ENERGY OUTLOOK - THE POTENTIAL MARKET FOR ELECTRIC VEHICLES

 

    

ABSTRACT

The world is looking at reducing greenhouse gas emissions. Transitioning from transportation systems that rely on fossil fuels to more environmentally friendly technology is the goal of governments across the globe. Various governments put forth plans to outlaw vehicles that run on fossil fuels by 2030. Coupled by various governments’ incentives to promote adoption of electric vehicles, the electric vehicle market has seen a tremendous growth over the past decade. However, the global pandemic due to Covid-19 and subsequent global lockdowns hampered supply chain and manufacturing logistics. The electric car market is back on the rise following the lifting of lockdowns and is expected to increase exponentially, especially with the rising global fuel prices due to stale geopolitical environment i.e. the Russia-Ukrainian war.

 ENERGY OUTLOOK – THE POTENTIAL MARKET FOR ELECTRIC VEHICLES

Climate Change is the most critical threat facing planet earth at present. Carbon dioxide (CO₂) emissions from fossil fuel combustion and industrial processes that modern civilization depends upon have raised atmospheric CO₂ levels, warming the planet. According to the U.S. Energy Information Administration (EIA), the transportation sector is the leading source of greenhouse gas (GHG) emissions in the United States (U.S.), and petroleum is the main source of energy for this sector. In 2020, petroleum products accounted for about 90% of the total U.S. transportation sector energy use [1].

Mitigation or reducing climate change as well as adaptation to it, which involves adapting to life in a changing climate, are pushing the world to adopt usage of electric vehicles (EVs). The EV is considered as the energy transition technology towards a more sustainable and environmentally friendly transportation system globally. To meet the long-term targets for climate change mitigation and reduction of petroleum use, governments around the world have set goals to increase EVs market share. Global EV sales reached 6,75 million units in 2021, 108 % more than in 2020 [2].

EVs are divided into three:

    a)      Hybrid Electric Vehicles (HEVs), which are dual-powered vehicles that utilize electric motor and Internal Combustion Engine (ICE) for propulsion. 

    b)      Plug-in Hybrid Electric Vehicles (PHEVs) are a sub-category of HEVs. However, these are plugged to the larger electricity supply system for charging and use both electric motor and ICE for propulsion.

    c)      Battery Electric Vehicles (BEVs) are purely electric motor vehicles powered by batteries, which can also be charged from the larger electric supply.

The following table from EV-Volumes.com shows the global sales of PHEVs and BEVs from 2013 to 2021. 

 

Figure 1: Global PHEVs and BEVs Sales ('000s) Source: https://www.ev-volumes.com/

 Electric cars have surged ever since they debuted on the commercial markets during the first half of the decade. Only about 17 000 electric cars were on the world’s roads in 2010 [3]. However, during the past 24 months, the global car sales experienced an unprecedented drop since SARS-CoV-2, the new coronavirus that causes COVID-19, was detected in Wuhan, China, in late 2019 and set off a global pandemic. Most countries around the world instituted lockdown measures to beat the pandemic. These global lockdowns incapacitated manufacturing facilities, supply chains, and consumer demand.

During the second half of 2020 governments across the globe started relaxing these lockdown measures, and there was a ripple effect on the automotive market. For electric cars, monthly sales surpassed those between July and December in 2019 in every month in all large markets including China, the European Union, India, Korea, the United Kingdom, and the United States, despite second waves of the pandemic [4]. Despite the challenges of 2019 and 2020, global EV sales improved in 2021 as shown by the chart below.

 

Figure 2: Global monthly Plug-in vehicle sales from 2019 to 2021. Source: https://www.ev-volumes.com/

At present, China leads the global EV sales, seconded by Germany. According to data on the EV-volumes.com on growth of EV sales since 2012, China’s sales emerged in 2019 and 2020. Pure electric and plug-in hybrid electric vehicles (China calls them "new energy vehicles" or NEVs) are expected to account for 40 percent of 38 million sales in 2030, or about 15 million units [5]. The government extended electric car subsidies for a further two years after the pandemic broke out, albeit with a planned reduction of 10% in 2021, and 30% in 2022 [6]. The Chinese EV market is set to reach more growth in 2022 resulting from consumer preferences for the new model offerings, residual national subsidies, and Chinese government’s preferential treatment for EVs. At 25%, Germany had by far the highest market share among large European markets, followed by the United Kingdom and France (both around 15%), Italy (8.8%) and Spain (6.5%) [6]. EIA reports that in the United States electric car market in 2021 saw a more than double sales to surpass half a million.

The global electric car market however is not evenly spread across countries. China, Europe, and the United States account for roughly two-thirds of the overall car market but around 90% of electric car sales [6]. Governments have a key role to play in driving the global electric car markets by formulating policies that promote use of EVs. Over the course of 2020 and 2021, many governments set targets to phase out sales of internal combustion engine cars within the next two decades, as did several car manufacturers [6].

 

 

Figure 3: BEV + PHEV Sales and Percentage Growth. Source: https://www.ev-volumes.com/

 The initial cost of procuring an electric vehicle still exceeds that of their traditional counterparts. The additional costs of plug-in hybrid and fully electric cars compared to regular ICE cars largely depend on the high costs of batteries [7]. However, the running costs of an electric vehicle are narrowing this gap. As the global prices of diesel or gasoline are soaring due to geopolitical factors like the Russia-Ukrainian war, the cost difference between traditional vehicles and their electrical counterparts is narrowing. Economic indicators, which include total cost of ownership (TCO), least cost, net present value (NPV), payback period (PBP), internal rate of return (IRR), and return on investment (ROI) are constantly beginning may begin to favor EVs.

Moving parts in EVs are fewer than in ICE vehicles. This leads to minimal maintenance costs for EVs compared to traditional cars. The EV drivetrain composed of electronics, motor, battery do not require regular maintenance. The estimated scheduled maintenance cost for a light-duty battery-electric vehicle (BEV) totals 6.1 cents per mile, while a conventional internal combustion engine vehicle (ICEV) totals 10.1 cents per mile [8].

HEVs, PHEVs, and BEVs do improve fuel economy and lower fuel costs. In 2019, the United States imported about 3% of the petroleum it consumed, and the transportation sector accounts for approximately 30% of total U.S. energy needs and 70% of U.S. petroleum consumption [9]. “In 2021, the United States consumed an average of about 19.78 million barrels of petroleum per day, or a total of about 7.22 billion barrels of petroleum. This was an increase in consumption of about 1.6 million barrels per day over consumption in 2020. The increase was largely the result of the economy recovering from the coronavirus (COVID-19) pandemic [10].” However, U.S. Energy Information Administration (EIA) reports that there have been varying sales of motor gasoline since 2020. This variability is attributed to changes in driving activity, population changes, employment, and the fact that more people are working from home. EIA goes further to state that increased sales of HEVs, PHEVs, and BEVs, which consume less, or no gasoline compared with ICE contributed to the gasoline sales variability. Although still low as a percentage of the total light-duty vehicle fleet, sales of these vehicles were 5.4% of total sales in 2020 and were 11% of total sales in the fourth quarter of 2021, up from 2.9% in 2015 and 2.4% in 2010 [11].

The costs for solar photovoltaics, wind, and battery storage have plummeted during the last decade. “The fundamental driver of this change is that renewable energy technologies follow learning curves, which means that with each doubling of the cumulative installed capacity their price declines by the same fraction. The price of electricity from fossil fuel sources however does not follow learning curves so that we should expect that the price difference between expensive fossil fuels and cheap renewables will become even larger in the future [12].” However, shipping constraints and other supply chain challenges due to Covid-19 pandemic resulted in trade instability and led to price increases. The utility scale solar market faced a host of challenges in 2021 as the pandemic wreaked havoc on international supply chains and labor availability, pushing prices to their highest levels in three years [13]. In 2022 these supply chain challenges are expected to normalize as countries have lifted lockdowns and solar manufacturing industries are back on track. Price of electricity will therefore remain low and offer a cost competitive advantage on the traditional vehicles that use fuel which is facing global rising costs.

The European Union has given its vehicle manufactures limits on emissions. This limitation is calculated based on the total number of vehicles sold. Traditional vehicle manufactures are therefore switching to electric vehicles to avoid heavy fines. Various governments, including the United Kingdom, have brought forward plans to outlaw the sale of petrol and diesel cars by 2030. This has increased interest in electric vehicles and new companies are joining the EV industry. This will lead to growth in supply of electric vehicles and in the process lower the cost of EVs.

 CONCLUSION

The market for electric vehicles is growing owing to an increasing demand for environmentally friendly automobiles to mitigate greenhouse gas emissions. Implementation of favorable government policies that offer several benefits, including tax exemptions, subsidies, low buying costs and free charging facilities are providing a boost to the market growth.  However, the Covid-19 pandemic and subsequent lockdowns that took place since 2019 affected the manufacturing logistics and supply chain. This hampered the growth of the electric vehicle industry. However, since the world saw the lifting of lockdowns, the EV market is on the rise more than before. The recent geopolitical instability due to the Russian-Ukrainian war which has affected the price of crude oil is an opportunity for the electric vehicle industry as more users may consider transitioning from internal combustion engine propelled vehicles to electric motor propelled counterparts.

References

[1]	U.S. Energy Information Administration, "Use of energy explained - Energy use for transportation," EIA, 17 May 2021. [Online]. Available: https://www.eia.gov/energyexplained/use-of-energy/transportation.php#:~:text=Petroleum%20is%20the%20main%20source,in%20natural%20gas%20pipeline%20compressors.. [Accessed 09 April 2022].
[2]	R. Irle, "Global EV Sales for 2021," EV Volumes.com, 2022. [Online]. Available: https://www.ev-volumes.com/. [Accessed 09 May 2022].
[3]	International Energy Agency, "Global EV Outlook 2020," IEA, 2020.
[4]	G. Marine and P. Leornado, "How global electric car sales defied Covid-19 in 2020," IEA, 28 January 2021. [Online]. Available: https://www.iea.org/commentaries/how-global-electric-car-sales-defied-covid-19-in-2020. [Accessed 10 April 2022].
[5]	J. D. Michael, "China Aims To Be No. 1 Globally In EVs, Autonomous Cars By 2030," Forbes, 14 December 2016. [Online]. Available: https://www.forbes.com/sites/michaeldunne/2016/12/14/chinas-automotive-2030-blueprint-no-1-globally-in-evs-autonomous-cars/?sh=4b7356421c6e. [Accessed 10 April 2022].
[6]	P. Leonardo and G. Timur, "Electric cars fend off supply challenges to more than double global sales," IEA, 30 January 2022. [Online]. Available: https://www.iea.org/commentaries/electric-cars-fend-off-supply-challenges-to-more-than-double-global-sales. [Accessed 11 April 2022].
[7]	V. Oscar van, S. B. Anne, K. Takeshi, d. B. Machteld van and F. André, "Energy use, cost and CO2 emissions of electric cars," 15 February 2011. [Online]. Available: https://www.sciencedirect.com/science/article/pii/S037877531001726X?via%3Dihub. [Accessed 10 April 2022].
[8]	Office of Energy Efficiency & Renewable Energy, "FOTW #1190, June 14, 2021: Battery-Electric Vehicles Have Lower Scheduled Maintenance Costs than Other Light-Duty Vehicles," U.S. Department of Energy, 14 June 2021. [Online]. Available: https://www.energy.gov/eere/vehicles/articles/fotw-1190-june-14-2021-battery-electric-vehicles-have-lower-scheduled#:~:text=The%20estimated%20scheduled%20maintenance%20cost,totals%2010.1%20cents%20per%20mile.. [Accessed 11 April 2022].
[9]	U.S. Department of Energy, "Electric Vehicle Benefits and Considerations," U.S Department of Energy, [Online]. Available: https://afdc.energy.gov/fuels/electricity_benefits.html#:~:text=Hybrid%20and%20plug%2Din%20electric,fuel%20costs%2C%20and%20reduce%20emissions.. [Accessed 11 April 2022].
[10]	U.S. Energy Information Administration, "How much oil is consumed in the United States?," EIA, 09 March 2022. [Online]. Available: https://www.eia.gov/tools/faqs/faq.php?id=33&t=6. [Accessed 11 April 2022].
[11]	U.S. Energy Information Administration, "This Week in Petroleum," EIA, 06 April 2022. [Online]. Available: https://www.eia.gov/petroleum/weekly/archive/2022/220406/includes/analysis_print.php. [Accessed 11 April 2022].
[12]	R. Max, "Why did renewables become so cheap so fast?," Our World in Data, 01 December 2020. [Online]. Available: https://ourworldindata.org/cheap-renewables-growth. [Accessed 11 April 2022].
[13]	Solar Energy Industry Association, "Solar Industry Research Data," SEIA, 2022. [Online]. Available: https://www.seia.org/solar-industry-research-data. [Accessed 11 April 2022].