The rise of electric vehicles in the US and the road ahead

In 2023, the US automotive sector experienced a pivotal shift. Electric vehicles (EVs) comprised nearly 12% of passenger vehicle sales, over 2% of commercial vehicle sales, and more than 12% of bus sales. This surge in EV adoption highlights a broader movement toward reducing the transportation sector's environmental impact, which is responsible for 29% of the nation's total greenhouse gas (GHG) emissions. With passenger vehicles alone accounting for 58% of these emissions and commercial vehicles (including buses) contributing another 23% (see figures 1a and 1b), the rise of EVs presents a crucial opportunity to mitigate these effects.

Source: US Environmental Protection Agency (EPA), RaboResearch 2024

This paper is the first of a series, and examines the increasing adoption of EVs and its implications for the US transportation market. Future installments will discuss charging infrastructure and the expected impact on electricity demand, as well as the EV supply chain landscape and related challenges and opportunities, providing insights into the strategic shifts needed for a sustainable and electrified future.

The strong uptake of EVs in the US automotive sector in 2023 was driven by a range of factors. One of the key drivers has been the policy and regulatory framework for EVs, shaped by a combination of federal initiatives and state-level actions. These are aimed at enhancing environmental sustainability, reducing dependency on fossil fuels, and fostering domestic technological advancements. We’ve included the most important ones below to set the scene of our analysis and provide context to the trends analyzed in this article.

Infrastructure Investment and Jobs Act (IIJA)

The IIJA signed into law by President Biden in 2021, is a landmark USD 1.2 trillion infrastructure modernization bill. A notable allocation under the IIJA is the National Electric Vehicle Infrastructure (NEVI) program, which directs USD 5 billion in subsidies toward building a nationwide network of 500,000 EV charging stations by 2030. As of February 2024, over USD 200 million have been awarded by states through the NEVI program, indicating significant room to grow. Complementing NEVI, the USD 2.5 billion Charging and Fueling Infrastructure (CFI) program offers competitive grants over five years to states, municipalities, and private companies for deploying not only EV charging infrastructure, but also alternative fueling stations for hydrogen, propane, and natural gas vehicles.

Inflation Reduction Act (IRA)

The IRA, passed in August 2022, further enhances EV adoption through various incentives. It recognizes the critical role of EVs in combating climate change, and offers a multi-faceted approach that incentivizes both consumers and manufacturers.

For consumers, the IRA expands the existing Consumer Investment Tax Credit (ITC), offering tax breaks of up to USD 7,500 for purchasing new EVs. This substantial cost reduction enhances the competitiveness of EVs compared to internal combustion engine (ICE) vehicles, potentially tipping the scales in favor of EV adoption. The IRA also includes programs targeting commercial zero-emission vehicles (ZEV), with tax credits up to USD 40,000 for businesses and tax-exempt organizations. The ITC will be available until December 2032.

For original equipment manufacturers (OEM), the IRA incentivizes domestic EV production with two important tax credit programs. Section 45X Production Tax Credit (PTC) directly rewards manufacturers based on the kilowatt-hours (kWh) of battery capacity produced in qualified EV components. It is aimed at fostering a robust domestic supply chain for EV components and promoting job creation and technological advancements within the US. As of May 2024, the current PTC for EVs is USD 37 per kWh. Furthermore, Section 48C Qualifying Advanced Energy Project Credit provides a 30% tax credit for investments in EV manufacturing and recycling facilities for various vehicle classes, as well as the domestic processing of critical materials essential for EV batteries.

Across the US, states are employing varied strategies to promote the adoption of EVs among personal and commercial users. Nineteen states offer additional incentives ranging from USD 1,000 to USD 7,500, supplementing the federal credit for passenger EVs (see figure 2). These incentives are critical in making EVs more financially accessible and appealing compared to traditional gasoline-powered vehicles. Meanwhile, an increasing number of states are implementing higher registration fees for EVs, regardless of whether they provide any EV incentives. For example, New Jersey not only provides up to USD 4,000 in rebates through its Charge Up New Jersey program, but also imposes higher registration fees for EVs. This measure is being adopted to counteract the fiscal impact of reduced gasoline tax revenues (funds traditionally used for highway and infrastructure projects), a direct consequence of the rising adoption of EVs.

In the commercial sector, several states, including California, Oregon, and Washington, have adopted the Advanced Clean Trucks (ACT) Regulation that mandates a gradual increase in the percentage of ZEVs sold by OEMs. Starting with the 2024 model year, the rule requires that 5% to 9% of new medium and heavy-duty vehicle (MHDV) sales be ZEVs, with these percentages scheduled to increase significantly in the future, as seen in Figure 3.

This regulation is part of a broader effort to reduce GHG emissions and pollution from one of the most significant sources. Additionally, state programs like The New York Clean Truck Program (NYCTCP) offer substantial financial incentives, which can exceed USD 180,000 per electric truck, to accelerate the transition to ZEVs. These state-level policies and the regional patchwork of incentives and regulations signal a robust growth trajectory for ZEVs (see figure 4).

As EV adoption grows across the US, a look at the distinct vehicle segments, stock, and usage patterns reveals how consumer choices are driving the shift toward a sustainable transportation future, offering opportunities for stakeholders. To categorize the diverse array of vehicles, we aligned with the US Federal Highway Administration (FHWA) in adopting a Gross Vehicle Weight Rating (GVWR)-based classification, to effectively map the US electric vehicle landscape. Each segment, as illustrated in figure 5, presents a unique profile of EV integration and growth potential.

Technological advancements, supportive policies, and shifting consumer preferences are driving the rapid expansion of EV adoption.

Passenger vehicles: EV sales surged in 2023

In 2023, the passenger vehicle segment significantly advanced toward electrification. EVs constituted 12% of sales, a sharp rise from just 2% in 2019, with a compound annual growth rate (CAGR) of over 40% (see figures 7a and 7b). Hybrids also increased their market share to 7%, while ICE vehicles saw their dominance reduce from 96% to 81% market share. According to Bloomberg New Energy Finance (BNEF), the trend towards EVs is expected to accelerate, with projections indicating that EVs could account for more than 30% of passenger vehicle sales by 2030. This growth is fueled by ongoing technological advancements, decreasing battery costs, and comprehensive policy incentives encouraging electric mobility.

Note: Electric Vehicles (EV) includes Battery Electric Vehicles (BEV) + Plug-In Hybrid Electric Vehicles (PHEV); HEV = Hybrid Electric Vehicles; ICE = Internal Combustion Engine vehicles.
Source: Bloomberg New Energy Finance (BNEF), RaboResearch 2024

Commercial vehicles: Slow adoption but strong growth, in particular for buses

In the commercial vehicle segment, electric trucks including light-duty, medium-duty, and heavy-duty trucks, reflect a nascent yet growing adoption, now accounting for 2% of vehicle sales in 2023 – a jump from a virtually nonexistent presence in 2019, (see figures 8a and 8b). ICE vehicles continue to dominate with 97% of the market share, although their prevalence has slightly declined. The emergence of fuel cell vehicles (FCV) in this space, while still a minority share, signals a growing awareness and interest. BNEF projects that by 2030, the market share for commercial electric trucks could reach nearly 6%, driven by increased sustainability targets and improvements in EV infrastructure.

Note: 1). US Commercial Vehicle fleet include light-duty trucks & vans used for commercial purposes (class 2), medium-duty trucks (classes 3-6) and heavy-duty trucks (classes 7 & 8); 2). FCV = Fuel cell vehicles.
Source: Bloomberg New Energy Finance (BNEF), RaboResearch 2024

Electric buses have demonstrated significant growth, comprising 3.5% of the US fleet by 2023, up from just 0.6% in 2019, (see figures 9a and 9b), reflecting a CAGR of 56%. Fuel cell electric vehicles (FCEV) have also seen growth, now accounting for 1% of bus sales, supported by policies such as the Infrastructure Investment and Jobs Act (IIJA) that promote and fund cleaner public transportation. Projections suggest that, if trends continue, electric and fuel cell buses could represent nearly 30% of all bus sales by 2030, similar to trends observed in Europe.

Source: Bloomberg New Energy Finance (BNEF), RaboResearch 2024

Adoption rates of electric vehicles vary widely across the US, with specific states at the forefront of this transformation. The variation is driven by state-specific incentives, charging infrastructure availability, and increasing consumer awareness of environmental impacts.

Passenger vehicles: Highest EV concentration in the West, Northwest and Northeast

The West, Northwest, and Northeast are showing high adoption rates (see figure 10). California leads with a 4% share of all vehicles registered as EVs, driven by aggressive state incentives and comprehensive charging infrastructure. Northeastern states like New Jersey, Massachusetts, and New York have adoption rates of 1.6%, 1.5%, and 1.3%, respectively. We expect this penetration rate to grow as a reflection of their commitments to foster EV adoption through policy support and regional collaborations. In contrast, the South and Midwest present a mixed picture, with Mississippi at 0.1%, and North Dakota at 0.2%, hinting at both infrastructural and cultural hurdles that need attention. However, a relatively positive picture emerges with Florida at 1.2% and Texas at 0.8%, suggesting that regional EV markets are budding, buoyed by improving charging infrastructure and increasing public awareness.

Commercial vehicles: California, New York lead the charge

Building on the momentum of passenger EVs, the commercial vehicle sector is experiencing a rapid shift towards ZEVs. This surge is driven by three key forces: stricter regulations, engineering advancements, and growing sustainability focus.

California once again leads with zero-emission (ZE) medium and heavy-duty vehicle adoption, constituting an 18.4% share (see figure 11) of the nation's total base, supported by strong policies and infrastructure. On the East coast, New York holds 6.4% of the share, indicative of the state’s stringent emissions policies and supportive regulations. In contrast, the South and Midwest are slower in adoption compared to the coasts, though Texas is notable, with 9.5% of the country's zero-emission MHDVs, pointing to a gradually increasing openness to integrating sustainability. The distinct regional adoption of commercial EVs highlights the complexity of the landscape. While a diversified approach to electrification strategies tailored to specific regional economic activities, policy environments, and infrastructural capabilities, has been effective, a unified national strategy is also compelling. A cohesive national approach could standardize efforts, potentially accelerating adoption and ensuring consistent support across all regions.

How can we spark EV adoption across all states?

In regions like California and New York, where policy and infrastructure strongly support electrification, EV manufacturers and fleet operators should prioritize rolling out new models and expanding service networks. Strategic partnerships with local governments and utility companies could further enhance the viability of electric fleets. In contrast, areas like the South and Midwest may require a more nuanced approach. Here, stakeholders might benefit from focusing on pilot programs and partnerships with local businesses to demonstrate the economic and environmental benefits of EV adoption, gradually building the market.

On the policy advocacy front, OEMs and industry groups could advocate for more supportive policies in regions lagging behind in adoption. Efforts might include lobbying for incentives similar to those in California or New York, which could accelerate the adoption curve. On the infrastructure development end, investment in charging infrastructure tailored to commercial vehicles will be critical in regions currently showing modest adoption rates.

The landscape of vehicle OEMs is undergoing rapid transformation as advances in technology and shifting consumer preferences redefine industry standards. Traditional and emerging manufacturers alike are adapting with innovative strategies and significant investments in EV development and production.

Passenger cars: Affordability, range, and user experience will power the next wave of adoption

The popularity of EVs is disrupting the US passenger market, driven by stricter emissions regulations, advancements in battery technology, and aggressive strategies from both established and emerging automakers.

Tesla continues to lead with its innovative technology and strong market presence. Their focus on high-performance, long-range EVs coupled with the robust Supercharger network has been instrumental in driving consumer adoption and shaping industry standards. Tesla’s dominance is evident in their sales figures, which jumped from 336,287 units sold in the US in 2021 to 654,888 units in 2023. However, Tesla is no longer the only game in town (see figure 12). The swift rise of Hyundai demonstrates the power of affordability as a disruptive market penetration strategy. Their quadrupled sales figures in the same period highlight the success of offering a range of compelling and accessible EVs with features that resonate with a broader demographic.

The passenger EV market is currently transitioning from the early adopters, who have driven sales up to now, to the early majority. This shift brings a new set of consumer preferences and demands that manufacturers must address to sustain growth. While affordability remains a crucial factor, consumers are increasingly seeking EVs that offer more than just a lower price tag. This encompasses a variety of aspects that enhance the ownership experience:

In response to these evolving consumer demands, established automakers like Ford and General Motors (GM) are actively shaping the market through significant investments in EV development. Ford's popular EV models like the Mustang Mach-E and the F-150 Lightning leverage brand recognition. GM's introduction of the Ultium battery platform aims to establish a comprehensive ecosystem that encompasses EVs, charging solutions, charging networks, and vehicle-to-grid (V2G) and Virtual Power Plant (VPP) functionalities. This approach is designed to enhance customer loyalty and retention by offering a seamless and integrated experience that extends beyond just the vehicle. By developing a broad array of interconnected services and technologies, GM is not merely selling electric vehicles, but rather positioning itself as a central player in a larger energy and mobility ecosystem. This strategy aims to keep customers engaged and reliant on GM's suite of products and services, enhancing their lifetime value to the company.

Moving forward, expect a broader array of EV options from traditional manufacturers like GM, Ford, and Volkswagen, catering to diverse consumer preferences with models like Chevrolet’s Equinox EV, Blazer EV, and Silverado EV and Cadillac’s Lyriq and Celestiq. This expansion will include popular vehicle segments like SUVs and pickups, combining luxury features with advanced EV technology.

The EV market's future will hinge on technological innovation, customer experience, and product accessibility as well as supportive regulations and support schemes. Automakers that excel in these areas will likely lead as the industry adapts to a growing electric mobility landscape.

Commercial vehicle and bus manufacturers: A multi-pronged approach towards zero-emission commercial fleets

In response to regulations like California's ACT Regulation and the EU's Euro VI standards, OEMs are increasingly prioritizing ZEV development. These rules mandate stricter emission standards, pushing OEMs not just to adapt but to innovate. This shift is evident in the increased number of ZEV offerings. The market structure in this segment differs significantly from the passenger cars segment, being highly heterogenic. In just four years, US truck makers have gone from a handful of ZEV models to over 200 combined, marking a significant transition from a niche to mainstream product. This growth is fueled by over 60 OEMs[1], including industry giants like Daimler and Volvo, alongside innovative startups like Nikola and XOS. The market caters to diverse needs, with the medium-duty truck segment leading the charge with 71 models (see figure 13a).

[1] CALSTART, Zero-emission truck and bus market update, June 2023 (https://globaldrivetozero.org/site/wp-content/uploads/2023/06/Final_ZETI-Report-June-2023_Final.pdf)

Source: CALSTART, RaboResearch 2024

Collaboration between established manufacturers and technology firms, such as GM and LG Chem, is crucial for integrating advanced EV technologies. Innovations in battery technology, particularly in energy density and durability, are critical for enabling heavier commercial vehicles to meet the range and performance requirements for broader adoption.

Disruptive companies like Tesla and Nikola are redefining the commercial vehicle landscape with innovative models like Tesla's Semi and Nikola’s TreBEV. Their futuristic design and industry-leading range, challenge traditional OEMs to accelerate the development of their own zero-emission technologies and potentially even autonomous capabilities. This focus on innovation and design promises significant enhancements in operational logistics, potentially transforming the way fleet management and distribution operations are conducted across industries.

The commercial vehicle segment is also seeing significant interest in FCEVs. FCEVs are particularly attractive for applications requiring longer ranges and quicker refueling times, essential for long routes and heavier loads. This growing interest is reflected in the rise of FCEV models, especially in the heavy-duty truck segment, from just four in 2021 to 12 in 2023.

The expansion in the number of ZEV models from a diverse range of OEMs (see figure 14) is expected to reduce prices over time, mirroring trends observed in the passenger EV market. This growing level of affordability, accompanied by increased production volumes and technological advancements, makes for a more competitive market landscape. The diversity in ZEV offerings, including both battery electric and fuel cell technologies, provides operators with multiple options to meet their specific needs, promoting broader adoption.

The benefits of ZEVs extend far beyond the manufacturers themselves. For example, the unique requirements of cold chain logistics make zero-emission vehicles particularly advantageous, as they can power refrigeration units more efficiently than traditional vehicles, ensuring consistent temperature control crucial for transporting perishable goods like food and pharmaceuticals.

As the industry transforms, the adoption of ZEV technologies will reshape commercial transport, offering not only environmental but also strategic business benefits. The success of this shift will depend on continued innovation, collaborative efforts, and strategic investments.

As the US nears its presidential election, Trump's potential return could pivot federal priorities, especially given his criticisms of current EV incentives and environmental regulations on the campaign trail. His reelection could mean a possible reversal of the recently enhanced EPA emission rules, introduced in March 2024, which tightened standards to curb pollution from vehicles significantly. There could be also challenges to the existing fuel economy regulations that align closely with ambitious climate goals.

The federal EV tax credit of USD 7,500 in the IRA, a significant driver of EV adoption, faces potential revocation, which could slow the growth of the EV market in the short term. However, the incentives in the IRA for EV manufacturing, battery production, and mining for critical minerals are less likely to be withdrawn. Over USD 165 billion has been committed to these sectors, with more than USD 100 billion already invested to establish manufacturing facilities predominantly located in Republican-leaning states. The potential economic fallout and job losses as a result of withdrawing these incentives would be politically sensitive, highlighting the intricate relationship between federal policies and local economic stakes.

Despite potential federal policy reversals, state-level initiatives and global market dynamics provide a buffer. Various U.S. states have established robust policies to support EV adoption independently of federal directives. Internationally, Europe continues to aggressively promote EVs, influencing multinational automakers to align globally with the irreversible shift toward electric mobility. This global trend underscores the strategic importance for automakers to continue investing in EVs to avoid the high costs and market disadvantages of maintaining dual production strategies for ICE and electric vehicles.

A combination of ambitious regulatory goals, targeted infrastructure investments, and financial incentives is propelling the nation toward a cleaner transportation future. While some uncertainty regarding the potential impact of future elections remains, the momentum of electrification is undeniable.