Can Electric Vehicles Speed Up As The Economy Slows Down?
Manager of Corporate
21 May 2020
Amidst the COVID-19 pandemic, several conflicting reports about the future of EVs have emerged: some predict EVs to grow by 38% year-over-year, while others forecast a 43% drop. In this article, we will review the facts and explain our thoughts on where we believe EVs are headed.
EVs were experiencing rapid growth before the COVID-19 outbreak
In order to envision what may lie ahead, it’s key to understand how the EV industry was evolving up until the novel Coronavirus outbreak. For the past few years, EVs became an increasingly popular choice amongst drivers. As a McKinsey report points out, early adopters sparked 60% growth year-on-year for the past decade. Silent engines, positive impact on the environment, and decreased fuel costs are all reasons for this transition to EVs. This growth is no small feat considering overall car sales have been falling in the past two years. Furthermore, a BCG report from earlier this year even predicted EV sales to overtake internal combustion engine (ICE) car sales by 2030. It’s clear electric cars were on the rise up until the outbreak, but how is the current situation with full-scale lockdowns around the world affecting this trend now?
COVID-19 pandemic has hit the automotive market hard
The ongoing COVID-19 pandemic has slowed down the world as we know it and the automotive industry is no exception. As a result of the lockdown, automobile production ground to a halt in several leading car manufacturing countries. The first quarter of the year reported a dramatic decrease in car registrations, plummeting sales, and weakening demand around the globe. In certain European countries, such as Italy or the UK, passenger vehicle sales even dropped as much as 95-97%. Outside of Europe, the US and China have experienced a sharp decrease in overall car sales as well. With the global automotive industry spiraling, several reports have questioned how EVs will fare vis-à-vis the turbulence in the broader industry.
Why some analysts expect EV sales to drop
The ongoing pandemic has resulted in extreme economic volatility. Businesses’ revenue has plummeted overnight, which has resulted in widespread salary cutbacks, furloughs, and layoffs. It’s fair to presume that many will be less inclined to adapt to new technology during this time, delaying non-essential investments until the situation stabilizes. Additionally, consumers are likely to opt for more economical choices when possible, avoiding premium consumer goods. Moreover, with the massive drop in oil prices, gas-powered vehicles are more economical to operate, which makes it harder to argue that EVs will help drivers save money on fuel. Finally, EV prices have been steadily decreasing over the past few years, but they may not be falling as quickly as once predicted, as the decline in EV battery costs is set to slow its pace. However, despite all the concerns about the future of electric cars, EVs have shown significant resilience in the past few months, even in the face of the pandemic.
As the automotive market takes a dive, EVs show strength
In Italy, data from the Italian Foreign Car Maker Association highlights that car registration for gas and diesel-powered vehicles fell by 97.5% last month, but battery electric vehicle sales decreased by only 58.1%. In Germany, statistics from the Federal Motor Transport Authority reveal that total car registrations in March fell by 38% while fully electric cars actually grew by 56% and hybrids by 208%. Data from EV-Volumes shows that this trend can be observed in almost any other country around the world too. As a result of this resilience, the market share of EVs has been growing significantly.
Moreover, EVs are not only proving to be more robust amidst an auto industry in decline, but they are also already displaying some signs of recovery. For instance, in post-lockdown China, major car manufacturers are reporting the same level of showroom traffic in March as in the same month last year. Chinese car producer BYD even recorded a 337.25% increase in March sales amongst its fully electric and hybrid car models. Overall, interest in sustainable mobility is weathering and is also seemingly precipitated by the unprecedented global pandemic.
More eco-conscious markets will help EVs to emerge stronger
With lockdowns forcing millions of people to retreat home, our society has had a unique opportunity to get a glimpse of a greener world. As a result, politicians, corporate leaders, and consumers may weigh ESG (environmental, social, and governance) factors more favorably in their decision making moving forward, as a Wall Street Journal article explains. In fact, this can already be observed by looking at the following actions that governments, industries, and consumers are taking around the world.
Looking past our present challenges - what can we expect?
Forward-thinking governments are introducing green recovery deals
As we emerge from the pandemic, policy makers are prioritizing green legislation, now more than ever.
Europe - The European Union has shown no signs of delaying its 2020/2021 95g CO2 target for passenger vehicles and plans to stay on course to become a climate-neutral economy by 2050. In fact, just a few days ago Germany and France announced a €500 billion green recovery fund to accelerate the EU's shift to a low-carbon economy. Germany’s auto industry and senior officials have called for another “cash for clunkers” program, an initiative that would boost the demand for more sustainable vehicles by offering monetary incentives for people that scrap their fuel-inefficient cars. Additionally, the European Investment Bank has doubled down on its commitment to the European EV battery industry to boost green recovery, committing more than €1B to financings in 2020.
China - China, the largest EV market in the world, announced that electric cars will be a top priority in its post-coronavirus stimulus plans, extending EV subsidies and tax breaks for two additional years. The country has also committed to investing in EV charging infrastructure to offset the economic downturn resulting from Covid-19. According to CleanTechnica, China will spend up to $1.5 billion to install 200,000 EV chargers until the end of the year, 20,000 of which will be public chargers.
USA - In the USA, democrats have proposed the Green New Deal, an economic recovery plan that aims to “to power all transportation and generate all electricity from renewable sources by 2030”. Though it has been widely criticized by republicans, Joe Biden, the democratic 2020 presidential nominee, has loosely endorsed the deal and is currently ahead in the polls going into this year’s election. While the federal government is taking a back seat approach to the country’s sustainability goals, the states have taken the fight into their own hands. California and 14 other states, which make up more than ⅓ of the U.S. auto market, are currently suing the federal government to be able to set their own emission standards. This act illustrates that there is a significant portion of the USA that is eager for higher sustainability standards, which would bolster EV growth. With the November elections just months away, we could see a drastic change in heart from one of the largest car markets in the world in just a few months.
These are just a few examples of the many sustainable measures being introduced by political leaders and, fused together, they will become the foundation for a major post-pandemic EV boom.
Industry is prioritizing investment in more sustainable solutions
Car manufacturers have already pledged over $2.5 billion to the electrification of future models prior to the virus outbreak and “more than 100 new electric car models are expected to become available over the course of 2020”, according to the International Energy Agency. Now, amidst the pandemic, some are not only staying true to their commitment, but actually prioritizing EVs over fuel cars in terms of production, sales, and investment. For instance, Volkswagen is focusing its restart of production on electric cars, opening its Zwickau plant, where the ID.3 is manufactured, one week ahead of all other plants. Renault is stopping ICE vehicle sales in China to go all-electric instead. In Asia, a joint venture has even launched a new low-cost electric car brand in the midst of the pandemic. On the other hand, it’s not just car brands betting on green EV technology either, with the two largest power utilities in China spending a combined €3.63 billion to build over 450.000 charging stations. All these examples demonstrate how the industry is shifting investment and clearly driving the market towards more sustainable solutions.
Consumers are shifting their preferences towards EVs
Even consumers voiced their agreement with electric mobility schemes and called for more sustainable means of transport that are fuel-efficient, economical, and better for the general population’s health and the climate. This may be due to the undeniably clearer skies after a few weeks of not having as many fossil-fuel-powered cars on the road, which resulted in consumers making the shift to cleaner forms of transport. According to an Accenture Consumer Research, COVID-19 is already shaping consumer habits, with over 50% of respondents believing that they will make more sustainable choices after the pandemic. The overall connection between stay-at-home measures and air-quality-improvement is boosting consumer eco-consciousness: good news for the EV market as well as the environment.
The future of EVs looks bright, despite COVID-19
Amidst the pandemic, EVs are clearly outperforming ICE cars, with sales even surprisingly increasing for specific markets, brands, and car models. In addition, we see governments, businesses, and consumers becoming more eco-conscious and understanding the necessity for more sustainable ways of transport. In many ways, COVID-19 and lockdowns might have been an eye-opener for society, which is now faced with an opportunity to use recovery plans to address the next looming global emergency - global warming. As EVs are an existing solution that we can leverage to achieve this goal, their demand will only go up. Therefore, all signs point to COVID-19 not ending, but rather accelerating the EV boom in the long-term.
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