Some of the cost reductions necessary to reach price parity are expected to come from research and development of components such as batteries, but it is assumed that others will come from manufacturers gaining economies of scale that allow them to spread fixed costs over greater numbers of vehicles. Sales still need to increase significantly for that to happen. That means the industry could be in a key phase – needing to grow at even faster rates and therefore needing to win over a widening range of consumers, but with government subsidies possibly starting to wind down at the same time.
Many analysts agree that navigating that transition will require governments to shift their strategy, to implement mandates that prohibit sales of cars powered solely by ICEs or that require purchases of EVs and other low-emission models.
A number of countries are indeed moving in that direction. In the U.S., a California policy followed by nine other states began in 2018 to require large automakers to ensure that portions of cars sold in those states be zero-emissions vehicles – a category that includes fuel-cell vehicles but that for now mostly means BEVs. In Europe, a few countries have resolved or proposed to prohibit sales of new ICE-only vehicles – bans that have been targeted to take effect as early as 2022 and as late as 2040. China in 2019 began requiring manufacturers to produce minimal percentages of new energy vehicles or to buy credits from other companies.
It’s not yet clear, however, how well mandates will work or if they will endure. President Donald Trump’s administration is seeking to revoke California’s permission to set its own emissions regulations – the basis for state-level ZEV requirements – arguing that it fragments the U.S. auto market and raises costs for consumers. States have counter-sued, and the cases were proceeding as this report went to press.
Analysts agree that government mandates will be needed for EV sales to reach economies of scale needed to achieve price parity.
In China, by far the biggest EV market, sales stalled in 2019 as the government cut back on subsidies. Through the first 11 months of the year, sales were up just 1.3% from the previous year at just over 1 million units.
The sailing is smoother in Europe at the moment. Through the first nine months of 2019, BEV and PHEV sales in the European Union rose 35% year on year, and BNEF forecast another jump of 32% for the full year 2020. Still, it should be noted that pro-EV mandates have yet to take effect in Europe, and it is worth considering whether such rules could spur public opposition, such as the “yellow vest” protests that rocked France after the government raised fuel taxes in 2018.
BNEF, which has been among the most bullish forecasters for EV uptake, advises that it is not a foregone conclusion that these vehicles will gain mass market appeal.
“Mass market adoption is still, I think, very uncertain,” said Aleksandra O’Donovan, BNEF’s head of electrified transportation. “There is still a very good possibility that the middle market will not happen.” She added, however, that the organization believes that obstacles are more likely to arise from issues such as inadequate charging networks or consumer concerns about depreciation of EVs. Given the degree to which environmental consciousness has taken hold in Europe, EVs are unlikely to be derailed there by public opposition to policies prohibiting ICE vehicles.
“To be honest, I don’t think that influences what will happen in Europe,” she said. “The overall drivers for EVs, health and environmental [considerations], are very real and widely recognized by the public.” She also predicted that European governments will make EVs easier to swallow. “At some point we’ll see some prize for using EVs. We have yet to see what that’s going to be.”
BNEF believes the 2019 slump in China is only temporary.
“For China EVs are very much an industrial policy,” she said, citing the central government’s goal of helping the country become the world leader in EV technology. “It’s not going to be a hiccup-free growth. We cannot expect any market to grow at 200% every year, including China. But the long-term drivers for EV growth in China are there.”