September 1, 2023

Hi everyone. My name’s Taylor St. Germain, and welcome to this edition of Trends Talk.

Last week we discussed an emerging trend in robotics, and investment in robotics. And this week I wanted to discuss another emerging trend, not a new trend, but a trend that’s really emerged throughout this last decade, and that’s electric vehicles.

And today I wanted to talk about electric vehicles from the lens of growth rates and relationships to economic indicators. I know there’s opinions around electric vehicles as it relates to the climate and climate change. I’ll leave those opinions up to you. I’m really here to take a data-driven approach and talk about how electric vehicles have grown over time and what interesting relationships we find in terms of correlations with economic indicators.

Now, the series I wanted to focus on as it relates to electric vehicles is US electric vehicle retail sales. Now, the first relationship I wanted to call out is the relationship that electric vehicle retail sales has to US GDP. And believe it or not, there is a strong correlation between the annual growth rate for electric vehicles and the quarter-over-quarter growth rate for GDP.

Now, when you think about electric vehicles in the market over time, you might think, “Well, this market must be growing. There must never be recessions in electric vehicles given all the demand out there for electric vehicles.” However, that’s not true. We see a very strong correlation between these growth rates when you look at retail sales of these vehicles versus GDP. And what I mean by that is when GDP is accelerating in the pace of rise, we see accelerating growth increased spend on electric vehicles. But the converse is true as well, where when we see recessions and downturns in GDP, as of late, it’s particularly in this last decade, we’ve seen similar downturns in electric vehicle retail sales.

So it’s not that the electric vehicle market is a straight shot to the moon, it’s that there is this correlation between consumers and GDP performing well and how that translates over to the EV market. For example, GDP had a recession, that 312 rate of change for GDP crossed below the zero line in 2020, and we saw contraction in the EV retail sales annual growth rate. So you can align these indicators, GDP typically leads by about a month, but when consumers are feeling positive and in a good place, GDPs positive in a good place, that translates to EVs. And again, the converse is true, when GDPs contracting, we typically see contraction in EV retail sales.

Now, another really interesting relationship on more of a microeconomic perspective is the relationship that gas prices have with EVs. Now, we compare US EV retail sales again, that same data series I was just talking about compared to GDP, but this time we compare it to the US All Gasoline Consumer Price Index. And the Gasoline Price Index actually leads the EV market by about seven months. So what do I mean by that? I mean, as gas prices soar higher, we typically see an increase in EV retail sales. Now, as gasoline prices decline, we typically see the growth rate or the pace of growth for EV retail sales slow down. So there is this correlation between gas prices and the EV market, which as you would expect. Logically speaking, when gas prices are high, there’s more spending on EVs. When gas prices are low, we typically see that spending in EVs either contract or slow down in a meaningful way.

So I found this very interesting because in a lot of my conversations with clients, with people throughout the country as I’m traveling, there’s this thought process that the EV market is constantly growing and there’s a lack of relationship to some of our major macro or microeconomic indicators. And clearly that’s not true. GDP has an impact. Gas prices have an impact. And that’s what we do at ITR. We look for these relationships and find leading indicators that tell us with a high degree of confidence where these markets are moving. Given the decline in the gas price index, given the softening in GDP, we could expect a softening in the growth rate for EV retail sales as we move forward this year and into 2024.

I hope you found this information helpful. Thanks for joining me on this episode of Trends Talk. I’m Taylor St. Germain with ITR Economics, and I’ll see you on the next one.