What to expect from the electric vehicle revolution

Introduction

Though electric vehicles (EVs) accounted for only about 2.1 percent of passenger and commercial vehicles sold globally in 2018—or about 2 million vehicles—the market looks much different when you frame it in terms of growth: Over the last five years annual EV sales increased almost 60 percent on average. Given the rate of change, most experts agree that in 20 years EVs will make up at least 25 percent of total passenger car sales—and potentially as much as 75 percent. This suggests material displacement of internal combustion engine vehicles is all but inevitable in large parts of the world.

Electric cars of course have several appreciable benefits—people will save money from not having to gas up as often, for instance, and global CO2 emissions will drop—but as with any technological revolution, the road won’t always be smooth. Along the way government and industry will have to adapt to an array of interrelated challenges, among them technology, policy, pricing, and production. In this article we’ll analyze the most recent data from government agencies and manufacturers globally to give you a broad view of how the transition from gasoline to gigawatts is likely to play out over the coming months, years, and decades.

Pace of Electric Vehicles Adoption

‘Electric’ vehicles (EVs) include battery electric vehicles (BEVs) and plug-on hybrid electric vehicles (PHEVs)

Effects On Government and Industry

Governments around the world have recognized this trend, and in response many countries have set target dates to stop production and/or sales of ICEVs.

This rapid growth will have spillover effects not only for automakers and oil companies, but also for local and national tax systems and labor markets.

As for the effect on oil markets, some researchers are raising the alarm. For example, James Arbib and Tony Seba1 estimate the integration of shared mobility, electric, and self-driving technologies will decrease oil demand from 100 million barrels per day (b/d) in 2020 to 70 million b/d in 2030. Others warn that oil company revenue losses could reach $19 trillion by 2040.2 (Oil companies project a more moderate impact.)

Automakers will have to adapt to new emission standards, and many countries have already banned the production and/or sales of ICEVs. Manufacturers will respond by both making more EVs and taking steps to improve ICEV efficiency, such as designing light-weight cars that burn less fuel.

The tradeoff here will be a decline in labor demand. EVs have a less complex production process than ICEVs, which means there’s greater potential for automation. Based on data from the World Input-Output Database of the European Commission, we estimate German and Eastern Europe economies—which currently have the highest shares of people employed in car manufacturing—are the most vulnerable to labor displacement.

 
 

Governments will have to compensate for lower fuel tax revenues. For instance, many might impose new taxes on electricity consumption or miles traveled. We estimate these taxes comprised $82 billion of general US government revenue in 2017, or 1.4 percent. Another 38 countries might soon see four percent of their budgets disappear.

“Electric cars have a market share of above 1.8 percent only in countries where per capita income exceeds $40,000. Where per capita income is twice as low, the market share is practically zero.”

Environmental Benefits

EVs will reduce greenhouse gas emissions worldwide, as well as air and noise pollution. Global CO2 emissions for 2017 were estimated at 37 billion tons,3 and we can chalk up about 20 percent of that to the transportation industry. But according to the International Energy Agency (IEA),4 if it weren’t for the existing worldwide fleet of EVs, total emissions that year would have been 29.4 MtCO2 higher. (China leads the world in vehicle emissions reduction.) In other words, EVs reduced emissions between 0.3 and 0.4 percent that year, which corresponds with the 0.35 percent they comprise of the global automotive fleet.

The Price Point

EVs aren’t just more environmentally friendly: They cost less to drive. In January 2019, the US Department of Energy5 estimated it costs the equivalent of $1.17 per gallon of gasoline to refuel an EV—that’s roughly half the price. And a 2017 report6 from the Union of Concerned Scientists pegged annual refueling savings between $440 and $1,070 per car, depending on the electricity provider, the electricity rate plan, and the local cost of gasoline.

Though EVs cost less to drive than ICEVs, they’re more expensive, and in most cases the higher sticker price outweighs the appreciably lower fuel and maintenance costs. It’s no surprise, then, that EV sales correlate strongly with per capita income. In Europe, for example, electric cars have a market share of above 1.8 percent only in countries where per capita income exceeds $40,000. Where per capita income is twice as low, the market share is practically zero.7

That said, the higher sticker prices will change as batteries get cheaper. According to the IEA,4 today’s factories have capacities of up to 8 GWh/year, while factories expected to come online by 2030 will have capacities of up to 35 GWh/year. These economies of scale will reduce costs.

Many experts agree EVs will compete with traditional vehicles (not including government subsidies) when the price of a battery pack drops to $100 per kWh.8 Current prices are very close to this magic number.

In 2017, the average price of a Lithium-ion battery pack dropped to $209 per kWh—five times lower than the 2010 price. In 2018, the cost of battery packs for leading EV producers Tesla and GM fell to $130 per kWh and $148 per kWh, respectively.9 (Costs of battery pack is calculated as cost of battery cell plus 30%.) Elon Musk forecast that Tesla’s costs would drop to $100 per kWh by 2020.

“In 2018, one out of two EVs worldwide was sold in China—almost three times higher than the total sales in the United States.”

The Revolution Starts in China

China—which has the largest market of ICEVs—has in recent years become a global leader in EV production and sales, thanks in large part to generous government subsidies. In 2018, one out of two EVs worldwide was sold in China—almost three times higher than the total sales in the United States.

The Chinese government says the environmental threat posed by ICEVs has driven it to ban the production and sale of ICEVs domestically by 2040, and it wants EVs to comprise 20 percent of cars sold in China by 2025. But this apparent altruism might conceal other goals.

According to Darton Commodities, China controls about 85 percent—some say approaching 90 percent10 —of the global supply chain for a key component of lithium-ion battery packs: cobalt. That’s a major reason 80 percent of EV batteries are made in China, and why global EV production will be increasingly concentrated in China.

Beijing has also imposed requirements for minimum EV production levels that will boost domestic production and sales, thereby also sharpening the manufacturing and branding expertise to increase vehicle exports globally.11 In the words of Glencore CEO Ivan Glasenberg, “The auto industry is waking up too late. You won’t see EVs being produced in Europe, etc.”12

All told, experts predict EVs will soon account for between 25 to 55 percent of global vehicle sales, and they’ll most likely achieve price parity with ICEVs within the next six to ten years. Here’s a chart compiling major agency and industry forecasts:

 

 

Table – EVs market share in global sales and fleet by 2040 (base variants)

 
OrganizationEV market shareEV stock share

Turning point

(battery pack cost <$100 kWh)

BNEF55% (2040)33% (2040)2025-2030
Goldman Sachs32% (2040)2029
IEA30% (2040)20% (2040)2025-2030
S&P30% (2040)18% (2040)2025-2030
BP25% (2040)15% (2040)
OPEC25% (2040)13% (2040)After 2025
EnerData24% (2040)
 
 

Source: IEA, World Energy Outlook, 2018; BNEF, Electric Vehicle Outlook, 2018; OPEC World Oil Outlook, 2018; S&P, Changing Lanes – a Roadmap for Transport and Future Energy Markets, 2018; Goldman Sachs, Electric Vehicle Boom: ICE-ing The Combustion Engine, 2017; BP, Energy Outlook, 2018; EnerData, EnerFuture World Energy Scenarios to 2040, 2018

 

 

Conclusion

Of course, EVs still face some roadblocks, including range limits, the incremental installation of fast-charging infrastructure, material sourcing, and battery development and recycling. And it’s worth noting the purchase price and cost of ownership for an electric car is still higher than for a conventional car, and EV sales globally still rely on policy incentives.

Still, booming EV sales, developments in battery technology, and additional policy incentives will accelerate the transition. Despite the disruptive effects looming over oil producers, governments, labor markets, and traditional car makers, EVs will reshape the world around us. Electric cars might come with rearview mirrors, but we won’t be looking back.

Looking for more data? Explore our curated dashboards on the topic in Knoema:

References

  1. James Arbib, Tony Seba, May 2017. “Rethinking Transportation 2020-2030” RethinkX. Link
  2. “Rapid technological shifts could wipe $21 Trillion of fossil fuel company revenues by 2040”. May 2018. Aurora Energy Research. Link
  3. “Global CO2 emissions likely to rise in 2017” November 2017. Global Carbon Project. Link
  4. “Global EV Outlook, 2018”. IEA. Link
  5. “Compare the costs of driving with electricity”. 2019. US Department of Energy. Link
  6. “Going From Pump to Plug”. November 2017. Union of Concerned Scientists. Link
  7. ”Interactive map: Correlation between uptake of electric cars and GDP in the EU”. June 2018. ACEA. Link
  8. “Tesla Is Approaching The Anticipated Magic Battery Cost Number”. June 2018. INSIDEEVs. Link
  9. Fred Lambert, June 2018. “Tesla might have achieved battery energy density and cost breakthroughs”. Electrek. Link
  10. Heidi Vella, June 2018. “Inside China’s move to monopolise cobalt”. Mining Technology. Link
  11. ”China Is Leading the World to an Electric Car Future”. November 2018. Bloomberg. Link
  12. Frik Els, March 2018. “Cobalt price: Automakers ‘waking up too late’ as China takes control” MINING.com Link

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