Electric Vehicle Outlook – growth, policy and net zero

“The United States is in the midst of a fundamental transformation of our transportation sector, with consumers, businesses, fleets and automakers embracing the transition to electric vehicles. This transition will create millions of American jobs, reduce greenhouse gas emissions, create economic benefits and ensure American transportation leadership for years to come.” Pasquale Romano, president and CEO of ChargePoint

Electric vehicle (EV) growth rebounded strongly in 2020 (+43%) and is on track for a similar rise in 2021. Growth is being driven by Europe and China, markets with a supportive policy environment. We expect policy support to spread to new markets over the next few years.

Biden’s American Jobs Plan overtly targets closing the gap with China on EVs and, as more countries adopt net zero climate ambitions, new targets to phase out fossil fuel car sales by 2035 are likely. We remain comfortable with our forecast of 36m annual global EV sales by 2030 (implying a 27% CAGR from 2020) but expect industry analysts’ forecasts for the market to rise.

Growth confounds the critics: 43% despite COVID-19

Global car sales fell 14% in 2020, but EV sales of 3.2m were up 43% vs 3% in 2019. Growth was particularly rapid in Europe (137%) driven by tighter fleet-wide emissions standards and a resurgence in plug-in hybrids (PHEVs); growth here and in China has continued in 2021.

The primary role played by policy

Europe, China and California accounted for 52% of the total car market in 2020 but 87% of EV sales. A combination of consumer incentives (subsidies and lower taxes) and fleet-wide emission regulation of carmakers has encouraged adoption. In these regions EV penetration rate of new sales is in, or close to, double digits; in the rest of the world it is just c 1%.

Policy support may strengthen

Biden’s American Jobs Plan will allocate $174bn to close the gap with China on EVs in the US and includes spending on consumer incentives and charging infrastructure. Re-imposing tighter fuel economy standards could also accelerate the transition.

China is targeting 20% EV penetration of new car sales by 2025. In Europe further tightening of fleet-wide emissions (backed by fines) in 2030 is likely to spur adoption, even as incentives reduce. The bigger picture is the shift to net zero.

In H220, the UK, Japan and California (markets accounting for c 10% of global car sales) announced the intention to phase out sales of fossil fuel cars by 2035, bringing transport in line with broader net zero climate objectives. Others are expected to set phase out dates around the COP26 summit in November 2021 as they too set net zero ambitions.

EV market forecasts likely to rise

In 2020 EV growth rates returned to their 2011-20 average of 45%. Despite annual fluctuations, this CAGR has remained consistent over the last decade, and well above that implied by IEA and BNEF 2030 forecasts (20% and 23% respectively).

Policy support which has underpinned this growth, looks set to continue and may even strengthen. IEA and BNEF forecasts look likely to rise in our view. The key questions are about demand and whether supply can scale up as numbers rise. We are comfortable with our estimate of 36m EV sales in 2030 for now (27% CAGR) but will review our forecasts as we update our assessment of demand, technology and the supply chain.

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