Electric Vehicles Beware: Customers Prefer SUVs and Pick-Ups

SUVs and crossovers made up more than one in three cars sold globally last year—almost tripling their share from just a decade ago. The world increasingly wants these larger vehicles that originated in America. Spurred by rising incomes and lower gas prices, drivers in China, Australia, and other countries are showing a preference for SUVs over smaller sedans. Compared to smaller cars, SUVs are about 30 percent less efficient and they are less likely to have electric versions because there are technological and cost hurdles to powering a larger car with batteries. Further, many automakers believe that drivers of SUVs value power and performance and do not want to be constrained by battery-powered cars with far less range.

The majority of the global growth has been in SUV crossovers, which are based on car underbodies (not truck underbodies) and achieve better fuel economy than larger SUVs. EPA rules are ambiguous on whether crossovers are cars or trucks, allowing manufacturers to classify many models as trucks, which have less rigorous fuel economy standards.

Automakers also have a financial incentive to build and sell more SUVs because they tend to be higher-end offerings with luxury trimmings that command premiums. A $60,000 truck, for example, can generate tens of thousands of dollars in operating profit.

Last year, Ford sold more than one million F-series pickup trucks with a fifth of the sales outside of the United States. It is now within striking distance of unseating Toyota’s Corolla as the world’s best-selling vehicle. Trucks have moved from being seen as only relevant for work to being much more versatile. Trucks have also made strides in fuel economy with the most fuel-efficient F-series model on the road getting about 25 miles per gallon on the highway.

History of SUVs

The global dominance in SUVs began in the United States in the 1970s, when automakers were faced with stricter auto-safety and environmental rules. The Environmental Protection Agency had required automakers to more than double their average fuel efficiency over the next decade, but placed fewer restrictions on vans, pickup trucks and other off-road vehicles than on traditional passenger cars. The traditional station wagon began to disappear only to be replaced by minivans and SUVs, most of which were able to skirt the CAFE standards with which station wagons had to comply.

The Jeep Cherokee became an early hit and led the way for other manufacturers to turn working vehicles into family vehicles. Cherokees and Ford Explorers began replacing the Ford Taurus and other smaller cars. In North America, SUVs and pickup trucks outsell all other car categories combined.

SUVs are particularly popular in China, where the big cars have status, stability on bumpy roads, and room for larger families now that China is phasing out the one-child policy. A global consulting firm predicts that by 2022, one in every two cars sold in China will be an SUV.

In Western Europe, SUV sales have more than doubled over the past five years—four times as fast as the overall market.

Volkswagen, which made virtually no SUVs a decade ago, plans to sell almost 20 new SUV models worldwide by 2020, and expects those models to make up 40 percent of its global sales. Currently, Volkswagen sells four SUV models. Its most popular model, Tiguan, which weighs almost 4,000 pounds, achieves 27 miles per gallon on the highway, compared to 36 miles for Volkswagen’s Passat, its midsize sedan, which weighs closer to 3,000 pounds.

SUVs, Pick-Ups and Climate Change

The ascent of SUVs and crossovers will slow reductions in greenhouse gas emissions from the world’s cars and trucks. Further, research shows that many first-time buyers of crossovers had previously driven cleaner, smaller sedans with fewer greenhouse gas emissions. Transportation accounts for an estimated 14 percent of global greenhouse gas emissions, with cars and trucks making up the biggest share.

Between 2005 and 2008, the average fuel economy of new cars worldwide improved by about 1.8 percent a year, according to the United Nations-affiliated Global Fuel Economy Initiative. That pace slowed to 1.1 percent in 2015—far below the near 3 percent needed to stabilize emissions from the world’s car fleet.

European carmakers have been counting on diesel—a fuel-efficient alternative to gasoline vehicles—to meet tighter environmental regulations until electric cars become more viable. Germany, however, is considering potential bans of diesel vehicles from cities. Consumers have also begun to shun diesel, with its share of German car sales tumbling to a third from half since Volkswagen’s cheating scandal. Toyota Motor Corporation announced plans to drop diesel models from its European portfolio this year. Lower demand for diesel cars—which emit about a fifth less carbon dioxide compared to equivalent gasoline vehicles—could force automakers to aggressively push unprofitable electric cars to meet emissions targets.

Electric vehicles, however, are not making much of a dent given the interest in SUVs and pick-ups. General Motors, which unveiled its Chevy Bolt electric car in 2016, has sold only about 25,000 of them in the United States. This month, GM announced it was spending $265 million to build its new Cadillac XT4 crossover SUV in Kansas City. Currently, Tesla’s Model X is the only major fully electric SUV on the market. The company has sold about 40,000 since they went on sale in 2015. They range in price from $80,000 to over $140,000 for a fully loaded model.

Most automakers lose money on electric vehicle sales. Moody’s recently warned that electric vehicles will likely generate low returns for automakers through the early 2020s.

Trucks, which cater to drivers looking for power and hauling, are unlikely to go electric soon. One of the few hybrid choices is the Workhorse W-15—a hybrid pickup made by an Ohio company that specializes in fleet vehicles. Workhorse has received about 5,000 orders for the truck, which has a range of about 80 miles on a full battery charge.

Conclusion

SUVs and pick-up trucks are increasing in demand–not just in the United States, but around the world—as car buyers are looking to more roomy and powerful vehicles. The demand for these vehicles is making governments worry about meeting their reductions targets for greenhouse gas emissions.

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