Chicago Fed Insights

Charging Ahead—The Electrification of the Auto Industry

June 23, 2021

Lately, not a day goes by without a major player in the auto industry issuing a press release that signals a shift toward electrification. According to the New York Times, as many as 100 electric vehicle (EV) models will be featured in showrooms by 2025.1 All three carmakers with historical ties to Detroit have major plans to develop more EVs. General Motors Co. (GM) will invest $20 billion to produce electric and autonomous vehicles by 2025—with the goal of having 20 EV models in its global lineup even sooner (by 2023). Ford Motor Co. intends to spend over $11 billion on EV development by 2022. Ford also stated in 2020 that it will add 300 jobs at its Rouge Complex in Dearborn, Michigan, to support battery assembly and the production of its new F-150 Lightning models (both hybrid and fully electric), scheduled for release in 2022. Like its competitors, Fiat Chrysler Automobiles N.V. (now Stellantis N.V.) announced that it will invest over $10.5 billion in EVs—with the goal of having more than 30 nameplates with electrified powertrains (including new Jeep models) in its lineup over the next few years.2

Is the electrification of the auto industry today akin to when the internal combustion engine (ICE), led by Ford’s Model T, wiped out alternative propulsion systems (such as those based on steam power and even electricity3) just over a hundred years ago? If so, what are the principal features of this transition? In this blog post, we provide some big-picture context for what’s going on in the auto industry as it ramps up its efforts to produce and sell more electric cars.

According to Melissa Diaz, an analyst in energy policy with the Congressional Research Service,4 electric vehicles can be divided into “three broad categories,” which she defines as follows:

  • Hybrid-electric vehicles (HEVs): The internal combustion engine primarily powers the wheels. The battery pack and electric motor provide supplemental power.
  • Plug-in hybrid-electric vehicles (PHEVs): The battery pack can be charged by an external source of electricity. Depending on the model, primary power to the wheels may be supplied by the battery pack and electric motor, the internal combustion engine, or a combination.
  • All-electric vehicles (AEVs; also called battery-electric vehicles, or BEVs): The battery pack must be charged via an external source of electricity. The battery pack and electric motor power the wheels.

In this blog post, we focus on the final category of electric vehicles, given that many within the auto industry and those who study it view the hybrids as transitional technologies. We prefer the term “BEVs,” so we’ll refer to such vehicles with that shorthand, rather than “AEVs.”

The current popularity of BEVs originated with Tesla, which started selling its first model in 2008. Since then the company has become the largest producer of BEVs globally. In the U.S., Tesla accounted for 77% of all BEV sales in 2020.5 The company has been valued by financial markets as the most valuable car company anywhere.

What’s behind the current move toward electrification in the auto industry? As of 2017, the transportation sector accounted for the largest share of greenhouse gas emissions in the U.S. Moreover, nearly 60% of this sector’s emissions are attributed to light-duty vehicles, such as cars and light trucks (see Diaz, 2020, p. 4). Led by regulatory efforts designed to reduce greenhouse gas emissions, carmakers have intensified their efforts to reduce tailpipe emissions. Traditional carmakers (such as GM and Volvo) have publicly committed to phasing out the production of ICE vehicles by specific dates (2035 and 2030, respectively).6 The California government has banned selling new gasoline-powered motor vehicles in the state starting in the year 2035.7

How will the switch to electrification in the auto industry play out? At this point, the share of EVs—and especially BEVs—in U.S. auto production and sales is still quite small,8 but it’s growing (see table 1 for the multiple BEV models currently being sold in the U.S.). The consulting firm IHS Markit, which has deep expertise in both energy markets and auto supply chains, predicts that with the regulations presently in discussion, BEVs could represent more than 50% of auto sales in Europe, more than 40% in China, and more than 25% in the U.S. by 2030.9

Table 1. BEV models sold in the U.S. market in 2021, year to date

Automaker Models
Audi e-tron
BMW i3
Ford Mustang Mach-E
General Motors Chevrolet Bolt
Hyundai Ioniq and Kona
Kia Motors Niro
Jaguar Land Rover Jaguar I-PACE
Nissan LEAF
Porsche Taycan
Tesla Motors Model 3, Model S, Model X, and Model Y
Volkswagen Golf
Volvo Polestar 2 and XC40
Note: BEV means battery-electric vehicle.
Source: WardsAuto InfoBank.

While regulatory forces are having an impact on the auto market, the take-up rate of BEVs is also being shaped by consumer concerns: It currently takes much longer to charge a BEV than to refuel an ICE vehicle; there are far fewer charging stations than gasoline stations; and the relatively high cost of electric batteries tilts the purchase price in favor of ICE vehicles over BEVs. Note that the Biden administration’s proposed infrastructure bill includes $174 billion for the further development of electric cars and the infrastructure that supports them—50% more than for building or repairing bridges and roads.10

It is important to note that a transition to electric vehicles would change many aspects of the auto industry—ranging from the design and production of cars to their distribution and maintenance. For example, a BEV does not require a conventional engine and transmission, thereby noticeably reducing the number of parts and time required to build a vehicle. That could have significant effects on industry employment,11 as well as on industry geography, as it is not clear that BEV batteries and electric motors will be produced where conventional vehicle engines and transmissions are presently made. Furthermore, the repair and maintenance of BEVs will require different sets of skills and likely different equipment for dealers and repair shops across the nation. Finally, if Tesla’s entry into the auto industry is any guidance, the many producers of new BEVs that are attempting to gain a foothold in the industry may not follow the historical pattern of establishing vehicle dealer networks in order to sell their products. For instance, Tesla owns and operates its own distribution channels—which is quite different from the situation for traditional car companies that contract with a vast network of independent dealers to sell and repair their products.

Regardless, a transition away from vehicles with internal combustion engines will take time.12 That means we shouldn’t be thinking of their eventual demise as a sudden drop off a cliff, but rather as a much more gradual process. Even after BEVs reach a tipping point among consumers, the composition of vehicles in use will change only gradually, as the average car in the U.S. stays on the road for about 12 years.13

We are witnessing the beginnings of a far-reaching transformation of the auto industry. The environment is quite dynamic—influenced by technological progress, consumer demand, and regulatory requirements. Watch this space for further analysis of the auto industry’s electrification.


1 Lawrence Ulrich, 2021, “Three electric S.U.V.s with Tesla in their sights,” Wheels: Driver’s Notebook, New York Times, updated April 26 (originally published April 22), available online by subscription.

2 Jordyn Grzelewski, 2020, “In the shift to EVs, some worry workers could suffer,” Government Technology, November 2, available online, accessed on June 2, 2021. In January 2021, Fiat Chrysler Automobiles N.V. completed its merger with Groupe PSA to create Stellantis N.V.; details are available online.

3 Electric vehicles are not a new concept. Around the beginning of the twentieth century, about a third of the vehicles in New York City, Boston, and Chicago were electric. Several factors explain the demise of the early electric vehicles, including the increasing availability of cheap oil and the invention of the electric starter motor for gasoline-powered vehicles (see John D. Graham, 2021, The Global Rise of the Modern Plug-In Electric Vehicle: Public Policy, Innovation and Strategy, Northampton, MA: Edward Elgar, pp. 3–4). Advancements in electric batteries revived interest in electric vehicles nearly 100 years later.

4 Melissa N. Diaz, 2020, “Electric vehicles: A primer on technology and selected policy issues,” CRS Report for Congress, Congressional Research Service, No. R46231, February 14, available online.

5 Authors’ calculations based on data from WardsAuto InfoBank.

6 CBS and Associated Press, 2021, “Volvo plans to phase out gas engines in all its cars by 2030,” CBS News, March 2, available online, accessed on June 10, 2021.

7 Russ Mitchell, 2020, “Sales of new gas-powered cars banned in California by 2035: What you need to know,” Los Angeles Times, September 23, available online by subscription.

8 For instance, through the first five months of 2021, the share of BEVs among new light vehicle sales in the U.S. market came to just 2.5% (according to authors’ calculations based on data from WardsAuto InfoBank).

9 Reinhard Schorsch, 2021, “Commitments to carbon-neutral economies accelerate the reshaping of the automotive industry,” IHS Markit, blog post, April 14, available online, accessed on April 28, 2021.

10 Daniel Yergin, 2021, “How electric, self-driving cars and ride-hailing will transform the car industry,” Saturday Essay, Wall Street Journal, April 23, available online by subscription. See also White House, 2021, “FACT SHEET: Biden administration advances electric vehicle charging infrastructure,” press release, Washington, DC, April 22, available online.

11 UAW Research Department, 2020, “Taking the high road: Strategies for a fair EV future,” white paper, Detroit, revised January 2020, available online, accessed on April 28, 2021.

12 Brad Plumer, Nadja Popovich, and Blacki Migliozzi, 2021, “Electric cars are coming. How long until they rule the road?,” New York Times, March 10, available by subscription, accessed on April 28, 2021.

13 Colin Beresford, 2020, “Average age of vehicles on the road is approaching 12 years,” Car and Driver, July 29, available online, accessed on June 6, 2021.

The views expressed in this post are our own and do not reflect those of the Federal Reserve Bank of Chicago or the Federal Reserve System.

Subscribe to NFCI

To sign up for updates or to access your subscriber preferences, please enter your contact information below.

Find Publications By:
Find Publications By:
Publication Date

Find or Reset
Having trouble accessing something on this page? Please send us an email and we will get back to you as quickly as we can.

Federal Reserve Bank of Chicago, 230 South LaSalle Street, Chicago, Illinois 60604-1413, USA. Tel. (312) 322-5322

Copyright © 2024. All rights reserved.

Please review our Privacy Policy | Legal Notices