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Global EV Transportation Report

Executive Overview

The global transition to electric transport picked up pace by the end of 2022. The year had over 10 million electric passenger vehicles sold, contributing over 80% of the total spending in electrified transport. The industry is gradually coming to the fore, marking a sharp reversal from a few years ago when the feasibility of making a shift appeared questionable. Progressively, electric vehicle ownership has become competitive to that of the internal combustion engine (ICE) in several markets.

To be sure, displacing the ICE share will take time. ICE- based vehicles still represent 95% of the total fleet. It was at 99% share in 2015, indicating a slow displacement towards electric drivetrains. Sales penetration is a more discernible indicator of the progress in electric vehicle adoption. About 13% of total passenger vehicles sold in 2022 were in electric drivetrain – three times of what it was in 2020. In many of the markets, the rapid growth has translated to a drastic shift in consumer demand as overall automotive sales declined or were stagnant during the same period.

The rapid offtake in electric vehicles came about through a concerted and deliberate policy push and well-defined regulatory framework. The ban on new ICE vehicle sales in many of the developed countries acted as an important

indicator of policy intent and goal. European Union countries are now collectively pursuing the policy goal of banning new ICE vehicle sales by 2035. Equally important has been the role of upfront subsidy support. For all the leading markets, the purchase subsidies helped prop up demand to reach the present levels of sales penetration. Some of the late entrants in transport electrification such as Japan are following the same path.

The reliance on subsidies won’t continue for long. In China and several European countries, the subsidies are being scaled down even at the risk of taking a short-term hit on sales. The strain on public finances is one reason. The larger goal is to ease the industry to a market-oriented mechanism. The rollback of subsidies is thus followed up with enforcement of stringent supply-side targets for the automakers. In both China and Europe, for instance, there are clear incentives for the automakers to ensure availability of models for compliance with fleet-wide emission standards. Yet, such a policy pattern cannot be generalized. Asia-Pacific markets such as Japan and India have subsidies for select sub-segments to incentivize the offtake. Others such as the US historically did not have federal-level norms and had the respective states devise their own.

The global policy focus is instead on attracting capital for local electric vehicle manufacturing units. With the rising market size, it is critical for automakers to achieve economies of scale in batteries and the related components. Such capacities must be closer to demand centers for efficiency and competitiveness. Adding to this is the overarching need for diversifying supply chain sources – implying de-risking from dependence on China. The US government’s nearly $400 bn Inflation Reduction Act was one of the most impactful one among recent global policy decisions to incentivize local production. Other countries are aiming to match it as much as feasible to avoid losing investors. The opportunity cost is high. By mid-2022, the global Gigafactory pipeline was over 300 (no. of facilities). The US is already expected to corner a major chunk of the planned capacities.

Successful electric vehicle transition will also depend on the ease of access to charging. In this context, the supply lags demand by varying degrees across the markets. Expectedly, the global installed charging point base is correlated to the regions’ progress in electric vehicle penetration. China has the predominant share in cumulative global investment (57%), followed by Europe (24%) and the US (12%). The unmet demand in this segment is a significant investment opportunity. The oil and gas majors are spearheading the

capacity addition in fast-charging segment. The charging space is also heating up with new partnerships, multiple stakeholders (standalone charging operators, municipal authorities, equipment suppliers, etc.) and technologies (bi-directional charging, wireless or induction charging). Public-private partnerships are likely to be the preferred implementation mode, as observed in the recent European experience. The nature of the investments and the emerging business models (such as energy service provider instead of just a charging operator) makes this a dynamic and interesting space for investors.

The traditional automotive business model itself might be in for a makeover. The ongoing transitory phase comprises many untested and nascent technologies and practices. For instance, the vertically integrated structure of upcoming electric vehicle manufacturing reverses the existing structure of globalized linkages in supply chain. Similarly, the emerging electric vehicle business has a significant intersection with the structure of a typical technology provider – some of which is already taking roots with automakers’ in-house capacities in chip and software development. The emerging growth trajectory will necessarily involve multiple growth paths.