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The vibes are bad — but the data is great.
If you’ve read about electric vehicles in the news lately, you know the vibes are bad. Over the past few weeks, the media has fixated on the idea that consumer demand for EVs is “slowing,” “chilling,” or “losing its charge.”
But are sales even slowing? Has federal policy failed to spark the EV transition? Is there any cause for panic? The data shows none of that is true.
The best (and only) quantitative evidence presented for the dominant media narrative is data from Cox Automotive, as presented in a recent Wall Street Journal article, showing that dealers are taking more time and resorting to bigger discounts to move EVs off their lots.That’s true, but does it really indicate that EV sales are “slowing”?
First, this data excludes the space’s biggest player by far — Tesla — as well as other EV-only makers like Rivian who don’t use dealer networks, so this is really a story about traditional automakers (Ford, GM, Volkswagen, etc). And with high interest rates making a new car more costly to finance or lease, dealer discounts are trending steadily upwards for all vehicles in recent months, not just electric models, according to the Cox data.
Second, if we take a look at actual sales data, there’s no sign the growth in EVs is flagging. In fact, sales of battery electric and plug-in hybrid vehicles in the third quarter of 2023 exhibited the strongest year-on-year growth since the fourth quarter of 2021.
Putting aside plug-in hybrids, which have shorter electric range and retain a gasoline engine, sales of purely electric vehicles have been steadily increasing at a roughly 60 percent annual growth rate for each of the last six quarters. That’s fast enough to double EV sales every 14 months!
Overall, year-to-date sales of electric and plug-in hybrid vehicles in the U.S. topped 1 million in September for the first time and are on pace to exceed 1.4 million by year’s end.It’s hard to square the actual data with the bad vibes.
The main story here is not of cooling consumer interest in EVs or a slow-down of the electric transition, but rather the confluence of two other major factors — Tesla’s defensive price war and rising interest rates — which have forced some incumbents to rethink their strategies.
For most of the last decade, Tesla has basically had the EV market to itself. As a result, they priced even their mass-market models, the Model 3 and Model Y, as if they were in competition with Audis and BMWs not Corollas or CRVs. Tesla’s long head start also gave them ample time to bring down manufacturing costs. High price points and falling production costs sent Tesla’s profit margin soaring to a peak of nearly 30% in March 2022, compared to the single digit margins more typical of a high-volume auto manufacturer.
Then, as soon as traditional automakers got serious about the EV business and new start-ups like Rivian and Lucid started scaling, Tesla aggressively slashed prices. The base Model 3 cost over $48,000 last year. Today, it costs around $38,000, a 20% drop. Prices for the Model Y have fallen by a similar magnitude.
Yes, price cuts have eaten into Tesla profitability, but they appear to be an effective defensive weapon that hit their rivals at exactly the same time the Fed was ratcheting up interest rates, substantially increasing the cost of financing or leasing any new vehicle.
In 2021 and 2022, as traditional automakers were launching new flagship EVs, it seemed like they could easily sell every EV they could produce at premium-prices, all while dealers charged big markups.
But just as the market was flooded with new electric offerings, high interest rates made buyers more cost conscious and Tesla’s price cuts took all the fat out of the market. The EV market of 2023 is cutthroat, and aggressive pricing is king.
These shifting market realities seem to have caught several legacy automakers off guard and forced a major refocus on reducing cost of production.
Indeed, if we dive into the data, it’s clear that the ominous headlines about the “slowing” EV market are more a story about Ford and GM in particular, than anything else.
Sales of Ford’s Mach-E have indeed flatlined this year, likely due to competition from Tesla’s now-discounted Model Y. Noting that reducing sticker price on electric vehicles would be their top priority, Ford CEO Jim Farley recently announced adjustments to F-150 Lightning and Mach-E production ramps and delayed some capital spending.
GM’s EV ambitions are stuck in neutral too, but their woes can hardly be attributed to a lack of customer interest. The company is struggling with serious difficulties assembling the Ultium batteries meant to power their next generation of electric SUVs and pickups. As a result, GM shipped only 2,316 of their Cadillac Lyriq crossover and 65 electric GMC Hummers in the first half of this year, a slower pace than 2022. Less than 200 of their Chevy Blazer and Silverado EVs found their way to American homes through September. Amidst these production troubles, GM pushed back the launch of the Chevy Equinox EV and full-scale production of their electric pickups by several months. Meanwhile, sales of the one EV they do have on the market, the affordable Chevy Bolt, are going gangbusters. Unfortunately, GM plans to stop producing the Bolt by year’s end as it focuses on modernizing the venerable model.
(Stellantis, the parent company of Chrysler, Jeep and Ram, has yet to launch any all-electric vehicles in the United States, though their plug-in hybrid Jeeps are selling strongly this year).
Still, contrary to recent headlines, none of the major automakers are scrapping plans for huge investments in electric vehicles. Fresh details on the recent deals struck between the UAW and the Big Three (GM, Ford, and Stellantis) show the automakers all continue to plan multi-billion-dollar investments in new EV factories and models.
“Our commitment to an all-EV future is as strong as ever,” GM CEO Mary Barra told analysts on a conference call last month. The company plans to be 100% electric by 2035.
Ford is “not moving away from our second generation [EV] products,” the company’s CFO also said in October.
Meanwhile, Hyundai Motor Group (parent to Hyundai, Kia, and Genesis brands) continues to launch new electric models and its executives told investors the company isn’t pausing EV plans as they “believe EV sales will grow longer term.” In fact, the Korean auto group vaulted ahead of GM and Ford to snag the #2 spot for total U.S. EV sales this year.
Volvo’s electric sales more than doubled over the past year to reach 13% of total sales for the brand, and the company reported a healthy 9% profit margin on its electric models.
Upstart Rivian is going strong too. Sales of its R1 series tripled over the last year, and the firm just increased its 2023 production estimates by 4 percent to 54,000 vehicles as it continues to move towards profitability with a focus on reducing costs and ramping up production.
The upshot of all this is that EVs are getting more affordable, which is the key to future growth. Prices are falling. Dealer markups are gone. And the price of an average EV in September was $50,683 (before tax credits), barely higher than the average for all new vehicles ($48,000).
In January, the personal EV tax credit will be available to buyers at the point of sale for the first time too, effectively turning it into a rebate. Already, intense competition is forcing dealers to pass the credit through as a down payment that cuts the monthly cost of leasing a $40,000 EV nearly in half.
Next year will also see the more affordable Volvo EX30 and Chevy Equinox EV hit the market, joining the Tesla Model 3, Hyundai Kona, and Kia Niro and Ioniq 6 in the under $40k segment.
In 2024, Tesla’s extensive Supercharger network will also open up to non-Teslas, virtually all automakers will adopt NACS chargers natively in model year 2025 vehicles and beyond, and the Bipartisan Infrastructure Law’s National Electric Vehicle Infrastructure grants will finally start to flow in earnest to build out chargers.
So while Ford and GM are facing real challenges, the overall state of the electric vehicle market is healthy.
As GM’s Barra said: “As we get further into the transformation to EV, it's a bit bumpy.” But that doesnt mean the journey is slowing. Sales of EVs keep growing rapidly, new models are expanding the market, and competition is making it all more affordable. Doesn’t that deserve some good vibes for a change?
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Rob and Jesse pick apart Justice Brett Kavanaugh’s latest opinion with University of Michigan law professor Nicholas Bagley.
Did the Supreme Court just make it easier to build things in this country — or did it give a once-in-a-lifetime gift to the fossil fuel industry? Last week, the Supreme Court ruled 8-0 against environmentalists who sought to use a key permitting law, the National Environmental Policy Act, to slow down a railroad in a remote but oil-rich part of Utah. Even the court’s liberals ruled against the green groups.
But the court’s conservative majority issued a much stronger and more expansive ruling, urging lower courts to stop interpreting the law as they have for years. That decision, written by Justice Brett Kavanaugh, may signal a new era for what has been called the “Magna Carta” of environmental law.
On this week’s episode of Shift Key, Rob and Jesse talk with Nicholas Bagley, a University of Michigan law professor and frequent writer on permitting issues. He is also Michigan Governor Gretchen Whitmer’s former chief legal counsel. Rob, Jesse, and Nick discuss what NEPA is, how it has helped (and perhaps hindered) the environment, and why it’s likely to change again in the near future. Shift Key is hosted by Jesse Jenkins, a professor of energy systems engineering at Princeton University, and Robinson Meyer, Heatmap’s executive editor.
Subscribe to “Shift Key” and find this episode on Apple Podcasts, Spotify, Amazon, or wherever you get your podcasts.
You can also add the show’s RSS feed to your podcast app to follow us directly.
Here is an excerpt from our conversation:
Robinson Meyer: It seems like what the court is doing here is not only basically using this to make a statement, it’s announcing a new jurisprudence on NEPA. We want you to start treating this law really, really differently than you’ve been treating it in the past. And like, we are going to come down into your room and force you to clean up this mess whenever we want to now because of how important we think this is.
Do you think that’s too strong a statement? It seems this is not only declaring what the court’s view on NEPA is, but almost declaring a new plan of action.
Nicholas Bagley: Like many Supreme Court decisions, I think it’s amenable to two competing interpretations. One is exactly as you say: It’s a new era of NEPA jurisprudence, and the basic rule of a NEPA case is now going to be that environmental groups lose. And so I think there’s no way to read the decision except as a walloping loss to environmental groups, at least as a matter of tone and, I think, intention by the Supreme Court.
But there is a narrower reading available, and one that suggests that maybe this decision won’t have as big an effect as maybe the Supreme Court justices want it to. And the reason for that is they didn’t close the door altogether on the judicial evaluation of the reasonableness of its actions. And when a court goes in and says, Hmm, has an agency acted arbitrarily? Again, that’s a multifaceted inquiry. It’s going to involve a lot of different factors. And the court says be deferential, but that’s actually always been the rule.
They use a lot of strident language here, but that strident language is not going to make a lick of difference if you get in front of a highly motivated judge who happens to dislike the project in question in a district court in New Mexico. And that happens. So if you’re an agency and you’re thinking to yourself, Can I cut back on the amount of environmental studies that I do? Can I not investigate these dopey alternatives? You might think to yourself, you know, I have like a 20% or a 30% chance, my odds are a little better than they were before — maybe even a lot better than they were before — at winning if this case is litigated. But they’re also not 100%. So maybe what I ought to do is keep doing what I’ve been doing just to be safe. And I think that’s at least a possibility. We don’t know how it’s going to play out on the ground.
The last thing I’ll say about this is, you said that the Supreme Court is going to act like your mom who’s going to come and tell you to clean up your room.
Meyer: Yeah, exactly. Yes.
Bagley: The trouble is it takes something like, what, 50 cases a year? There are hundreds of these cases brought, and there’s only so much the Supreme Court can do, and in closer cases I think it might just be inclined to let matters lie.
So, you know, I think it is reasonable to think that this is the Supreme Court’s effort to usher in a new era of unique NEPA jurisprudence. It is reasonable to think it is going to have some effects on agency behavior and some effects on lower court behavior. But it may not pretend the revolution that it looks like on its face.
Music for Shift Key is by Adam Kromelow.
On Alaskan oil, CCS, and ‘zombie plants’
Current conditions: Flights have resumed to and from Sicily after Mt. Etna’s most powerful eruption in four years on Monday • There have already been almost half as many wildfire ignitions in the U.S. in 2025 as there were in all of 2024 • More than 700 people are feared dead in central Nigeria after heavy rains and flash floods.
USGS
The Department of the Interior announced Monday that it plans to rescind President Biden’s 2024 ban on drilling in more than half of the 23 million-acre National Petroleum Reserve-Alaska. The reserve holds an estimated 8.7 billion barrels of recoverable oil, but it is also some of the “last remaining pristine wilderness in the country,” The New York Times writes.
“Congress was clear: the National Petroleum Reserve in Alaska was set aside to support America’s energy security through responsible development,” Secretary Doug Burgum said in a statement announcing the proposed rule, further arguing that Biden’s ban had “ignored that mandate, prioritizing obstruction over production and undermining our ability to harness domestic resources at a time when American energy independence has never been more critical.” While the department’s announcement — which Burgum shared on Sunday at a heritage center in Utqiagvik, the largest city of the North Slope — was greeted with applause by attendees, Alaska’s senior manager for the Wilderness Society, Matt Jackson, said, “Everyone who cares about public lands and is concerned about the climate crisis should be outraged by this move to exploit America’s public lands for the benefit of corporations and the president’s wealthy donors.”
Applications for carbon capture and storage projects fell by 50% in the first quarter of the year as compared to last year, with no new permits having been approved since President Trump took office, the Financial Times reports. Industry experts blamed the uncertainty over the fate of federal grants and tax credits for the lowest application submissions since 2022 — a concern that isn’t likely to go away anytime soon, since the Energy Department canceled nearly $4 billion in clean energy grants last week, including carbon capture and sequestration projects proposed by Heidelberg Materials and Calpine, as my colleague Emily Pontecorvo has reported. By BloombergNEF’s projections, an estimated 35% of the 152 million metric tons of announced carbon capture capacity expected to come online by 2035 will be canceled before then.
The Department of Energy has ordered Constellation Energy to continue operating its Eddystone power plant through the end of the summer to prevent potential electricity shortfalls on the mid-Atlantic grid, the Associated Press reports. The oil and gas plant, located south of Philadelphia, had been scheduled to shut down its last remaining units this weekend, before Constellation received the DOE’s emergency order.
Late last month, the DOE similarly ordered a coal-fired plant in Michigan to continue operating past its planned May 31 shutdown date, although the chair of the Michigan Public Service Commission said at the time that no energy emergency existed, Bloomberg reports. By contrast, the decision to order Eddystone’s continued operation followed PJM Interconnection expressing concerns about summer grid reliability; the operator has since voiced support for the DOE’s order. But the move also has its critics: “The Department of Energy’s move to keep these zombie plants online will have significant public health impacts and increase electricity costs for people in Michigan and Pennsylvania,” argued Kit Kennedy, a managing director at the Natural Resources Defense Council.
The European Union’s climate science advisers have warned the bloc against softening its 2040 emission goals, arguing that such a move could “undermine domestic value creation by diverting resources from the necessary transformation of the EU’s economy.” The European Commission is set to propose a binding target for member nations to cut emissions by 90% by 2040 from 1990 levels, but it is also considering allowing countries to set lower targets for their domestic industries and make up the gap using carbon credits, Reuters reports. The European Scientific Advisory Board on Climate Change, which issued its warning against the carbon credit loophole on Monday, described the original 90% emission reduction goal as achievable and necessary for both the health of Europeans as well as improving security by limiting the bloc’s reliance on foreign fossil fuel sources.
Oregon-based battery energy storage system integrator Powin has filed a notice with the state warning that it could lay off 250 employees and shut down operations by the end of July. Per the notification, the layoffs would include the company’s chief executives, and “it is presently contemplated that the affected employees will be permanently terminated.”
Powin has the third most gigawatt-hours of batteries installed in the U.S. and the fourth most worldwide. Still, turbulence due to tariffs and the Inflation Reduction Act incentives has reverberated through the industry, Latitude notes. In a statement provided to the publication, Powin described “navigating a period of significant financial challenge, reflective of ongoing headwinds in the broader energy storage industry.”
The partial shading of Colorado grasslands by solar arrays could decrease water stress and increase plant growth during dry years by 20% or more, a new study in Environmental Research Letters has found.
Or, why developers may be loading up on solar panels and transformers.
As the Senate gets to work on the budget reconciliation bill, renewables developers are staring down the extremely real possibility that the tax credits they’ve planned around may disappear sooner than expected. In the version of the bill that passed the House, most renewables projects would have to begin construction within 60 days of the bill’s passage and be “placed in service” — i.e. be up and running — by the end of 2028 to qualify for investment and production tax credits.
But that’s tax law language. The reconciliation bill will almost certainly mean grim tidings for the renewable industry, but it will be Christmas for the tax attorneys tasked with figuring out what it all means. They may be the only ones involved in the energy transition to come out ahead, David Burton, a partner at Norton Rose Fulbright — “other than the lobbyists, of course,” he added with a laugh.
If the timeline restrictions on the investment and production tax credits make it to the final law, within 60 days after it’s enacted, developers will likely have to demonstrate that they’ve done some kind of physical work on a project — or spent a serious amount of money to advance it — in order to qualify for the tax credits.
The IRS has a couple of existing tests and guidelines: the 5% safe harbor and the physical work test.
The 5% harbor rule is the most common way to demonstrate a construction start, Burton told me. But it’s not cheap. That 5% refers to the total cost of a project, meaning that a company would have to shell out a lot of money very quickly to keep hold on those tax credits. For example, a 100-megawatt solar project that costs $1.25 per watt — about the average cost for a utility-scale project according to the National Renewable Energy Laboratory — would cost a developer $6.25 million in initial outlays just to prove they’ve started construction to the satisfaction of the IRS.
There are any number of things to spend that money on. “For solar, the most common thing is modules. But it could be inverters, it could be racking,” Burton said.
Right now there’s a particular rush to get transformers, the electrical equipment used to step up voltage for the transmission of electricity from a generator, Burton added. That’s because transformers also fall under the second construction guideline, the “physical work test.” Developers can say they’ve started construction “when physical work of a significant nature begins, provided that the taxpayer maintains a continuous program of construction,” according to the law firm Leo Berwick.
This “significant physical work” can be split into onsite and offsite work. The former is what one might logically think of as “construction” — something along the lines of pouring foundations for wind turbines or building a road to bring in equipment.
Then there’s offsite. Ordering equipment qualifies as offsite work, Burton explained. But it has to be something that’s not held in inventory — this is why modules for a solar project don’t qualify, Burton said — the equipment must be built to order. Transformers are custom designed for the specific project, and can run into the millions of dollars.
“The guidance says expressly that step-up transformers qualify for this,” Burton told me. “It’s the only thing that guidance expressly states qualifies.”
This all adds up to a likely rush for transformer orders, adding more pressure onto a sector that’s been chronically under-supplied.
“The transformer manufacturers’ phones are ringing off the hook,” Burton said. “If I were the CFO of a transformer manufacturer, I would be raising my prices.”
While these tax rules may seem bewildering to anyone not a lawyer, they’re hardly obscure to the industry, which is well aware of how developers might react and is positioning itself to take advantage of this likely rush to start projects.
PV Hardware, which makes a type of solar equipment called a tracker that allows solar panels to track the movement of the sun, sent out a press release last week letting the world know that “it has the capacity to immediately Safe Harbor 5GW of tracker product, offering solar developers a critical opportunity to preserve eligibility for current clean energy tax credits amid legislative uncertainty.” Its trackers, the release said, would help developers meet the “thresholds quickly, mitigating risk and preserving the long-term viability of their project.”
The prospect of tariffs has also been an impetus to get construction work started quickly, Mike Hall, chief executive of the solar and storage data company Anza, told Heatmap. “There’s a slug of projects that would get accelerated, and in fact just having this bill come out of the House is already going to accelerate a number of projects,” Hall said.
But for projects that haven’t started, complying with the rules may be more tricky.
“For projects that are less far along in the pipeline and haven’t had any outlays or expenditures yet, those developers right now are scrambling,” Heather Cooper, a tax attorney at McDermott Will and Emery, told Heatmap. “I’ve gotten probably about 100 emails from my clients today asking me questions about what they can do to establish construction has begun on their project.”
And while developers of larger projects will literally have to do — or spend — more to qualify for tax credits under the new rule, they may still have an advantage.
“It’s increasingly clear to us that large-scale developers with the balance sheet and a pre-existing safe harbor program in place,” Jefferies analyst Julien Dumoulin-Smith wrote to clients last week, “are easily best positioned to keep playing the game.”
Additional reporting by Jael Holzman