In 2016, almost 95 million autos were made and sold globally, nearly all powered by an internal combustion engine (ICE). For the past 100 years, internal combustion engine powered vehicles, and readily available oil supplies have dominated autos. The winds of change are blowing, however, and many believe that the $2 trillion global auto industry is about to undergo a significant transformation as all-electric vehicles (EVs) begin to replace ICE vehicles.
The brink of a revolution
While electric vehicles and plug-in hybrid electric vehicles (PHEVs) currently account for less than 1% of the cars produced annually, many believe that we are at the beginning of an “Electric Revolution.” In its recent comprehensive and authoritative report on the subject, Bernstein, a prominent Wall Street research firm, predicted that EVs could represent 40% of auto sales and 30% of the global car parc in 20 years. Likewise, UBS, a leading global financial services company, believes that a growing global electric vehicle fleet will be disruptive to gasoline demand by 2031.
There are many reasons for the growing belief that EVs represent the future of autos. First, technology costs have declined significantly, with battery costs approximately 20% of their cost five years ago. Also, further technological innovations, as well as substantial new battery capacity coming on stream in China, bode well for further price declines. Secondly, a charging infrastructure is now being put in place in China, the United States and other major countries around the world. Finally, EVs have lower operating costs than ICE vehicles, even at today’s oil prices. As technology costs drive the initial price of EVs lower, price parity with ICE powered vehicles and lower operating costs will make a compelling economic case for EVs.
In terms of the development of its EV industry, China has now pulled ahead of other countries, a leadership position which it is unlikely to relinquish. In 2016, 507,000 EVs and PHEVs were sold in China, a 53% increase from 2015. Meanwhile, 222,200 EVs and PHEVs were sold in Europe, a 14% increase; and 157,130 units were sold in the United States, a 36% increase from the prior year.
China ahead of the curve
Why is China leading the way in embracing EV technology? The answer may simply be that China has no other choice. As a country, China has three fundamental paths it may follow. First, it can choose to live with a rapidly growing number of ICE powered vehicles on its roads, with all that implies as far as air pollution and energy independence. Second, the government can restrict the transportation choices of its citizens in an effort to balance environmental concerns. Or third, the country can embrace EV technologies that enable its citizens to have their cars without jeopardizing air quality in its cities.