakers accelerate the transition and stay ahead of demand.
As automakers ramp up EV production, spurred by the U.S. government’s electrification targets, the lack of charging infrastructure will continue to be an obstacle for the EV market.
According to the U.S. Department of Energy, there are fewer than 46,000 public EV charging sites currently in the country. By comparison, there are more than 150,000 ICE fueling stations.President Biden’s EV sales goal will require the industry to significantly increase the number of fast-charging stations available to drivers over the next 10 years to meet EV charging demands.
According to the Edison Electric Institute, more than 100,000 new EV fast-charging ports will be needed to support the projected 22 million electric vehicles that will be on U.S. roads in 2030.
Increasing demand, improved battery technology, supporting government policies and regulations, and the release of new models by automakers are all responsible for driving the EV battery market.
Lithium-ion batteries are the most common battery type used in modern EVs. The lithium-ion battery industry is experiencing a considerable increase in demand as manufacturers look to dramatically scale up EV production over the next decade.
The challenge lies in scaling up lithium production to meet demand, as it is expected to grow sevenfold between 2020 and 2030. In addition to the growing demand for EV battery production, there is also an increased demand for battery recycling capabilities. In September 2021, four battery recyclers in the U.S. announced collectively raising more than $255 million in new funding to expand battery recycling operations.
It is expected that beginning in 2025, 398,000 tons of EV batteries will reach their end-of-life and need to be reused, recycled, or go to a landfill. This is four times the number of batteries that aged out in 2018. Recyclers are now hurrying to ramp up capacity to meet the demand, and many battery plant announcements include an allocation to dedicated battery recycling on site.
Increasing market demand for EVs, charging infrastructure, and battery raw material production and recycling create opportunities in the industry, but meeting demand will also be a challenge. Many industries along the EV value chain will need to rapidly expand to avoid bottlenecks that would slow down the transition to EVs.
The latest U.S. infrastructure bill aimed at stimulating investments in battery raw materials and infrastructure could help the industry meet demand.
Collaboration between the automotive industry and government to address some of these challenges with measures such as EV purchase incentives, subsidies for EV-related manufacturing investments, and R&D support for EV-related technologies will ensure that the U.S. economy can capitalize on the opportunities presented by the EV transition.
Julia Bush is an industry analyst with the Center for Automotive Research in Ann Arbor, Mich. Bernard Swiecki is director, research, and director, Automotive Communities Partnership (ACP) for the Center for Automotive Research.
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