Will 2021 Be the Year of the Electric Vehicle?

And: Is an EV or hybrid right for you?

Aug 10, 2020
Management

SMITH BRAIN TRUST  For decades, the electric vehicle has been seen as the car of tomorrow but never quite the car of today, says Maryland Smith’s David A. Kirsch.

At early meetings of the Electric Vehicle Symposium, an international forum dedicated to showcasing developments in electric – and later hybrid – vehicles, industry leaders spoke in glowing terms about how many electric vehicles would soon be appearing on America's streets, notes Kirsch, associate professor of management and entrepreneurship at the University of Maryland’s Robert H. Smith School of Business.

"Electric vehicles should gain a level of at least 50% of total vehicle sales if previous trends continue," they said, in 1969.

"There will be five million electric cars in operation in this country in 1985," they predicted in 1971.

And, "The Federal Power Commission's National Power Survey forecasts 38 million, on-the-road electric vehicles by 1990," they declared in 1974.

“Needless to say, none of these predictions came true,” adds Kirsch.

He says he’s gotten used to hearing annual predictions that “next year” will be the year of the battery/plug-in vehicle market.

Will this moment be any different? If 2020 should indeed prove a turning point from internal-combustion (IC) engines to electric vehicle (EV) models, he says scholars will likely look back and point to these specific factors.

Increasing product range of electric and hybrid vehicles: ”As consumers we are now – finally – getting close to having plug-in vehicles available in almost every traditional vehicle product class. But options remain limited and consumers are still required to make compromises. For instance, try buying an American made, plug-in hybrid, small crossover vehicle. Not yet. On the bright side, the startups seem focused on the electric vehicle space, and the incumbents are developing offerings in the plug-in hybrid space. This makes strategic sense, as each firm exploits its own unique skills and capabilities. For this reason, I would focus on these strengths: buy a battery electric vehicle from a startup, and buy a plug-in hybrid from an incumbent manufacturer.”

Electric and hybrid vehicles are approaching price parity with traditional IC-powered models: “Because EVs require less maintenance and electricity is cheaper than gasoline on a per-mile basis, EV supporters claim that some EVs are now equal to or even cheaper than ICs when one accounts for the lifetime costs of owning and operating the car. But consumers are still highly sensitive to up-front costs, and with oil prices depressed due to the global pandemic, consumers may still be uncomfortable paying more to drive off the lot than in a comparably outfitted IC vehicle.”

The success of Tesla's Model 3: “Tesla's stock has been on a tear, quintupling since late 2019. As of mid-2020, the company's market capitalization exceeds that of the next three most valuable car companies combined. Regardless of its long-term performance, the Tesla narrative has clearly carried the day. Auto industry leaders have taken note, leading to a rush of new entrants and new commitments from incumbent manufacturers. However, Tesla remains tiny compared to the global firms it competes against, producing only 0.4% of global vehicle output, and in spite of Tesla's success, many customers are still wary.”

Range anxiety is less of a thing: “Many EVs now travel 200-plus miles on single charge, and for most daily applications, range is simply a non-issue. Plug in at home and never go to the gas station again. Nevertheless, long road trips in EVs are not advised. If a driver is planning to use a new car to replace COVID-19-impacted train or air travel, most battery electric vehicles will require frequent, lengthy stops to recharge, and the very aspects that make remote locations attractive (i.e., the relative isolation) may also make it hard to find and use a high-power charger. In such cases, opting for the plug-in hybrid version would be wise.”

Pandemic effect: “Will we look back upon 2020 and say that COVID-19 changed our transportation patterns and behaviors? Initial data suggest that the partial lockdown in the first half of the year led to a reduction in overall vehicle-miles-traveled (VMT) as many cars sat unused for weeks at a time. Fear of exposure to COVID-19 may also discourage use of public transport and car-sharing, leading to an eventual uptick in ownership of private vehicles. If many of these purchasers opt for electric or plug-in hybrid vehicles, then 2020 may have been a turning point, especially if consumers are optimizing for local transport needs. But this is largely conjecture. 2020 is barely half-over, and it is far too early to declare it the long-promised inflection point in consumer adoption of electric and plug-in hybrid vehicles.”

Is an EV or hybrid right for you?

Wondering whether you should be in the market for an EV or hybrid? Kirsch recommends you ask yourself these three questions.

Do you need a new car? If not, he says, wait until next year. “Electric and plug-in hybrids will continue to improve, and more models will be introduced. Unlike investors who seem incapable of waiting to jump on the EV bandwagon, most consumers can afford to be patient.”

Do you have access to a charger? If you don’t have simple, reliable access to a charging station, don’t buy a battery electric vehicle right now. “Even a plug-in hybrid needs relatively unfettered access to a charger to take advantage of its all-electric capability,” Kirsch notes. “For many renters and apartment dwellers, access to charging stations is both limited and uncertain.” Maybe there’s no one using the single charger now, but what if three residents buy EVs this year?

Where do you live? And are you generally an early adopter? Globally, plug-in vehicles sales account for less than 5 percent of total vehicles sold. However, in Norway, about half of new vehicles sold are electric. In places like Norway, problems you encounter are more likely to be addressed quickly, because firms and governments will be incentivized to help solve them. But in places where EV adoption is far behind, Kirsch recommends proceeding with caution. “If your search process leads you to an electric or plug-in hybrid vehicle, and you are comfortable with some degree of uncertainty, take the plunge, but if you cannot find the right plug-in vehicle (EV or hybrid), or if it does not quite feel right, then you may have no choice but to wait until the next cycle.”

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About the Expert(s)

David A. Kirsch is Associate Professor of Management and Entrepreneurship in the M&O Department at the University of Maryland's Robert H. Smith School of Business. From 1996 to 2001, Kirsch held various adjunct and visiting appointments at the Anderson Graduate School of Management, University of California, Los Angeles. He received his PhD in history from Stanford University in 1996. His research interests include industry emergence, technological choice, technological failure and the role of entrepreneurship in the emergence of new industries.

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