Issues and Opportunities for the Electric Vehicles Industry in 2023

February 27, 2023

Electrification efforts of the US transportation sector are strong and growing. More than 800,000 fully electric vehicles (EVs) were sold in the United States in 2022, nearly 6% of all vehicles sold. In comparison, 3.2% of all vehicles sold in 2021 were fully EVs. Since 2011, there has been a 4,700% increase in sales in just 11 years. By every metric, there is a consistent pattern of an upward trajectory of EV growth in both the US and global markets.

This is being supported on a number of fronts, including through new federal and state policy, as well as by public commitments from automakers to convert their fleets to EVs. Following the current trajectory, 4.7 million or 35% of all vehicle sales in the United States are expected to be clean vehicles by 2030.

However, there are still some underlying issues that could affect widespread adoption of EVs, including an absence of education for potential consumers on opportunities and concerns involved. Some of these key issues the EV market could face in 2023 are outlined below.

Range Anxiety

Range anxiety is the fear that an EV won’t have a charge sufficient to complete its trip and is still perceived to be one of the greatest barriers preventing fleets from going electric. A recent survey of potential EV consumers in the United States showed that nearly half of respondents said they were concerned about range, charging time, and lack of public charging infrastructure.

Three primary problems are driving this continuation of range anxiety: the lack of public charging stations, reduction in reliability in charging stations, and uncertainty for businesses if they can monetize charging stations on their properties.

Battery Component and Critical Mineral Supply Sourcing and Recycling

The Bipartisan Infrastructure Law and Inflation Reduction Act’s (IRA) tax credit provisions brought this issue to the forefront. The availability of funding opportunities for battery and mineral refining, processing, and manufacturing requires a close analysis of qualification criteria for such funding as well as an appreciation for the conditions that may be imposed to funding recipients.

Market participants are still waiting for the US Internal Revenue Service (IRS) and Department of Treasury’s issuance of guidance, now expected in March, that will officially explain how the IRS and the Treasury will apply the Internal Revenue Code’s Section 30D critical mineral and battery component thresholds for the purposes of determining whether an EV is eligible for tax credits.

Data Protection and Cybersecurity

Having a more connected car to the electric grid has raised concerns about the extent to which EVs and EV infrastructure may be used as an entry point for hackers or bad actors to disrupt the US electric grid. Right now, there are undeveloped cybersecurity and data protection standards and requirements applicable to EV infrastructure, which may create vulnerabilities for the safety of consumer data and opportunities for hackers to exploit as an entry point into US electric grid disruption attempts. Where jurisdictional authority may exist to impose such regulatory oversight or standards, as well as the practical considerations of doing so, remains to be seen.

Vehicle-to-Grid Market Access

Bidirectional charging enables EV customers or fleet owners to utilize vehicle-to-grid (V2G) capabilities, which can facilitate market access. V2G potential creates opportunities for load management and revenue stream for EV owners. For fleet owners in particular, this opportunity is particularly promising because fleet energy, in the aggregate, could provide substantial opportunities to capture previously unavailable revenue opportunities.

However, V2G may trigger the needs for energy services management functions between the EV operator and either (1) its owner or (2) the charge point operator. EV and EV fleet owners must be mindful of market access rules and market participation requirements, whether it be retail or wholesale energy markets.

Infrastructure Investment & Jobs Act

In 2021, the Infrastructure Investment and Jobs Act earmarked $1.2 trillion to improve the US infrastructure, including $65 billion to upgrade renewable energy infrastructure and $7.5 billion to build out a national EV network. Over the past year, the Department of the Treasury and the Department of Energy released guidance on how to deploy the $7.5 billion.

In addition, each state initiated its own solicitation process for projects seeking this money, but that had been delayed as they waited for guidance on the National Electric Vehicle Infrastructure Formula Program. The White House published that guidance on February 15, and state solicitation processes are now expected to pick up speed. The White House also announced that the first round of funding under the Infrastructure Investment and Jobs Act’s discretionary grant program will soon open to allow cities, towns, tribes, and states to apply.

Inflation Reduction Act

Signed into law on August 16, 2022, and effective beginning in 2023, the IRA builds on the framework started by the Infrastructure Investment and Jobs Act. For EVs, the IRA encourages investments through three different tax credits: new clean vehicle tax credits, used clean vehicle tax credits, and commercial clean vehicle tax credits. Receiving the credit can involve more than just buying the car. Consumers who purchase an eligible vehicle can only claim the credit on the next year’s income tax filing. That is expected to change in 2024 when the IRS allows the vehicle tax credit to reduce the price of the car on the spot. It remains to be seen if this is enough to encourage enough EV adoption to meet the federal goals of 50% of all vehicles sold to be clean.

More information on the Key Issues Facing the EV industry in 2023 can be found as part of Morgan Lewis’s Automotive Hour Webinar Series.