While electric vehicles still remain only a small part of new car sales, the growth has been extraordinary. In the U.S., purchases of EVs soared at the end of 2016, while European countries have made significant progress in mixing up their car fleets. Trends have been particularly eye-opening in China, where the government’s aggressive plans to boost sales of EVs have put the country on track to make major gains in electrifying the country’s car fleet. That is a big development given that the Asia-Pacific region is expected to be the main source of oil demand growth for decades to come. Still, even with China’s ambitious goals in supporting electrification, the country’s appetite for oil will continue to grow in coming decades and remain a major factor underpinning the global market.
In 2016, the sales of EV and plug-in hybrids reached 351,000 units, an 85 percent increase over the previous year and 45% of global purchases.
In 2016, the sales of EV and plug-in hybrids reached 351,000, an 85 percent increase over the previous year and 45% of global purchases, according to consultants at EV Volumes. On top of that, some 156,000 commercial EVs were also sold, with buses making up an astounding 80 percent. Even with the sharp rise, EVs made up only 1.5 percent of total vehicle sales.
The rapid growth is part consumer enthusiasm and part strong-arm government action. In an effort to reduce congestion and pollution, the Chinese government set in motion, in 2014, plans to have 5 million “new energy” cars, most of them electric, on the road by 2020. To achieve this goal, Chinese authorities have taken several measures including subsidies at the national and local levels, while also supporting research and development of alternative vehicle technology. Furthermore, they’ve put together a license plate scheme to limit the number of cars on the road, forcing drivers to compete for one through a lottery. One way around this fierce competition is to purchase an EV, providing further incentive for consumers.
There is some evidence that consumers are warming toward EVs as the government pushes its agenda in that direction. For instance, in a recent Deloitte survey, the authors found that more than half of Chinese respondents said they’d prefer a hybrid-electric, battery electric or another form of alternative for their next vehicle, higher than any other country.
With current trends, China will likely meet its EV goals by the end of the decade.
“China is discussing doubling its aim to 10 percent of sales until next decade, but that would be much strain on its car industry since subsidies are only for domestically produced vehicles.”
“They’ll easily reach their targets if they continue on this growth trajectory,” Roland Irle, co-founder and developer at EV Volumes, told The Fuse. “China is discussing doubling its aim to 10 percent of sales until next decade, but that would be much strain on its car industry since subsidies are only for domestically produced vehicles.”
Since it began in 2014, the new energy car push has boosted sales by five-fold, according to EV Volumes, outpacing increases in any other country. At the same time, the number of China OEMs jumped by a third to 21, with the amount of available plug-in models more than doubling to 68.
Enthusiasm for EVs to remain robust?
While the enthusiasm among the Chinese for EVs is encouraging, the outlook beyond 2021, when subsidies are eliminated, is uncertain. Besides the winding down of subsidies, the lack of charging stations is another problem that may turn consumers away from adopting EVs. Drivers worry about being stranded on long-distance trips or having to wait for extended period times in queues due to this shortage. To alleviate concerns, Beijing, the city with the worst congestion, plans to add 435,000 charging stations over a five-year period, but that still might not be enough. At the same time, even with the growth of China’s car industry and the leap in EV sales, there are ongoing questions surrounding the quality of vehicles of domestic manufacturers which lag international competitors and have continually needed help from the government to contend with foreign companies.
Besides the winding down of subsidies, the lack of charging stations is another problem that may turn consumers away from adopting EVs.
Despite the number of EVs sales growing there, it’s unclear if the development can cause a major disruption in the global oil market. Overall vehicle sales, which tilt heavily to those that run on petroleum, are going through the roof, which in turn means growth in fuel consumption. The Asian juggernaut saw oil demand growth of 360,000 barrels per day last year, making up almost a quarter of total global increases. See graphic below for the sharp rise in car sales.
Rising population and the growing middle class will likely more than offset gains in electrification and ultimately keep oil demand growth near its current trend. BP’s Energy Outlook, released late last month, said demand for oil in China should jump by 61 percent through 2035, thanks to increased car travel among the rising middle class, outweighing growth in alternative vehicles and fuel efficiency gains. That is a sobering reminder that despite all the changes in the transportation sector and the increased embrace of EVs, in China and elsewhere, there’s still a long ways to go to bring about substantial diversity in the transportation sector.