Summary: The future of the electric vehicle (EV) market looks bright. With more support from the U.S. government, auto manufacturers are investing in EV technology and promising new fleets dominated by electric cars in the next decade. Find out what the future holds for the electric vehicle market, from batteries to automotive insurance coverage.
With gas prices spiking, consumers are searching for transportation alternatives. Increased government initiatives and changes to the charging station infrastructure have resulted in electric vehicles (EVs) quickly becoming high on the list of alternatives. The electric car market is expected to
reach $725.14 billion by 2026.
Electric Vehicle Market Trends
“While the sale of EVs remains relatively low compared to the overall auto market, there is a push to be ahead of the curve and have products available specifically to this area. A solid EV service contract program should not only cover the vehicle, but the batteries and in-home wall chargers as well,” reports Michelle Gedney, VP of Account Management AmTrust Warranty and Specialty Risk.
Four main factors are impacting the EV market going forward that we will touch upon below:
- Manufacturing
- Battery Development
- Consumer Demand and Perception
- Charging Infrastructure
Electric Vehicle Manufacturing
The Asia-Pacific region
is expected to grow the largest in EV manufacturing and usage. However, Europe is leading the way with
EV model adoption and availability. In the U.S., EV supply is predicted to be limited in 2022, but the vehicle and battery manufacturers are ramping up production, with thirteen new EV battery plants opening in the U.S. in the next five years.
Global automakers continue to invest in electric vehicle technology. They are
setting goals to increase their electrical fleets dramatically over the next decade, with some companies announcing the rollout of EVs within the next few years. Major automakers’ EV production plans include:
- General Motors aims to have 20 EVs available in the U.S. by 2025 as it moves to an all-electric model lineup by 2035
- Hyundai has a goal that their fuel-cell vehicles will be priced similarly to battery vehicles by 2030
- Ford says it will produce more than two million EVs annually by 2026 and projects that EVs will compose half of its global sales volume by 2030
- Honda is aiming for its entire inventory to be zero-emissions electrified vehicles by 2040
- BMW will bring up to a dozen new EVs to the market by 2025
- Jaguar and Land Rover will build electric versions of their models by 2030
- Kia is forecasting 1.2 annual battery EV sales worldwide by 2030
- Mercedes-Benz states that all vehicles newly launched from 2025 and on will be electric-only
- Mitsubishi will expand its electrified lineup to 50% of its global sales by 2030
- Nissan plans to launch 23 electrified models, including 15 EVs worldwide, by 2030
- Subaru will offer some form of electrification on all its models by 2025
- Tesla is releasing an EV truck, the Tesla Cybertruck, in 2023
- Toyota is promising to build 3.5 million battery-only EVs per year worldwide by 2030
- Volkswagen will launch 70 pure EVs and 60 hybrid vehicles before the end of the decade
- Volvo plans to build only EVs by 2030
Electric Vehicle Battery Development
The U.S. EV market demands longer-range vehicles with a higher battery capacity. From 2010 to 2202, we have seen Lithium-ion battery pack prices fall 89%, while at the same time there has been significant improvements in battery technology. Current market forecasters are indicating that
lithium-ion batteries will be the standard solution for electric cars over the next ten years, with batteries likely being the determining cost of new cars and a defining feature of battery electric vehicles (BEV). While hydrogen fuel cell battery R&D is expensive, it does have less of a cost on the environment. There is a negative environmental aspect to the mining of lithium that could cause issues down the road as well.
Consumer Demand and Perception
Consumer perception toward electric vehicles is evolving as availability and technology continues to improve. Consumers are learning more about EV technology, which is leading to more EV sales. In fact, in 2021, EV sales totaled 487,560 units, an 89% increase over 2020’s 257,872 units. In 2021, EV investment in the U.S. increased by 88% to $35 billion. However, consumers still have concerns about electric vehicles, but the challenges are being met with new technology and some help from the U.S. infrastructure legislation.
The main concerns consumers have regarding electric vehicles include:
Electric car battery driving range
BEV ranges are not as limited as they were in the past. Just less than a decade ago, an EV battery only had a range of 100 or less. But today, manufacturers listed above are releasing new electric vehicle models that can go way over 300 miles on a charge.
Lack of electric vehicle charging stations
There are three categories of EV chargers: Level 1 (110-V outlet), Level 2 (240-V outlet), and DC fast chargers (480-V outlet). Home charging is the most convenient way to power an EV. Currently, the U.S. has 43,000 public EV charging stations and around 120,000 charging ports. However, President Biden has set a goal of installing 500,000 public charging stations by 2030.
Electric car costs
Compared to an internal combustion engine car, Electric vehicles can be more expensive due to the additional cost of a home charger, commercial charging, and the time it takes to find reliable public chargers. The public EV charging stations are predominantly Level 2, which cost between $2,000 and $5,000 to install. However, many subsidies are available for residents and businesses to cover upfront installation costs. DC fast chargers require more than $100,000 per station in upfront capital. Charger installation costs are lower if the technology is installed during commercial or home construction rather than long after construction.
Time to charge the battery
Level 1 chargers (120V) are like standard home plugs but take 11 or more hours to charge a car battery. Level 2 chargers can get an electric car back on the road in about five hours. DC fast chargers can charge a vehicle in less than an hour. The recent infrastructure bill passed by the US Congress provides a significant national investment in EVs and EV charging programs, including $5 billion for states to build a national fast-charging network.
Electric vehicle battery safety
Electric vehicles are just as safe, if not safer than combustion engine cars. However, there can be issues where a battery catches on fire. The National Highway Traffic Safety Administration (NHTSA) has established a Battery Safety Initiative for Electric Vehicles to coordinate research and address safety risks for batteries in electric vehicles.
Federal and State Legislations Gives a Boost on the EV Market
Two recent legislations, on the federal and state level, create ways to combat global warming and enhance the use of clean energy. The Inflation Reduction Act of 2022 is the most substantial legislation to promote EV vehicles in U.S. history.
The
Inflation Reduction Act (IRA), recently signed by President Biden includes a $7,500 tax credit for new electric vehicles that will go into effect for cars put in service after December 31, 2022. The IRA also extends a 30% (or up to $1,000) federal tax credit on charging equipment for individual or residential use through 2032. For commercial uses, the tax credit is 6%, with a maximum credit of $100,000 per unit.
To be eligible for the IRA credit, new EVs that are vans, the price of SUVs or trucks can’t exceed $80,000, sedans and other vehicles can’t cost more than $55,000, and used EVs can’t be more than $25,000. The credit will run through 2032. For new electric vehicles, a $7,500 tax credit could be applied at the time of sale, and used EVs could be eligible for a $4,000 credit. The legislation ends a previous limit that kept EV manufacturers from being able to offer tax credits once they sold 200,000. Also, the credit will only apply the credit to EV vehicles made in the United States. Initially, many EV vehicles will not be eligible for the credit, but in a few years, when there is more production and EVs are more affordable, the credit will help consumers.
California is helping to enhance the EV market by implementing
new clean air regulations that will phase out the sale of gasoline-powered vehicles in the state by 2035. The
California Advanced Clean Cars II Regulations (Resolution 22-12), approved by California’s Air Resources Board (CARB), will not prevent people from using gas-powered vehicles or apply to the used car market but will help to cut climate-warming emissions dramatically, help to utilize the credits put forth in the Inflation Reduction Act and promote purchasing EV vehicles. Other states, including Oregon, are also writing legislation to ban new gas-powered auto sales by 2035.
Electric Vehicle Coverage from AmTrust Warranty and Specialty Risk
Data from AmTrust shows the average severity of claims on a vehicle service contract is around $1,000, slightly higher than a gas or hybrid vehicle. The largest future claim expense will be battery replacement, so consumers need coverage that includes battery degradation. They should also consider Tire & Wheel as an ancillary coverage because of the weight of the battery, wear and tear occur faster.
“It’s important that consumers have a
vehicle service contract (VSC) in place that covers EV-specific components. While there are fewer moving parts in a battery electric vehicle (BEV) compared to an internal combustion engine (ICE) vehicle, the average service and repair costs are trending higher. This has to do with factors such as a limited number of technicians with the proper training to handle electric vehicles and the fact that battery electric vehicles are relatively new, which can lead to higher labor hours for mechanics who are spending more time diagnosing issues and more time on the repairs themselves. There are also few non-OEM branded parts available for repairs, driving the average part cost per repair higher,” states Frank Amendola, SVP Underwriting at AmTrust Warranty and Specialty Risk.
Electric vehicles have fewer moving parts, but that doesn’t mean things don’t go wrong. Whether you need an off-the-shelf solution or have designed your own,
AmTrust Warranty and Specialty Risk has the coverage and experience to launch your next-generation EV Vehicle Service Contract (VSC) program. Our flexible underwriting ensures partners can respond quickly to EV technology and changing consumer demands.
Contact us today for more information.
This material is for informational purposes only and is not legal or business advice. Neither AmTrust Financial Services, Inc. nor any of its subsidiaries or affiliates represents or warrants that the information contained herein is appropriate or suitable for any specific business or legal purpose. Readers seeking resolution of specific questions should consult their business and/or legal advisors. Coverages may vary by location. Contact your local RSM for more information.