Scrutinizing Forecasts

The global population of battery-powered and plug-in hybrid cars has been growing rapidly and is expected to continue doing so. That does not mean, however, that forecasts assume a continuation of the status quo. The growth predicted for coming decades is much greater than that what has happened to date. Moreover, it will be driven by quite different factors.

Based on sales trends over the first 10 months of 2019, the global electric car population was on pace to reach approximately 7.2 million units by the end of the year. Given that the population was less than 100,000 in 2011, that represents a compound annual growth rate of about 70% over that eight-year period.

By comparison, forecasts by BNEF, ExxonMobil, BP and OPEC would all require growth rates of 180% to 220% between 2019 and 2040. Put another way, the global EV population – that’s population, not annual sales – would need to triple every year for two whole decades. The IEA’s forecast would require the parc to increase at a compound annual rate of more than 300% through 2030.

During those years when the rate of growth is sharply increasing, the reasons for the growth would also be evolving. Until now, government incentives have been one of the main factors for increasing numbers of consumers to buy EVs. It is certainly true that EVs offer their own built-in financial incentive, enabling owners to stop (in the case of BEVs) or largely reduce (in the case of PHEVs) money spent on gasoline or diesel. To date, however, that savings would more than be offset by the bigger price tags that EVs carry.

For model year 2020, battery-powered sedans in the U.S. cost between $36,000 and $42,000 depending on the travel range permitted by their batteries. That compares to around $31,000 for a typical ICE car in the same size category for a difference of $6,000 to $12,000. The electric premium widens to between $9,000 and $17,000 for crossover BEVs and $11,000 to $20,000 for sport utility vehicles. Those are very large upfront cost differences – too large to overcome for most car buyers.

Recognizing this, governments have offered a variety of carrots aimed at reducing the cost of buying and owning EVs. These range from exemptions on sales or personal property taxes to free parking and ferry rides, but the biggest are direct payments to subsidize purchases. To date, 90% of EV purchases have occurred in some dozen countries, and in all of them national and/or local governments offer large subsidies, in some cases exceeding $10,000 per vehicle in some countries.

In most cases, at least, subsidies were never intended to be permanent. Indeed, governments have good reason to eliminate them because the bill for such payments rises rapidly as EV sales shoot up. Some are already winding down. In June of 2019, China eliminated subsidies that it pays to manufacturers of EVs with range of less than 250 kilometers and cut in half its subsidies for those with longer ranges. In the U.S., federal subsidies were conceived as applying only to the first 200,000 in sales for any one model.