- Over the past few weeks, we have had some time to revisit the ongoing shift from internal combustion engine vehicles (ICE) to electric vehicles (EV) as well as the implications for commercial real estate in the Mid-Central Electric Valley. There has also been a lot of industry developments including Elon Musk’s catching a case of "blue bird flu" which has resulted in the rout of Tesla’s stock price (the challenges in production from Shanghai and the looming macro slowdown also contributing to the rout).
- To start with, U.S. auto sales for 2022 were 13.7M, down from 15.1M in 2021 due to supply chain shortages. Expectations are for sales to increase back to above 15M in 2023. EV sales were 5.4% (740K) of total unit sales in 2022, with Tesla roughly 60% of that total (EVs were 6.5% of the market in December).
- Despite market concerns about Tesla losing market share in EVs, the company entered the EV passenger market with the explicit purpose of moving the passenger vehicle (car) industry from ICE to EV, which would incentivize the legacy OEMs to also enter the EV segment with a more compelling and competitive product. Thus, Tesla by design is going to go from 100% share to something meaningfully lower. That competition is coming, which we have detailed, and competition is something that Elon Musk designed for.
- We expect EV demand to further spike this month as the $7.5K tax credit from the IRA Act becomes effective. As a reminder, the battery and vehicle manufacturing must be U.S. to receive the full $7.5K amount. This puts Ford, GM, Tesla, Rivian, Nissan (LEAF) and Volkswagen (ID.4) in an advantageous position until other brands ramp their U.S. production (2024).
- Last year, EV growth was +260K units to 740K in total. With ramping production capacity at the brands noted above, the $7.K tax credit, and compelling models by other OEMs, we expect EV sales to increase by over +390K in 2023, exceeding 1.1M units.
- Full-year 2022 sales results and production updates coming out of CES this week allowed us to produce a longer-term forecast for EVs and U.S. passenger vehicles in operation (the PARC), which is critical for understanding the longer-term vibrancy of fuel/gas centers, convenience stores, auto part retail, and independent auto repair shops.
- Shown below is a “bull case” for EVs with 61% of new car sales being EV and 18% of the PARC being EV by 2032. What the analysis shows is that even in a highly optimistic scenario for EVs, the ICE PARC remains very large and relatively stable. 266M ICE vehicles in operation in 2032 will still require a lot of gasoline and a lot of repair work & aftermarket parts. Please reach out to discuss our modeling and the implications. We will be updating on the EV story frequently during 2023 as we expect it to be a dynamic year for the transition ahead for the OEMs.
