General Motors And Other Car Makers Have Big EV Goals. Why The Numbers Make No Sense.

General Motors shook up the car industry this past week, saying it is aiming to stop selling gasoline-powered cars by 2035, much sooner than many on Wall Street would have predicted.

It is a sign that analysts and investors should be sharpening their pencils to figure out what is likely—and what is possible—for global electric-vehicle demand. The results of that number crunching will help to show whether the market has valued highflying EV stocks correctly and which, if any, still offer good value.

It isn’t an easy equation to solve. Auto makers express their goals—one indication of what might happen in the market—in different ways.

General Motors (ticker: GM) has its target for 2035. Tesla (TSLA) CEO Elon Musk has talked about selling 20 million EVs by 2030 and plans to increase its production volume at 50% a year for the foreseeable future.

Volkswagen (VOW. Germany) wants up to 25% of vehicle sales to come from battery-powered electric vehicles by 2030. And Toyota (TM) plans to sell 5.5 million electrified vehicles by 2030—a figure that includes hybrid electric cars as well as fuel-cell vehicles.

Barron’s added up the numbers in the publicly announced goals, aligning them by year and filling in some gaps. We calculate that, based on company comments, somewhere between 15 million and 20 million EVs will be sold a year by 2025. That implies an average annual growth rate of about 50% between last year and then. With that growth, EVs would account for roughly 15% to 20% of total light-vehicle sales.

Wedbush analyst Dan Ives qualifies as an electric-vehicle bull, but his estimate of EVs’ share of the market isn’t that high. “I am laser-focused on the skyrocketing EV demand out of China, Biden green initiatives, and [battery innovation] across the EV supply chain,” he tells Barron’s. “It looks like a golden age for EVs.”

Still, he is assuming EVs will win about 10% of the global market by 2025.

Focusing on China is a good idea. It’s the largest new-car market in the world and government incentives make buying an EV a “no brainer” for most consumers, according to Ives. Goldman Sachs analyst Fei Fang has predicted EVs will have 20% of the Chinese market by 2025.

RBC analyst Joseph Spak recently projected battery- and hybrid-electric vehicles could account for roughly 15% of new-car sales by 2025. That call was made back in December, before GM announced its aspiration to be all-electric by 2035.

Now Spak believes his projection could be too low. He did his own math to illustrate why.

“GM historically has had [about] 17% total U.S. market share,” he wrote in a recent research note. In December, he expected EVs to account for 40% of U.S. new-car sales by 2035. But for GM to go all-electric by then, assuming it keeps its historic 17% of the market, it would have to win 43% of U.S. EV sales, he said.

“The other way to interpret this [math] is that there could be upside to our 40% [battery electric] mix assumption,” added the analyst. That would be bullish for EV stocks, but he has a word of caution too. “A massive ramp in battery supply is needed to support this,” he said.

That gets at another important point for investors. There are many tertiary effects from faster EV penetration.

For one, as EVs take a bigger share of the market, they will start to get more of the capital the industry is willing to spend on product development. GM, for instance, is spending about half its capital over the next few years on EV and autonomous-driving technologies. By 2030, cars powered by internal combustion engines—ICE cars, in industry jargon—won’t look as attractive, relatively speaking, as those programs are drained of resources.

Electricity infrastructure is another critical issue. Right now oil and the refining industry essentially power cars. In the future, utilities and the electric grid will bear the burden.

The math needed to predict global electricity demand is harder, but higher EV penetration in 2025 would probably boost growth, now at roughly 3% a year, by a couple of percentage points. That seems manageable, but it means more investment in utilities.

The other side off the electricity equation is oil. Oil demand could fall slightly compared with 2019, a pre-pandemic year, if the world’s pool of EVs grows faster than expected. There are roughly 2 billion light vehicles on the road and nearly all take gasoline.

The next step in this math class is to value the EV sector. That isn’t easy either.

Given the growth and accelerating penetration, figures for 2025, when EV companies should be making real money, seem like a reasonable place to start. Apple (AAPL), the world’s most valuable company, trades for about 19 times estimated 2025 cash flow of about $120 billion.

Tesla is trading for about 65 times estimated 2025 cash flows. That is triple the figure for Apple, although if Musk’s goals are met, Tesla’s annual sales will go from more than 4 million vehicles to about 20 million over the next five years—between 2025 and 2030.

China’s NIO (NIO) is another highly valued EV stock. Analysts haven’t made public projections for its 2025 financials. But its shares trade for about 30 times estimated 2024 cash flow. According to analysts, NIO vehicle shipments are expected to go from roughly 345,000 to about 800,00 from 2025 to 2030. That is less growth than Tesla is looking to produce, but it still implies sales would more than double.

The 2025 valuation math can’t tell investors to buy or sell the stock, or the sector, but it does offer context about the coming golden age of EVs. Tesla stock is up about 21% year to date. NIO shares are up almost 19%. The S&P 500 is up about 2%.

Investors expect a lot. Morgan Stanley’s Adam Jonas pointed out that January EV sales in the U.S. were still less than 3% of the total, but he isn’t an EV bear. He rates Tesla stock at Buy and has a target of $880 for the stock-price target.

The ICE Age is ending. If the switch to EVs is rapid, valuations for manufacturers might not be unreasonable. The effects on other industries are just starting to be felt.

Many people considering an electric vehicle are turned off by their prices or the paucity of public charging stations. But the biggest roadblock often is “range anxiety”—the fear of getting stuck on a desolate road with a dead battery.

All EVs carry window stickers stating how far they should go on a full charge. Yet these range estimates—overseen by the Environmental Protection Agency and touted in carmakers’ ads—can be wrong in either direction: either overstating or understating the distance that can be driven, sometimes by 25% or more.

How can that be? Below are questions and answers about how driving ranges are calculated, what factors affect the range, and things EV owners can do to go farther on a charge.

How far will an electric vehicle go on a full battery?

The distance, according to EPA testing, ranges from 516 miles for the 2023 Lucid Air Grand Touring with 19-inch wheels to 100 miles for the 2023 Mazda MX-30.

Most EVs are in the 200-to-300-mile range. While that is less than the distance that many gasoline-engine cars can go on a full tank, it makes them suitable for most people’s daily driving and medium-size trips. Yet it can complicate longer journeys, especially since public chargers can be far apart, occupied or out of service. Plus, it takes many times longer to charge an EV than to fill a tank with gas.

How accurate are the EPA range estimates?

Testing by Car and Driver magazine found that few vehicles go as far as the EPA stickers say. On average, the distance was 12.5% shorter, according to the peer-reviewed study distributed by SAE International, formerly the Society of Automotive Engineers.

In some cases, the estimates were further off: The driving range of Teslas fell below their EPA estimate by 26% on average, the greatest shortfall of any EV brand the magazine tested. Separately, federal prosecutors have sought information about the driving range of Teslas, The Wall Street Journal reported. Tesla didn’t respond to a request for comment.

The study also said Ford’s F-150 Lightning pickup truck went 230 miles compared with the EPA’s 300-mile estimate, while the Chevrolet Bolt EV went 220 miles versus the EPA’s 259.

A GM spokesman said that “actual range may vary based on several factors, including things like temperature, terrain/road type, battery age, loading, use and maintenance.” Ford said in a statement that “the EPA [figure] is a standard. Real-world range is affected by many factors, including driving style, weather, temperature and if the battery has been preconditioned.”

Meanwhile, testing by the car-shopping site Edmunds found that most vehicles beat their EPA estimates. It said the Ford Lightning went 332 miles on a charge, while the Chevy Bolt went 265 miles.

That is confusing. How can the test results vary so much?

Driving range depends largely on the mixture of highway and city roads used for testing. Unlike gasoline-powered cars, EVs are more efficient in stop-and-go driving because slowing down recharges their batteries through a process called regenerative braking. Conversely, traveling at a high speed can eat up a battery’s power faster, while many gas-engine cars meet or exceed their EPA highway miles-per-gallon figure.

What types of driving situations do the various tests use?

Car and Driver uses only highway driving to see how far an EV will go at a steady 75 mph before running out of juice. Edmunds uses a mix of 60% city driving and 40% highway. The EPA test, performed on a treadmill, simulates a mixture of 55% highway driving and 45% city streets.

What’s the reasoning behind the different testing methods?

Edmunds believes the high proportion of city driving it uses is more representative of typical EV owners, says Jonathan Elfalan, Edmunds’s director of vehicle testing. “Most of the driving [in an EV] isn’t going to be road-tripping but driving around town,” he says.

Car and Driver, conversely, says its all-highway testing is deliberately more taxing than the EPA method. High-speed interstate driving “really isn’t covered by the EPA’s methodology,” says Dave VanderWerp, the magazine’s testing director. “Even for people driving modest highway commutes, we think they’d want to know that their car could get 20%-30% less range than stated on the window sticker.”

What does the EPA say about the accuracy of its range figures?

The agency declined to make a representative available to comment, but said in a statement: “Just like there are variations in EPA’s fuel-economy label [for gas-engine cars] and people’s actual experience on the road for a given make and model of cars/SUVs, BEV [battery electric vehicle] range can exceed or fall short of the label value.”

What should an EV shopper do with these contradictory range estimates?

Pick the one based on the testing method that you think matches how you generally will drive, highway versus city. When shopping for a car, be sure to compare apples to apples—don’t, for instance, compare the EPA range estimate for one vehicle with the Edmunds one for another. And view all these figures with skepticism. The estimates are just that.

Since range is so important to many EV buyers, why don’t carmakers simply add more batteries to provide greater driving distance?

Batteries are heavy and are the most expensive component in an EV, making up some 30% of the overall vehicle cost. Adding more could cut into a vehicle’s profit margin while the added weight means yet more battery power would be used to move the car.

But battery costs have declined over the past 10 years and are expected to continue to fall, while new battery technologies likely will increase their storage capacity. Already, some of the newest EV models can store more power at similar sticker prices to older ones.

What can an EV owner do to increase driving range?

The easiest thing is to slow down. High speeds eat up battery life faster. Traveling at 80 miles an hour instead of 65 can cut the driving range by 17%, according to testing by Geotab, a Canadian transportation-data company. And though a primal appeal of EVs is their zippy takeoff, hard acceleration depletes a battery much quicker than gentle acceleration.

Does cold weather lower the driving range?

It does, and sometimes by a great amount. The batteries are used to heat the car’s interior—there is no engine creating heat as a byproduct as in a gasoline car. And many EVs also use electricity to heat the batteries themselves, since cold can deteriorate the chemical reaction that produces power.

Testing by Consumer Reports found that driving in 15- to-20-degrees Fahrenheit weather at 70 mph can reduce range by about 25% compared to similar-speed driving in 65 degrees.

A series of short cold-weather trips degraded the range even more. Consumer Reports drove two EVs 40 miles each in 20-degree air, then cooled them off before starting again on another 40-mile drive. The cold car interiors were warmed by the heater at the start of each of three such drives. The result: range dropped by about 50%.

Does air conditioning degrade range?

Testing by Consumer Reports and others has found that using the AC has a much lower impact on battery range than cold weather, though that effect seems to increase in heat above 85 degrees.

I don’t want to freeze or bake in my car to get more mileage. What can I do?

“Precondition” your EV before driving off, says Alex Knizek, manager of automotive testing and insights at Consumer Reports. In other words, chill or heat it while it is still plugged in to a charger at home or work rather than using battery power on the road to do so. In the winter, turn on the seat heaters, which many EVs have, so you be comfortable even if you keep the cabin temperature lower. In the summer, try to park in the shade.

What about the impact from driving in a mountainous area?

Going up hills takes more power, so yes, it drains the battery faster, though EVs have an advantage over gas vehicles in that braking on the downside of hills returns juice to the batteries with regenerative braking.

Are there other factors that can affect range?

Tires play a role. Beefy all-terrain tires can eat up more electricity than standard ones, as can larger-diameter ones. And underinflated tires create more rolling resistance, and so help drain the batteries.

Most EVs give the remaining driving range on a dashboard screen. Are these projections accurate?

The meters are supposed to take into account your speed, outside temperature and other factors to keep you apprised in real time of how much farther you can travel. But EV owners and car-magazine testers complain that these “distance to empty” gauges can suddenly drop precipitously if you go from urban driving to a high-speed highway, or enter mountainous territory.

So be careful about overly relying on these gauges and take advantage of opportunities to top off your battery during a multihour trip. These stops could be as short as 10 or 15 minutes during a bathroom or coffee break, if you can find a high-powered DC charger.

Before embarking on a long trip, what should an EV owner do?

Fully charge the car at home before departing. This sounds obvious but can be controversial, since many experts say that routinely charging past 80% of a battery’s capacity can shorten its life. But they also say that charging to 100% occasionally won’t do damage. Moreover, plan your charging stops in advance to ease the I-might-run-out panic.

So battery life is an issue with EVs, just as with smartphones?

Yes, an EV battery’s ability to fully charge will degrade with use and age, likely leading to shorter driving range. Living in a hot area also plays a role. The federal government requires an eight-year/100,000-mile warranty on EV batteries for serious failure, while some EV makers go further and cover degradation of charging capacity. Replacing a bad battery costs many thousands of dollars.

What tools are available to map out charging stations?

Your EV likely provides software on the navigation screen as well as a phone app that show charging stations. Google and Apple maps provide a similar service, as do apps and websites of charging-station networks.

But always have a backup stop in mind—you might arrive at a charging station and find that cars are lined up waiting or that some of the chargers are broken. Damaged or dysfunctional chargers have been a continuing issue for the industry.

Any more tips?

Be sure to carry a portable charger with you—as a last resort you could plug it into any 120-volt outlet to get a dribble of juice.