Electric vehicle penetration is one key metric to track the progress in achieving transport decarbonization objectives. An accelerated shift is needed to close the gap against combustion engines as fast as possible. Passenger electric vehicles take the maximum attention in this context, for their role in the total transport sector emissions and the criticality in the ongoing transition. The shift in consumer demand is gradually in motion, helped in significant measure by expanded product variety and improved configuration.
Vehicle Sales and Penetration
The trend in electric vehicle passenger sales accelerated since 2020. While part of the initial momentum was from the stimulus support during the pandemic, the sustained regulatory push helped set the trajectory. Such a growth phase is part of the global transition towards cleaner transportation alternatives. While the pace and direction vary by local conditions, the commitments aggregate to a substantial impact. Globally by the end of 2022, clean transport spending was over $450 billion.
Note: Data for 2022 is an estimated one Source: BNEF (Zero Emission Vehicles Factbook)
The year-on-year 61% growth by end of 2022, while impressive, was still lower than expectation. It was an outcome of a tempering down of sales growth in key markets such as China after subsidies were scaled down. Inflationary pressure and the supply chain challenges added to the impediments in the market. The consumer demand, however, appears to have gradually tilted in favour of the electric drivetrain. The share of electric vehicles in the total new vehicle sales in some of the key markets such as Norway’s are indicative of the emerging tipping point in automotive industry.
The progress achieved in electric vehicle penetration so far, however limited, is prompting the question of reaching a tipping point. BNEF suggests 5% level as the tipping point, after which the markets head for a mass adoption scale. Taking this as a yardstick, in 2022, the US was among the major markets that joined the list of countries reaching or exceeding the potential tipping point. The scope is much larger than this. Even as the electric vehicle sales rise at a fast clip, the total global four-wheeler road transport fleet of 1.5 billion rose by about 1% in 2022. The displacement of market shares will take much more than the current rate of growth.
The rise in electric vehicle penetration has been marked by expansion in product variety and quality. An important factor for manufacturers is to address the ‘range anxiety’ involved in such vehicles. Over the years, the vehicle sales trend is marked by the rising average battery pack size and consequently the driving range available. Increasingly, new battery electric vehicles are equipped with fast-charging capabilities in addition to the onboard charger.
Source: EV-Volumes
BNEF estimates indicate that while historically the dominant charging power in the market was 50kW, it rose to 111kW by 2019. In the models launched during 2022, the same was at an average of 195kW. Average driving range shows a similar pattern. Some of the recent models in 2023 had a driving range of up to 580km.
Note: The data for 2022 is an approximate estimate derived from BNEF publication; The data above refers only to battery electric vehicles Source: IEA and BNEF
An expanded product lineup with competitive price points is critical for the planned mass adoption. Added support comes from the emerging new technologies integrated in the electric vehicle platforms. While this is helpful for the demand, the true test of the market success will be tested in price parity. Electric vehicles are still part of a premium offering in the passenger vehicle segment. There are few examples of the mass-market products. The price of vehicles, led in a significant part by the battery, thus tends to be at a higher level than those of combustion engines. The prospects of price parity in the market are at a far distance. As the trend in some leading markets shows, there is a considerable and sustained gap in the price that the automakers need to bridge.
Source: Kelley Blue Book
Source: Kelley Blue Book
Source: Kelley Blue Book
Some of the recent EV models in 2023 has a driving range of up to 580km..
Electrification of Commercial Vehicles
The adoption of electric drivetrain in commercial applications has gradually picked up. The rate of adoption has been slower than other segments. Its contribution in the overall electric vehicle space, as understood from the fleet size, remains miniscule. A rise in sales in the commercial electric vehicle platforms is largely in select demand pockets. Per BNEF estimates, over 2.5% of the global commercial vehicle sales in H12022 were zero-emission variety, with almost all of it based on battery.
Source: BNEF (as of June 2022)
Within the commercial electric vehicles, the adoption is higher for the light commercial units, such as vans due to the well-established use-cases of commercial viability in this regard. Countries such as South Korea, China, Germany and the UK are leading the global van-based commercial vehicle electrification trend. Medium- and Heavy-duty electric trucks constitute an even smaller share of the sales. Yet, with the low base, growth shows a sharp uptick. As of H12022, sales in this sub-segment stood at 12,000 units, showing a significant rise against the full-year sales of 10,000 units in 2021 (BNEF estimates).
The growth in electric buses is an outcome of the policy stance on mitigating emissions in overall public transportation. The policy incentives have had a key role in propping up the sales. While China is known to be a leader in this (97% of global electric bus fleet), others have made inroads as well. The European zero-emission bus fleet (predominantly electric) grew by 42% since 2020 due to the policy commitments. Some of the major European cities have notably initiated procurement of only zero-emission buses that added momentum to the sales. Infrastructural challenges are however likely to get the better of most of such plans. The lack of abundant and fast-charging infrastructure network together with absence of conducive local norms/regulations makes it challenging for electric buses to offer any reasonable competition to their diesel-based counterparts.
According to BNEF estimates, the annual spending on electric passenger vehicles held a CAGR of 53% during 2016-2022.
Annual Spending
The trend in spending provides another picture of gauging the opportunity in electric vehicle transition. The BNEF estimates show that during 2016-2022, annual spending on electric passenger vehicles held a compounded annual growth rate of 53%. This was the highest across all transport segments, indicating in part the value adds. Also, the last three years of the review period, i.e., 2020-2022 reported the maximum jump. The passenger electric vehicle segment is thus the most important one in focus.
Note: Data on grid interconnection requests just indicative of developers’ interest but does not imply actual capacity addition Source: NREL
The absolute value of total spend, however, should be observed in perspective. With annual automotive sales at $2.5 trillion globally, electric vehicles are far from making a serious dent. The profitability of such vehicles is also relatively lower. The point of note therefore is the rate of growth. In 2022, it was a 53% rise year-on-year. By end of 2023, the estimate is that the total spend could be in excess of $500 billion. In an otherwise stagnant automotive industry, the electric vehicle part is clearly the fastest moving one.
For many of the automakers, the spending trend is a rough-hand indication of the position they take in the emerging transitory phase of mobility. A notable case is that of the Japanese automakers who had a late start and are thus facing a delayed launch of dedicated passenger electric vehicle platforms. Several other automakers are in a similar position with their electric vehicle platforms expected only by the time of 2026 to 2028. At the rate of current market expansion, the opportunity cost of the time could be very high.