Is the chip shortage a perfect opportunity for BEV growth in the US?

A new wave of BEVs is capturing the US market as stocks of ICE vehicles run low. Can electric vehicles overtake the competition?

Kevin Riddell, Senior Manager, Powertrain Forecasting

13 July 2021

Battery electric vehicle (BEV) sales in the US and Canada have been on fire this year. BEV sales are typically slow at the start of the year and pick up in the spring, but nothing has really been ‘typical’ since March 2020. In the first five months of this year, BEV sales accounted for 2.5% of the US market and an even higher 3.1% share of the Canadian market.

Are we finally entering a phase of higher BEV demand? We have seen a range of new vehicles across different segments and sizes enter the market, with more in the pipeline. Sales of the Tesla Model Y have soared, following a pandemic-hampered launch, and the model has been joined by the Ford Mustang Mach-E, Volkswagen ID.4 and Volvo XC40 Recharge, among others.

By year-end, there will be 21 new BEVs in the US market and we anticipate twice that number of new arrivals in 2022. This wave of new products brings more variety, more capability, more range, and more emotion than ever before.

The chip shortage has compelled OEMs to prioritise planned BEV launches and recent sales volumes suggest that this was a good call. What remains to be seen is whether BEV will be a sustainable segment, particularly as government incentives continue to play a crucial role. Is the segment being buoyed purely by availability, rather than consumer choice, in a period of shrinking dealership stocks of traditional ICE vehicles? Product freshness is certainly a key factor, but the boost to BEV sales from the lack of availability of conventional models may happen to be temporary.

The chip shortage has compelled OEMs to prioritise planned BEV launches and recent sales volumes suggest that this was a good call.

What is inescapable is that BEV sales will have to expand in order to comply with future environmental strategies in both the US and Canada. The Canadian government recently set a soft target for all new Light Vehicles to be zero-emission by 2035, five years sooner than previously planned. But meeting this target would require a CAGR of nearly 29% from the current market share. And the government would, ideally, like to keep its fuel economy standards linked to those of the US. 

The new US president has similarly aggressive goals to reduce the national climate impact. While no zero-emission policy has been set for the US, the administration is expected to reinstate stricter fuel economy targets. The Environmental Protection Agency has already started the process by opening to public comment the reversal of SAFE part 1, which negated the waiver allowing California to enforce tougher fleet CO2 emissions (including ZEV) than national standards. 

Next, the EPA is expected to present a replacement to SAFE part 2 sometime this month, which set annual fuel economy improvements at 1.5% per year. Once a replacement has been implemented, target regulations will be set for the following years. These are expected to be more rigorous than those set for 2022-2026, in order to meet the larger-scale challenge/goal of net-zero carbon emissions in the US by 2050.

The wave of new BEVs may be slow at first, but it will, ultimately, erode the conventional vehicle market.