The Fuse

Have We Reached Peak ICE?

by Alex Adams | @alexjhadams | November 21, 2019

As the number of electric vehicle (EV) models available to consumers continues to increase, the launch of two new EVs in the past fortnight represent two of the most high-profile electric entries into the popular light truck and SUV markets to date. Introduced to the public last week, Tesla’s Cybertruck has already attracted 150,000 orders and Ford’s Mustang Mach-E—the automaker’s first all-electric crossover—attracted considerable global attention at its November 18 unveiling.

Amid these launches, new analysis released last week suggests that sales of gasoline-powered, light-duty vehicles have peaked. But even if sales of internal combustion engine (ICE) vehicles have reached their peak, it is still far too soon to write gasoline’s obituary.

The Third Way analysis—titled “Gas Powered Vehicles Have Peaked”—states that from their vantage point, “it looks like sales of conventional gasoline powered vehicles have hit their peak in 2016.” Adding that “sales of these vehicles likely will never be as high as they were three years ago,” the memo says this is an important signifier in the transition to vehicles powered by non-oil-based fuels.

Such a transition would represent a significant boost to U.S. economic and national security. The United States is the world’s largest oil consumer, accounting for one-fifth of daily global supply, more than 70 percent of which is used to power a transportation system that is 92 percent dependent on oil. This extreme reliance stresses our economy—especially when oil prices spike—and constrains our foreign policy.

A long-term, demand-side solution for this exposure to oil price volatility is to create greater fuel choice, with electrification leading the way as the most viable alternative. Low in cost and stable in price, as well as domestic and diverse in source, electrification of our nation’s vehicle fleet on a mass scale would provide impactful improvements to our energy security by switching the sector that accounts for the greatest share of U.S. oil consumption away from petroleum.

However, while Third Way is quick to highlight “surging” EV sales, their path to national prominence is far from assured, especially as the EV industry is still in a critical nascent stage: Of the approximately 272 million vehicles registered in the United States, just 1.1 million are EVs. To begin, there is widespread antipathy to transport electrification in Congress. Senator John Barrasso and Representative Jason Smith introduced the Fairness for Every Driver Act in the Senate and House respectively, which would abolish the crucial federal EV tax credit. Barrasso stated in a Fox News op-ed that the EV industry “no longer needs these subsidies” which “disproportionately subsidizes wealthy car buyers.”

Additionally, public appetite for less fuel-efficient light trucks and SUVs is still climbing. In 2018, light truck market share increased 5 percent to 69.2 percent—the highest in history. This rising market share is part of a trend of rising light truck sales that began when gasoline prices plummeted in 2015 that also saw consumers ditch their hybrids and EVs in favor of SUVs and light trucks.

While EV sales figures have shown impressive growth in recent years, the numbers are still small. In November of last year, cumulative U.S. EV sales finally passed the 1 million milestone, but EV sales still remain a niche: Of the 17.4 million vehicles sold in 2018, just one out of every 50 vehicle sold was an EV. Furthermore, the overwhelming majority of 2018’s EV sales were Teslas and the automaker—along with GM—has reached the 200,000-vehicle cap that no longer makes them eligible for the full $7,500 federal tax credit, thereby making them a less-attractive purchase for prospective buyers.

Sales of ICE vehicles may well have peaked, but this does not necessarily pave the way for EVs and their myriad economic and national security benefits. Securing such a future requires a significant buildout of charging infrastructure, extension and reform to the federal EV tax credit, and changes in political and consumer sentiment to turn a fall in ICE sales into meaningful improvements for transportation electrification.