COVID-19 vs EVs: What happens?

EVs may experience minor hiccups, but they shouldn’t suffer much more than the rest of the auto industry.

It’s the question everyone has to ask: How will the Covid-19 pandemic affect my business? For those in the electric-car world, the question is more pointed: Will the pandemic hurt the growth of electric vehicles over the next year? Three years? Five years? If so, how?

Viral epidemics follow predictable curves, though the shape and slope of those curves varies greatly with human behavior. If parts of the world open up too soon, epidemic “hot spots” will flare up again. Ultimately, a majority of the human herd of 7.8 billion may have to be infected before Covid-19 becomes part of the past. That’s how epidemics work. 

Supply, but also demand

Today, the North American and European auto industry is emerging from its April paralysis. The lost production in that month was estimated to be worth $10 billion per day. Still, for the industry to recover to anything like its pace at the end of 2019—which to many feels like years ago in “Covid time”—two things must return to normal: supply and demand.

On the supply side, not only auto factories but their thousands of parts suppliers are working out how to resume production while abiding by new safe-workplace rules. That has already started, at differing paces in different places. 

China’s nadir came three months ago, in February. By mid-May, its auto industry was largely back in production. North American plants planned to reopen, carefully, before the end of May, and European plants were on a roughly similar timetable. Glitches in the intricate global supply chain remain, just as they do for food and other consumer goods. Those will be addressed systematically over the coming months.

So there seems a reasonable chance that the world’s car factories could be producing a majority of what they did in January by, say, this autumn—barring new outbreaks or mutations, a return to more stringent shutdown rules, or other, unpredicted pandemic effects. 

If the vehicles are coming off the lines, that’s half the equation. The other half is a steady stream of consumers ready, willing and able to buy them. That prospect may be more uncertain.

Such deals you could have had…

Looking back, April was a terrific time to buy a car. Sales lots were covered in vehicles on which dealers were paying interest, and makers jumped in with generous incentives and zero-percent financing. Americans who could afford new vehicles found dealers desperate to work out how to complete sales online and provide “touchless” deliveries.

Now, dealer stock is sparser, and it will take weeks to replenish. Car-rental companies have eased the shortage somewhat, turning back hundreds of thousands of units. But the economic picture is far from rosy: In April, the US unemployment rate soared to almost 15 percent, a level not seen since the Depression Era. By mid-May, 36.5 million Americans had filed for benefits.

US vehicle sales in April, however, held up better than predicted. They were still down 46 percent, but the average transaction price stayed above $35,000. Pickup trucks and bigger SUVs sold better than passenger cars. 

Only a minority of Americans can afford to buy a new car in the first place. Jobs data seems to indicate the bulk of the job losses were at the lowest income levels, so those with means to buy a new vehicle may remain able to do so. Whether they will—whether sales will recover over the summer—remains unclear. Watch May and June sales data closely for hints.

Global sales will clearly take a hit. From 90 million vehicles in 2019, LMC Automotive projects this year’s total could be as low as 70 million if the slowdown endures or new Covid outbreaks erupt.

But what about EVs?

Predictions for the impact of Covid-19 on EV sales specifically are all over the map. A few pessimists suggest that low gas prices will slash consumer purchases of plug-in vehicles, just as hybrid sales vary directly with the cost of gasoline. That’s countered by the data: EV sales don’t rise and fall with gas prices as hybrid sales do.

Other analyses suggest electric vehicles remain woven into auto companies’ long-term product plans. If broad cutbacks are required, EVs should suffer no more than any other vehicle line. That seems reasonable, with one caveat: If the US proportion of pickup trucks stays as high as it was in April—they actually outsold all passenger cars combined—EVs will suffer in the short run, because the first battery-electric pickups won’t hit the market until sometime in 2021.

Still, a slowdown in 2020 may be okay, because it wasn’t shaping up to be a stellar year for new electric vehicles in the US anyway. The sole new volume entry is the Tesla Model Y, which will represent a substantial portion of EV sales this year. The first U.S. deliveries of the 2021 Ford Mustang Mach-E remain on target for before the end of 2020 (though some European deliveries are now delayed into early 2021), but GM has postponed a planned mid-cycle upgrade of the Chevrolet Bolt EV to the 2022 model year. Production of bigger vehicles like the GMC Hummer EV is more than a year away, and the BMW i4, Nissan Ariya, and Volkswagen ID.4 remain even further out.

It’s remotely possible that incentives might change the math. The idea of government subsidies for vehicle purchases has been raised, often by elected officials serving areas where the Detroit 2.5 operate. But political tea leaves suggest the current administration would structure incentives not to encourage fuel efficiency—as Cash for Clunkers (sort of) did in 2009—but to reward US production and content. That doesn’t do much for EVs.

What really drives adoption?

To bring clarity to the cacophony, it’s crucial to step back from monthly and quarterly sales charts and look at the broader, longer-term global driver of EV growth. Hint: Tesla aside, it’s not consumers demanding EVs.

It can be summarized in one word: regulation.

Until electric vehicles in multiple sizes and segments become consistently profitable for automakers—and let’s be clear, most brands lose money on them today—the main mission of EVs will be to meet a variety of government mandates in different regions. Those may be US corporate average fuel-economy (CAFE) rules, minimum zero-emission vehicle sales requirements—in California and China—or avoidance of stiff European Union fines for exceeding corporate average tailpipe emission limits on CO2.

On the other hand, profitability is close. GM claims the EVs it will sell starting in late 2021 will make money from day one. Those will be high-dollar, large luxury vehicles—the GMC Hummer EV pickup truck and the Cadillac Lyriq luxury crossover utility will be the first two launches for North America. Volkswagen says similar things, and each company says it intends to sell 1 million EVs a year globally—VW by 2023, GM by 2025.

China first, then Europe

The bulk of those millions of EVs will be sold in China, which in 2019 bought more plug-in vehicles than the entire rest of the world combined. But they’ll also be sold in Europe and North America, with European consumers likely to adopt earlier, in greater numbers, than in the US. 

China is now in its second decade of a long, sustained push to dominate global production and sales of EVs, just as it did with photovoltaic solar cells and is now doing with lithium-ion battery cells. It will force Chinese buyers into increasing numbers of electric vehicles. Unless or until the country dials that down, no automaker can relax their EV pace in that market.

Similarly, despite the Covid crisis, no European maker has seriously floated the idea of relief from EU tailpipe-CO2 limits. Those demand increasing sales of zero-emission vehicles each year, until sales bans on new vehicles with combustion engines come into force from 2025 to 2040.

Even in the US, the Trump Administration’s rule changes to freeze CAFE goals may be tossed out in court, due to an apparent lack of scientific backing in the rationales it has submitted for altering the Obama-era rules. 

Don’t sweat it

Absent significant, long-term changes to the regulatory drivers that push established OEMs toward higher EV production, their plans will continue. Single products may come and go—for example, Ford has cancelled a planned electric Lincoln “sport utility coupe” model based on Rivian underpinnings, but its higher-volume Mustang Mach-E so far remains on track to launch by the end of this year.

During a mid-May conference call with journalists, GM’s head of EV programs said that not only was the corporation sticking to the announced timelines for its next-generation EVs, but it might even launch one model more quickly than announced due to good progress by the development team. This came despite delays in planned updates of existing models, to conserve cash.

Sure, some makers may stretch out their EV timelines by six months or a year (though not GM, it says). But if you don’t see news that the EU carbon limits have been loosened, or that the Trump CAFE changes have been deemed legal—don’t sweat it.

Once EVs become profitable for major automakers, of course, everything will change again. That’s the disruption to look forward to.