The Fuse

IEA: EVs to Gain More Market Share

by Nick Cunningham | June 16, 2020

The sale of electric vehicles (EVs) has taken a hit because of the global Covid-19 pandemic, but the setback is not expected to derail the march towards electrification.

The auto market saw a steep drop in sales as a result of global lockdown procedures, and not just for EVs. Going forward, the combination of improving technologies, more EV models, and supportive policy will result in EVs making steady gains in market share.

EV sales slow
Electric vehicle sales topped 2.1 million in 2019, pushing the stock of EVs worldwide to 7.2 million cars, according to the IEA’s recently released Global EV Outlook 2020. Nearly half of those are in China. Sales grew last year by 6 percent, a much slower expansion than the annual growth rates of over 30 percent in the three preceding years.

The slowdown in growth last year came as the result of a few factors. First, overall sales for cars of all types contracted, most notably in China and India. This contraction was underway even before the pandemic. Against that backdrop, the rise of EV sales at a time of a shrinking auto market allowed for substantial market share gains, with EVs capturing 2.6 percent of the total market last year, up from 2.4 percent in 2018 and 1.5 percent in 2017.

But EVs saw additional headwinds. China cut EV subsidies last year by half, while the federal tax credit for EVs in the U.S. began to wind down for automakers that surpassed 200,000 in sales.

This year, the economic downturn is a more serious drag. Global auto sales are expected to fall by as much as 15 percent, year-on-year. But because sales of EVs may stay flat, rather than contract, the market share of EVs could rise to 3 percent in 2020, the IEA said.

However, the plunge in oil prices does undercut the competitiveness of EVs. EVs are cheaper to own overtime, due to lower maintenance costs and lower fuel costs, even as the upfront sticker price is higher. “If the price of oil remains low, then the economic case for EVs will be hindered in most countries,” the IEA warned. If oil prices averaged $25 per barrel, it would add an extra 1 – 2.5 years of payback time to recover the extra upfront cost of an EV.

But oil prices have already rebounded well above $25 per barrel since bottoming out in April, and the latest downturn is not expected to fundamentally challenge the long-term outlook, which remains positive, not least because the market continues to mature. Batteries have energy densities that are 20 – 100 percent higher in the 2018-2019 EV models, compared to 2010 models. Battery costs have also fallen by 85 percent over that time frame. “Today’s consumer profile in the electric car market is evolving from early adopters and technophile purchasers to mass adoption,” the IEA said. Over the next five years, another 200 new EV models are set to be unveiled, and crucially, many of those will be SUVs.

Another important trend to watch is the rise of other electrified modes of transport, including two and three-wheelers (which includes scooters and e-bikes) and electric buses. Many cities in China have bans on two-wheelers with an internal combustion engine, helping to create a stock of 350 million electric two and three-wheelers in the country.

China also leads on electric buses, totaling half a million. “[T]he bus fleets in a number of city centres in China are near-fully or fully electrified and contribute to improve the air quality,” the IEA said. Santiago, Chile is home to the largest municipal fleet of electric buses outside of China.

The IEA said that one segment where there has been little progress but holds enormous potential is electrifying heavy-duty trucks as well as aviation and shipping. Sales of electric heavy-duty trucks reached 6,000 worldwide last year. There has been progress on electrifying short haul ferries among predictable routes between ports, but long-distance marine transport, let alone aviation, remains a ways off.

Positive policy
The slowdown in EV sales growth last year came as a result of the two largest auto markets – China and the United States – trimming support for EVs. But policies are likely to continue to support the industry, especially in Europe. Even China decided to extend some EV support through 2022, after sales fell sharply last year.

There is growing momentum to “green” the recovery from the coronavirus pandemic. Germany, for instance, has announced plans to double existing subsidies to 6,000 euros per EV, while electric cars will enjoy a reduced sales tax. Perhaps even more significant is the fact that as part of the 130 billion euro stimulus package, Germany will also require all gas stations to provide EV recharging infrastructure.

Many cities are also rethinking their public spaces in the wake of the pandemic, hoping to ease traffic and make outdoor space more available to walking and cycling. It is too early to draw conclusions about the effects on EVs and on the oil market, but the reimaging of dense cityscapes is not trivial. On the negative side of the ledger, more people are jumping back into cars at the expense of mass transit due to the coronavirus.

Stricter policy should help. An estimated 17 countries have announced 100 percent zero emission vehicle targets, or some version of a phase out of the internal combustion engine, but 2050, according to the IEA. Late last year, France became the first country to pass its target into law.

Regulatory actions are also beginning to bite, marking a slight shift from subsidies to regulatory direction as the main factor driving EV sales. For instance, the EU has new fuel economy standards for light duty vehicles that phase in this year, helping to accelerate sales of EVs.

Last year, EVs displaced about 600,000 barrels per day of oil demand. By 2030, that figure may rise to 2.5 million barrels per day (Mbd), although stricter policies could push that total to 4.2 Mbd, the IEA said.