What has driven the recent acceleration in electric vehicle (EV) sales?

Jason Zhang: The acceleration has been largely driven by regulations and incentives in Europe and China. In Europe, for example, 2020 was the first year when automakers faced stringent emissions regulations, which incentivised them to increase EV production and sales. Additionally, multiple European governments have introduced larger purchasing subsidies on EVs as part of a broader stimulus package to rescue the economy from the pandemic. EV penetration in Europe has more than quadrupled over the past two years, surging from 4% to 20% in 2021, while in China it has tripled from 5% to 15%. While the US remains a laggard with a penetration level of about 5%, regulations are coming. By 2030, EV penetration levels are expected to be around 60% to 70% in Europe and China, respectively, and roughly 50% in the US¹

Danny Jacobs: In Europe, the premium segment has largely driven sales. Early adopters have been those who can afford the higher upfront cost of an EV and often have access to another car. However, the buyer base is broadening as prices come down, the charging infrastructure improves, and choice expands, particularly in popular segments like SUVs. The key to cracking mass market adoption of EV is for the industry to create an EV that is as cheap and convenient to own and operate as traditional ICE (internal combustion engine) vehicles. While the industry is getting there, it has yet to fully meet this challenge.

Are we nearing the point where EVs are as cheap as traditional vehicles?

Jason Zhang: The cost of batteries is the reason that EVs continue to be more expensive than ICE cars. There has been good progress on reducing battery costs, which have fallen over the last decade, although rising raw material prices have limited progress more recently. Nevertheless, by 2025, we could reach a level where a compact EV will be on a cost parity with a comparative ICE vehicle. Mini EVs with small battery packs are already becoming economical. In China, for example, the best-selling EV is the Wuling Hongguang MINI, which sold around 400,000 units in 2021². While it has a battery pack of only 10 kilowatt hours (kWh) compared to the Tesla Model 3’s 60 kWh, the overall cost of the battery is only about US$1,500. This means the car can retail for about US$5,000 plus subsidies, which is already cheaper than the comparable ICE car.

Piyada Phanaphat: Rising raw material costs have slowed down the pace of reduction in battery costs as lithium, cobalt and nickel prices have surged. However, innovation could help to offset these higher costs. China has diversified from using only NCM (nickel cobalt manganese) batteries, reverting back to LFP (lithium iron phosphate) batteries that now command more than half of the market due to their lower costs. While LFP batteries have inferior range, their cost advantage has allowed for a new entry-level battery.

1. Source: IEA, Global EV Outlook 2021.

2. As at January 2022. Source: Inside EVs.

 

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