California’s Zero Emission Vehicle (ZEV) regulation has been instrumental in catalyzing the EV market, and has also long been a source of complaint for automakers.
When the ZEV rule covering the 2018 through 2025 time period was initially adopted in 2012, California’s Air Resources Board (CARB) estimated it would require over 15 percent of new cars in 2025 to be electric drive vehicles – a figure still cited in media stories about the rules. However, that number is no longer accurate.
The ZEV program will require less than 8 percent EV sales by 2025 and recent sales figures show that several automakers are already well on their way to meeting this target in California.
Last month, the ZEV regulation, along with the rest of California’s Advanced Clean Cars program was reevaluated to check whether this standard was still achievable through 2025. As part of the Advanced Clean Cars review, the CARB updated its estimate of the ZEV sales required to meet the regulation. The state now estimates that the ZEV standards would require new EV sales in 2025 to be less than 8 percent, roughly half of the previous estimate of 15 percent.
The reduction in the estimated effect of the standard is primarily due to two factors: the range of EVs has increased far faster than anticipated (increasing the ZEV credits earned per vehicle), and the current stockpile of ZEV credits from early compliance with the regulation which can be used in place of future ZEV sales.
The unanimous decision of the board was to continue the current regulations through 2025, due to the progress that automakers have already made in selling EVs and also the dramatic improvements in EV technologies that have occurred over the last five years. For example, General Motors last year’s EV sales in California reached 7 percent, well in excess of the current ZEV rules requirements and has increased the range of its battery electric car from 82 miles to well over 200 miles.
The updated estimates of the ZEV regulation’s requirements in California are much lower than initially thought. Several automakers are selling significantly more EVs in California than the rule requires. Note: not all BMW EV models are certified as ZEV-compliant vehicles.
EV leaders hit new highs in 2016
EV sales in California increased 18 percent from 2015 and 3.5 percent of all new cars in the state were plug-in electric, up from 3.1 percent last year.
But the story is more impressive when you consider several major automakers were absent from the market in 2016. If we exclude the 2 major automakers without a plug-in EV in 2016 (Honda and Toyota), EV sales would have exceeded 5 percent of new car sales in California.
Several automakers were well above 5% EV sales in California in 2016. Tesla not shown, as 100% of its sales are electric. Data source: California New Car Dealers Association, IHS Markit
BMW remained the leader in California (excluding Tesla), nearing 9 percent of all cars having the ability to be plugged in. General Motors (GM) was clearly ahead out of the Big Three domestic automakers at 7 percent EV sales. However, that includes brands such as GMC, Buick, and Cadillac that have no EV models available (excluding the discontinued Cadillac ELR).
If you look only at GM’s main Chevrolet brand, almost 1 in 10 new Chevys sold in California were EVs. With the addition of the long-range Bolt EV for 2017 as well as a new Cadillac plug-in hybrid, GM is poised to continue to be an EV leader in California.
Leading EV brands in California. Data source: California New Car Dealers Association, IHS Markit
Some of the laggards starting to turn around (though not all)
Some of the companies that we identified as laggards in our last evaluation of the EV market are starting to show signs of making more effort in the building and selling EVs.
Hyundai/Kia moved to over 1 percent EV sales in 2016 and is adding new plug-in models to its line up in 2017. Toyota sold low volumes of the Mirai fuel cell electric in 2016 in part due to delays in hydrogen refueling station deployment. However, Toyota now has one of the top selling plug-in hybrids with the Prius Prime.
Fiat Chrysler has long been a critic of electric vehicles, but soon will sell the first plug-in minivan, the Chrysler Pacifica Hybrid. Honda remains in last place, selling 6 fuel cell electrics in 2016 while delivering 287,526 gasoline cars in the state. They are planning on bringing battery electric and plug-in hybrid versions of their Clarity sedan to market in 2017, though Honda’s new battery electric is expected to have only 80-mile range, which could limit its competitiveness given the number of similar vehicles with higher range already on the market.
These major automakers sold over 850,000 cars in California last year, but just over 3,000 ZEVs. Data source: California New Car Dealers Association, IHS Markit
Automakers are demonstrating they can meet 2025 ZEV targets
The California Air Resources Board affirmed its ZEV regulations, citing ample evidence that automakers can achieve the 2025 target. The data supports that decision, as automakers that have developed and marketed EVs in California are already selling these cars in volumes in excess of the ZEV current requirements and are well poised to get to 8 percent sales by 2025. These same automakers have paved the way for their industry counterparts who have been slower to step up their efforts.
In the other states that have the ZEV program, fewer vehicle models have been available to consumers and automaker efforts have lagged, but there is ample time (8 years) to bring more effort to these states. Additionally, they are not starting from scratch. More than 25 ZEV models are being produced by automakers today, and that number is expected to reach 70 in the next 5 years. These vehicles need to be brought to states outside of California and marketed to consumers. In addition, incentive programs in East Coast states have been expanding, like the recently announced program in New York state.
If major automakers don’t step-up in the ZEV market, they may end up paying Tesla (or other EV manufacturers) to do it for them. Tesla isn’t subject to the ZEV program requirements because the rules only apply to large automakers who sell conventionally-powered vehicles. But Tesla can generate credits and sell those to other manufacturers who choose not to sell ZEVs. Tesla’s success puts more ZEV credits on the market – making the 8 sales percent target even easier to meet.
So let’s be clear. There is no 15 percent sales requirement for EVs in California or any other state. California’s recently reaffirmed Zero Emission Vehicle will require less than 8 percent new EV sales by 2025 – a target that automakers are already demonstrating is within striking distance.