What impact will the US Chip Act have on the electric vehicle chip market

Despite the shortage, sales of electric cars hit a record high in the second quarter of 2022. According to Cox Automotive, nearly 200,000 electric cars have been sold, a 66 per cent increase on last year.

The electric vehicle market has been able to continue production while traditional internal combustion engine vehicles (ICE) have stagnated. According to Cox, forecasts for July showed a 12 per cent drop in ICE sales.

Cox executive analyst Michelle Krebs said this was partly because automakers were prioritising chips for high-end vehicles such as trucks, SUVs, EVs and other luxury cars to improve their return on investment.

She said, "It is these buyers who are asking for more of these vehicles and many other users have dropped out of the market."

In addition to the higher demand for electric vehicles, high gasoline prices are also a deterrent. The average price of gasoline in Michigan rose to $4.82 in July.

"Whenever gas prices go up, we see demand for electric car purchases go up," Krebs said, "and when gas prices go down, electric car sales go down with it, and that's exactly the trend we're seeing."

According to a 2022 AAA (American Automobile Association) survey, high gasoline prices are a driver for 77 percent of consumers considering an electric vehicle.

A quarter of Americans said they would prefer an electric car for their next vehicle.

Krebs estimates that it will be another decade before we see electric cars in every lane. Currently, electric vehicles account for just over 5% of the overall vehicle market, and Krebs expects this to rise slightly to around 10% in the next few years.

The main barrier to electric vehicles remains cost. According to Kelley Blue Book, the average price of an electric car in the US in June was more than $66,000, well above the industry average and more akin to the estimated price of a luxury car than the mainstream price.

But there are other factors that continue to drive the electric car market forward, such as the expanding range of options for drivers. In just one year, the number of car models has increased from the previous 19 to 33, and this is where electrification options for big sellers such as the Ford F-150 will have a major impact.

Krebs expects to see hundreds of options in the automotive market by 2025, noting that it will take time to build semiconductor foundries and to get the equipment needed to produce them.