EIA's AEO 2023: Incentives and Lower Cost Boost EV Adoption

By IndraStra Global Editorial Team

Cover Image Attribute: Image by Lee Rosario from Pixabay 

Based on the latest Annual Energy Outlook 2023 (AEO2023) by the U.S. Energy Information Administration, it is projected that electric vehicles (EVs), which include both battery-electric vehicles (BEVs) and plug-in hybrid electric vehicles (PHEVs), will make up approximately 13% to 29% of new light-duty vehicle sales in the United States by 2050. Additionally, they are expected to constitute around 11% to 26% of the total on-road light-duty vehicle stocks. The growth in EV sales is primarily attributed to reductions in the costs of EV components and the implementation of federal and state policies that encourage EV purchases or mandate minimum sales targets.

Chart Attribute: U.S. Energy Information Administration, Annual Energy Outlook 2023 (AEO2023)

The AEO2023 report examines enduring energy patterns in the United States and projects future energy market developments through 2050. Various scenarios, referred to as cases, are employed to investigate the influence of different assumptions on energy trends. In addition, the AEO2023 Reference case, a fundamental basis or benchmark, considers the legislative measures and regulations enacted until mid-November 2022, such as the Inflation Reduction Act (IRA).

The report forecasts a decrease in the manufacturing costs of EV batteries by utilizing learning rates based on the historical correlation between cumulative production and price. It is assumed that the costs of battery materials, primarily critical minerals, will remain steady until 2050. The anticipated reduction in manufacturing costs will lead to both an extended driving range and reduced prices for EVs until 2050. By 2050, the estimated battery costs will decline by 51% to 56% compared to their 2022 levels, reaching a retail price range of approximately $105/kWh to $118/kWh. Most of this cost decline is projected to occur before 2040 as battery production rapidly grows. Costs associated with non-battery components such as electric motors, power electronics, and wiring will continue to decrease until 2050.

There are various factors to consider when deciding to purchase an electric vehicle (EV), and one of the most significant factors is the purchase price. EIA's model divides the light-duty passenger vehicle market into 16 size categories, consisting of eight cars and eight light trucks. They estimate the average purchase prices for EVs in each category. According to their projections, EV purchase prices will continue to decline. By 2029, most EVs with a driving range of less than 150 miles could achieve price parity with traditional gasoline-powered vehicles. EVs with driving ranges between 151 and 250 miles are expected to reach price parity across most car size categories by 2038. However, only small vans and small crossover utility vehicles (CUVs) reach cost parity among light trucks. EVs with over 250 miles of range do not achieve price parity in any size category but will come close in the 2040s. Regarding pricing, car size categories are generally within 3% of the corresponding gasoline vehicle purchase price, while most light truck size categories are within 5%. Initial buyers of EVs have shown a willingness to pay for long-range models. Still, it remains to be seen whether most future light-duty vehicle buyers will demonstrate this behavior.

EIA assumes that the current Corporate Average Fuel Economy (CAFE) standards, applicable to model years 2023–2026, will lead to advancements in technology, increased adoption of  EVs, and improved fuel economy due to declining costs and favorable fuel economy credits. This transition aligns with the ongoing progress in fuel economy for traditional gasoline-powered vehicles. The EIA's model also considers the fulfillment of legally enforceable state requirements for minimum EV sales. For instance, 15 additional states have adopted California's Advanced Clean Cars rule, which was last modified in 2016 through Section 177 of the Clean Air Act. Additionally, the EIA has adjusted EV purchase prices by incorporating the Clean Vehicle Credit implemented in the IRA (Internal Revenue Code). Official U.S. government forecast expenditures are used to estimate the number of eligible EVs throughout the regulation's lifespan.

Forecasting the future prevalence of EVs in the light-duty vehicle market involves inherent uncertainties. Several crucial factors that contribute to these uncertainties include:

1. Future policies, such as emissions and fuel economy regulations, vehicle sales mandates, or potential bans on combustion engines.
2. Disruptive technological advancements could impact the development and adoption of EVs.
3. Availability and accessibility of refueling infrastructure to support EV charging.
4. Consumer attitudes and behavior towards EV, which can influence their acceptance and demand.
5. The stability and effectiveness of critical mineral supply chains required for EV production.

The Future

Given the significant public interest in EVs and their potential to contribute to greenhouse gas emission reduction, near- and mid-term market dynamics will be pivotal in shaping the pace of their adoption. Although the current outlook may be uncertain, understanding these dynamics becomes crucial in assessing the future trajectory of EVs. Simultaneously, as governments, organizations, and individuals actively seek sustainable transportation solutions, the adoption rate assumes even greater importance. The interplay between diverse market factors, such as consumer demand, technological advancements in battery technology and autonomous driving, and policy changes, will directly influence the overall dynamics of the global EV market. 

As we continue to monitor and analyze these developments, we can anticipate a future where EVs play a crucial role in achieving sustainable transportation and reducing environmental impacts. By embracing the opportunities and addressing the challenges that lie ahead, we can work towards a cleaner, greener, and more electrified future.

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