Market Challenges And Opportunities
U.S. Flexfuel Cars Market Drivers:
- Supportive government policies and incentives: The U.S. government has implemented various supportive policies, mandates, and incentives to drive the adoption of renewable fuels like ethanol and expand the flexfuel vehicles market. The Renewable Fuel Standard (RFS) program by the Environmental Protection Agency (EPA) requires a certain volume of renewable fuels to replace the use of fossil fuels in transportation. The program has led to significant growth in ethanol production and use in the U.S. Further, the Bipartisan Infrastructure Law (The Bipartisan Infrastructure Law makes a historic investment in drinking water and wastewater infrastructure, to deliver clean drinking water) establishes a grant program to expand the availability of higher ethanol blend infrastructure. Such policies encourage automakers to expand their flexfuel offerings and provide a boost to the market. Till 2022, the United States Department of Agriculture (USDA) reports over 4,800 gas stations offer E15 and E85, up from around 1,000 stations in 2010. The increased availability of biofuel blends is making flex-fuel vehicles a more viable option for consumers.
- Focus on reducing greenhouse gas emissions: With rising concerns over climate change and greenhouse gas emissions, flexfuel vehicles are gaining prominence as they can drastically reduce lifecycle Greenhouse gases (GHG) emissions compared to conventional gasoline-only vehicles. According to Argonne National Laboratory, E85 flex-fuel vehicles can reduce GHG emissions by up to 40% as compared to traditional vehicles. The ability to cut emissions has prompted automakers like Ford (The company sells automobiles and commercial vehicles under the Ford brand, and luxury cars under its Lincoln brand.), GM (an American multinational automotive manufacturing), and Stellantis (global automaker and provider of innovative mobility solutions) to invest in and expand their flexfuel vehicle offerings in line with sustainability targets. This is a key factor spurring the market growth. According to the data provided by the Renewable Fuels Association, in2021, the U.S produced around 15 billion gallons of ethanol in 2020, with over 98% of it being made from corn. The growth of the domestic renewable fuel industry is making ethanol more accessible across the country.
- Cost competitiveness of ethanol: Corn-based ethanol has remained cost competitive with gasoline in 2025-2028. Thereby making ethanol blends like E85 an economically viable fuel choice. The production costs of corn ethanol have also declined over the past decade driven by improved production technologies. Moreover, federal tax credits and other incentives reduce the cost of ethanol further. The cost competitiveness of ethanol is likely to accelerate the adoption of flex-fuel vehicles capable of running on higher ethanol blends. The U.S Department of Energy estimates that over 4 million flex fuel vehicles were sold between 2011-2021. Leading car companies like Ford (The company sells automobiles and commercial vehicles under the Ford brand, and luxury cars under its Lincoln brand.), GM (an American multinational automotive manufacturing) and Toyota (a Japanese multinational automotive manufacturer) have significantly expanded their flexfuel lineups 2025-2028 and are projecting further increases through 2023 according to their annual reports.
- Domestic availability of ethanol feedstock: U.S. has a well-established corn-based ethanol production system that is capable of supplying significant volumes domestically. According to the U.S. Department of Agriculture, corn that is used for ethanol production in the U.S. reached over 5 billion bushels in 2021. The wide availability of feedstock within the country provides a stable supply environment for ethanol and supports the expansion of the country’s flexfuel vehicle fleet utilizing ethanol blends.
U.S. Flexfuel Cars Market Restraints:
- Mileage and performance challenges: As compared to gasoline, ethanol blends like E85 and have lower energy density thus leading to reduced fuel economy and mileage. E85 consumption can be 25-30% more than gasoline per mile in flexfuel vehicle models. The performance and acceleration of engines operating on ethanol blends also tend to be lower than gasoline-only operation. These factors pose a challenge for wider consumer acceptance. According to the report provided by the Union of Concerned Scientists, in 2023, consumer surveys have provided that over 50% of U.S drivers consider fuel economy and power/acceleration as very important factors when purchasing a new vehicle.
- Higher vehicle cost: The components and modifications required to make flex-fuel capability standard in vehicle models involve additional costs for automakers. Automakers tend to pass on some of these costs to consumers in the form of higher sticker prices for flex-fuel vehicles compared to their gasoline-only equivalents. The slightly higher upfront vehicle cost can deter wider adoption among price-sensitive buyers. The U.S Census Bureau’s Household Pulse Survey published in October 2021 found that over 10% of households reported not being able to pay their usual housing, vehicle, or other loan payments in the last month due to the economic impacts of the ongoing COVID-19 pandemic.
- Counterbalance: The high cost of the vehicle needs to be affordable after complying with all the necessary modifications that are needed.
- Gasoline price fluctuations: Historically lower gasoline prices in the U.S. market reduce the incentive for consumers to opt for flex-fuel models or use higher ethanol blends like E85. When gasoline is cheaper, the fuel cost savings potential of ethanol blends diminishes. Sustained lower gasoline prices over the past decade have been a restraining factor on the growth of the U.S. flex-fuel vehicle market. Till 2021, there were only around 3,300 E85 fueling stations across the U.S, as compared to over 100,000 gasoline stations. This limits the areas where flex fuel vehicles can source E85 fuel reliably.
Market Opportunities:
- Growing adoption of Sports Utility Vehicle (SUVs) and light trucks: Due to low gasoline prices and changing consumer preferences, light trucks and Sports Utility Vehicle (SUVs) are gaining significant share in the U.S. automotive market compared to passenger cars. Major Original Equipment Manufacturer (OEMs) like Ford (The company sells automobiles and commercial vehicles under the Ford brand, and luxury cars under its Lincoln brand.), GM (an American multinational automotive manufacturing), Stellantis (global automaker and provider of innovative mobility solutions), Toyota (a Japanese multinational automotive manufacturer), and Honda (a Japanese public multinational conglomerate manufacturer of automobiles, motorcycles, and power equipment) already offer several popular SUV and truck models with flex-fuel capabilities. The rising mix of these vehicle types offers significant room for growth for flex-fuel technology in the U.S. market. In 2020, SUVs accounted for over 50% of new vehicle sales, with trucks making up another 25%, according to data provided by the Department of Energy.
- Transition to advanced biofuels: While most flex-fuel vehicles use corn-based ethanol, growth opportunities exist by expanding the use of advanced biofuels like cellulosic ethanol and biomass-based diesel blends. These advanced biofuels can deliver even lower GHG emissions as compared to corn ethanol. Government support and manufacturer initiatives to scale up advanced biofuel production which can accelerate their adoption in flex-fuel models. According to the Department of Energy's Billion-Ton Report, in 2022, current U.S biomass residues from agriculture and forestry have the technical potential to produce over 1 billion dry tons of feedstock annually by 2040 to support a variety of bioenergy and bio product applications.
- Consumer education and incentives: A lack of consumer awareness about the benefits of flex-fuel vehicles and availability of E85 fueling infrastructure has constrained wider adoption. Automakers and government agencies have an opportunity to stimulate demand by educating consumers, thus providing incentives for flex-fuel vehicle purchases, and invest in expanding E85 station networks. Such efforts can significantly expand the country’s flex-fuel vehicle fleet. As outlined in the U.S Department of Energy’s International Energy Outlook, in 2021, global ethanol production is projected to increase 28% from 2020 to 2050.
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