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California wants to drive a stake into the heart of gas-powered vehicles.
State regulators approved a policy Thursday that will ban the sale of new gas cars by 2035 in what is the country’s largest auto market.
It’s part of an ambitious plan to fight climate change by accelerating the transition to an electric future, and it’s a decision a handful of states are expected to follow.
Despite the strong demand for electric cars, sales made up only 3% of total car sales last year.
The race now is for automakers to increase the production of electric vehicles, but that alone won’t be enough.
Analysts say the industry faces several challenges in ending sales of gas-powered cars by 2035.
Electric vehicles are still really expensive
The average price of an electric vehicle is currently $66,000 — well beyond the means of many people.
“That’s not going to fit in a lot of people’s monthly budgets at this point in time,” says Jessica Caldwell, executive director of Insights at Edmunds. “They [automakers] have to introduce the more expensive, more costly, higher-margin vehicles first to make the money to start to finance some of the lower-cost vehicles.”
Car companies like Chevrolet and General Motors are aiming to release more-affordable options in the coming years. A key provision of President Biden’s Inflation Reduction Act also provides a revamped $7,500 tax credit when buying a new electric car, although it has a number of caveats.
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But to make cars more affordable, electric vehicles will need to make batteries more cost-effective.
“The batteries are simply more expensive than the internal combustion engine,” says Carla Bailo, president and CEO of the Center for Automotive Research. “Most manufacturers are saying by 2025 batteries will be on par with the cost of an internal combustion engine and when that happens, that will definitely help bring the price down.”
However, making batteries cheaper presents another challenge.
China dominates the critical minerals market
China currently dominates the rare earth mineral market and the auto industry has long relied on the country to source EV batteries.
The Biden administration is pushing automakers to reduce their dependence on China, but that’s easier said than done.
“Something in the order of about 90% of the lithium that’s used in is processed in China right now, which is not a desirable situation,” says Sam Abuelsamid, an analyst with Guidehouse Insights.
And finding new sources or partners won’t be easy.
“Obtaining minerals from places with which we have trade agreements is going to be the biggest challenge because there’s huge competition for that,” says Michelle Krebs, executive analyst with Cox Automotive. “Everybody’s scrambling to cut deals for the minerals.”
But even if companies are able to ramp up production, they could run into another problem.
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The EV infrastructure is still pretty limited
Not only are there too few charging stations across the country, many existing stations don’t always work.
A recent survey by JD Power found that the limited availability and reliability of charging stations is a key factor holding people back from buying electric vehicles.
The federal government is spending $7.5 billion to expand the country’s charging infrastructure.
But even if it gets there, it’s not clear how much an already fragile and vulnerable electric grid can handle.
Then, there’s another hurdle.
Adjusting the auto industry’s workforce
Embracing an electric future and accelerating the mass adoption of electric vehicles will require automakers to adjust their workforce.
Companies will need engineers with a different set of skills for this transition.
“They’re not going to be designing new transmissions, but instead they need people with the skills to design electric motors and electrical architectures,” says Abuelsamid.
Analysts expect to see companies lay off some workers while hiring in departments geared toward electric vehicles in the coming years.
From ramping up production to revamping the workforce, the transition is unlikely to be a smooth process for buyers, drivers and — especially — the auto industry, but transitions rarely are.
“They’re bumpy and I think there are going to be some things that are unpredictable,” says Krebs. “So buckle up.”