California has emerged as a leading indicator of the electric vehicle (EV) adoption rate in the United States. Over the past five years, the share of new EVs in the state’s car market has surged from 2% to a remarkable 22%.

This accelerated adoption in California gained significant momentum once EVs reached a 5% share of new-car sales—a tipping point that shifts preferences among mainstream car buyers, according to an analysis by Bloomberg Green. In 2018, California became one of the first major car markets to reach this critical threshold, and since then, 23 more countries have followed suit.

In fact, if California were treated as a separate country, it would now rank fourth globally in terms of overall EV sales, trailing only China, the United States, and Germany. The growth of EV adoption in the state shows no signs of slowing down, with second-quarter EV sales surging by an impressive 70% compared to the same period in 2022. The entire United States is following a similar trajectory, lagging just three years behind California. If this trend persists, it’s conceivable that a quarter of all new car sales could be electric by 2026.

The automotive industry is grappling with the challenge of pinpointing when EVs will enter mass-adoption mode. This transition necessitates substantial capital investments made years in advance of widespread demand. Acting too early risks producing unwanted vehicles, while moving too slowly cedes the market to early entrants like Tesla.

Tesla’s recent achievement of surpassing Toyota as the top-selling car brand in California serves as a significant milestone and a wake-up call for traditional automakers. Tesla, the first global automaker to achieve mass-scale EV production, commands a 60% share of the US EV market. The company has lowered prices and introduced new features while maintaining impressive profit margins. Outside of China, other automakers have yet to produce an EV that comes close to matching the sales volumes of Tesla’s Model 3 or Model Y. Until such scale is achieved, the transition will remain a costly challenge.

Despite rising inventory levels of unsold EVs at traditional US dealerships, it’s important to note that this isn’t indicative of diminishing demand. More than half of US consumers believe that EVs represent the future, and their expectations are rising regarding EV features and performance. The days of expensive, low-range EVs are waning, and some consumers are awaiting new models from iconic American brands or eagerly anticipating refreshed versions like the Model 3 and Tesla’s forthcoming Cybertruck.

Until 2020, California’s EV sales were primarily determined by the production capacity of a single vehicle—the Model 3 from a single Tesla factory. However, the US EV market has grown significantly more resilient. Around $200 billion is being invested in 100 US factories dedicated to EVs and batteries, marking one of the largest industrial build-ups in the history of the US automotive industry.

EV adoption is gaining momentum worldwide, with even India—home to some of the world’s most affordable cars—starting to see the emergence of battery-powered models. Automakers that fail to establish profitable electric offerings are likely to fall behind those that have already made strides in this direction. To get a glimpse of the future of EV adoption in the United States, observers need to keep a close watch on the roads of California.

By Impact Lab