Automakers have witnessed a resurgence in interest for trucks and SUVs as gasoline prices continue to hover around $2 per gallon in many areas of the country.
While that shift in consumer interest has allowed automakers to pad their margins by selling more vehicles at a premium, it’s also sparked concern over the future of electric and hybrid powertrain technology.
Indeed, that consumer shift spurred Fiat Chrysler Automobiles (FCA) in April to lay off roughly 1,300 workers at its Sterling Heights plant as the automaker ends production on its line of midsize sedans. The shift in production comes as part of a larger move by FCA to phase out the Chrysler 200 and Dodge Dart models in favor of trucks, SUVs and crossovers.
Overall, sales of electric and hybrid vehicles have declined over the last three years to 2.9 percent of total light vehicle sales after peaking at 3.8 percent in 2013, according to a recent analysis from Automotive News.
Despite this trend, industry watchers and manufacturers remain bullish on the market for both pure electric vehicles and hybrids, given the upcoming Corporate Average Fuel Economy (CAFE) standards that automobile manufacturers will need to comply with by 2025 to avoid costly penalties.
“From our viewpoint, electric vehicles are going to be something that will continue to grow because the OEMs won’t be able to meet their carbon dioxide and emissions standards without a higher concentration of hybrids or electric vehicles,” said Jeff Smith, president of Grand Haven-based auto supplier GHSP. “The market is demanding these premium vehicles because they’re not worried about fuel prices, which helps (automakers) in their earnings, but doesn’t move them forward in meeting those requirements.”
A division of Grand Haven-based JSJ Corp. that manufactures smart pumps used to cool the batteries in electric and hybrid vehicle applications, GHSP continues to add additional contracts with automakers for electric vehicle technology, Smith said. In addition to drivers related to the CAFE requirements, GHSP also sees an increasing appetite internationally for electric vehicle components, particularly from China.
“There’s a big push by the Chinese government for more electric vehicles,” Smith said. “That’s something they’re promoting and the government is doing a lot to put in the infrastructure in the bigger cities to support electric vehicles.”
Elsewhere in West Michigan, Holland-based LG Chem Michigan Inc. conducted a job fair last week to hire 50 additional workers, bringing employment at its facility to more than 400 people, according to a statement. The latest hiring spree by the manufacturer of lithium-ion battery cells and packs for electric vehicles comes at the end of a six-month push to ramp up staffing to accommodate additional production, as MiBiz previously reported.
In October 2015, LG Electronics Inc. also struck a strategic partnership with General Motors to manufacture several components for the new Chevrolet Bolt, a pure electric vehicle purported to have a range of more than 200 miles. That partnership led some analysts at the time to project the supplier would produce the new Bolt battery cells at the Holland facility.
LG Chem currently manufactures battery cells for the second-generation Chevrolet Volt, Chevrolet Spark, Cadillac ELR and a new program from an unnamed automaker. The supplier did not respond to requests for comment as this report went to press.
THE MIDTERM REVIEW
While cheap gasoline prices have shifted the conversation around electric vehicles in recent months, automakers will need to prioritize powertrain electrification as part of the upcoming mid-term review of the CAFE standards, according to automotive analysts.
The new regulations call for a fleet-wide average fuel economy of 54.5 miles per gallon by 2025.
“The harsh reality of it is even with $2 gas, the die has pretty much been cast and the CAFE requirements are forcing us to get to these increasingly difficult fuel economy requirements,” said Mike Wall, director of automotive analysis at IHS Automotive.
The midterm review will kick off this summer when the U.S. Environmental Protection Agency (EPA) and the National Highway Traffic Safety Administration (NHTSA) publish an investigation highlighting key points for the CAFE review. The review will then be open to discussion among federal regulators, automakers and other stakeholders through 2017 before the agencies set a final rule in April 2018.
However, Wall and other analysts expect the CAFE review will have minimal impact on the current standards.
“It’s going to give some opportunities for points and counterpoints, but we don’t see it really changing the numbers a whole lot,” Wall said of the midterm review. “You may see more credits, but the California Air Resources Board has a big seat at this table and they’re not going to go quietly into the night as it relates to that.”
While automakers will likely concentrate on improvements in lightweight materials and gaining efficiencies for gasoline engines in the short term, Wall predicts partial and full electrification to gain traction after 2017.
But electrification faces an uphill climb with consumers, and in turn automakers, primarily because of the increased vehicle costs associated with the technology and the limited range of fully electric vehicles.
A January 2016 national benchmarking report on electric vehicles published by the Colorado-based National Renewable Energy Laboratory noted that pure electric vehicles would need a range greater than 300 miles for 56 percent of the 1,015 households surveyed to consider purchasing one.
While 45 percent of respondents stated that pure electric vehicles were just as good as traditional gasoline-powered vehicles, only 20 percent of respondents said they plan to purchase an electric vehicle.
Hybrid plug-in electric vehicles fared slightly better in the survey, with 52 percent of respondents stating the vehicles were on par or better than gasoline-powered cars and 24 percent of participants saying they’d consider purchasing one.
For its part, IHS predicts that electric vehicles will be limited to 3 percent of the North American light vehicle production as of 2025, primarily due to cost and range issues, Wall said.
Still, Wall remains confident that upcoming models such as the Chevrolet Bolt and Tesla Model 3, both of which boast ranges of more than 200 miles and price tags starting at $30,000 and $35,000, respectively, will solve many of the concerns from consumers.
“What the Model 3 does is it makes electrification more mainstream,” Wall said. “It brings the potential to really commercialize this for the average Joe consumer. That’s a big deal in and of itself, especially at the price point they’re talking about. We’re increasingly going to see more solid applications in the pure electric vehicle front.”