The Fuse

As EV Sales Surge, Government Support Still Crucial to Meet Ambitious Goals

by Matt Piotrowski | August 30, 2017

  • IEA sees roughly 56 million EVs by 2030
  • Norway has highest EV market share of 30 percent
  • Global EV sales rise by 60 percent in 2016
  • Mandates & fuel efficiency regulations are vital in spurring greater EV penetration

Electric vehicles continue to see strong growth in numerous key markets around the world, reaching two million units worldwide last year with sharp increases expected in 2017 even as global oil prices continue to remain relatively weak. Detractors like to point out they are still only a small part of the overall vehicle fleet, but the upward trend this decade remains intact and the EV market share will continue to grow, thanks to declining battery costs and growing consumer acceptance, in addition to government support. The car industry is moving forward with new EV models, governments have set aggressive targets, and consumers are becoming more comfortable with the new technology, bringing about ideal conditions for them to continue to thrive.

There will eventually come a time when governments can scale back subsidies and other incentives as costs come down. But for now, targets, regulations, and mandates are essential.

At the same time, for EVs—whose sales soared globally by 60 percent last year—to continue to grow, the right policies are crucial for continued penetration in the coming years. There will eventually come a time when governments can scale back subsidies and other incentives as costs come down. But for now, targets, regulations, and mandates are essential.

“Policy support will remain indispensable at least in the medium term for lowering barriers to electric car adoption,” the IEA wrote in its latest annual outlook on EVs, published in June. In the IEA’s longer-term scenario based on current policies and those under consideration, there will be 56 million electric cars on the road globally by 2030, which is 28 times the number reached at the end of 2016.

Long-term projections should be taken with a grain of salt, but there’s reason to be optimistic about the IEA’s outlook: As of now, 14 countries have electric car targets, with major oil consumers—China, the U.S. (which has state targets), Japan, Korea, and Germany—on the list. And decreasing costs and stronger pushes by governments could actually allow for deeper penetration than expected. The IEA points out another reason for optimism. The goals of OEMs align closely with country targets through the end of this decade, and their ambitions support the IEA forecast.

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Regulations, consumer incentives, & long-term appeal

Two successful regulations to boost EVs longer term include the zero-emissions vehicle (ZEV) mandates and fuel economy regulations. ZEV mandates, regulatory requirements to sell a certain number of vehicles with zero emissions, provide certainty for auto manufacturers as they incorporate EVs in their long-term plans. California and other U.S. states, along with Quebec, have ZEV mandates. Fuel economy regulations, one of the “main policy drivers for enabling the transition to electric mobility,” according to the IEA, are key in diversifying the fleet and encouraging a move away from internal combustion engines (ICEs).

Enticements for consumers to buy EVs “initiate and reinforce a positive feedback loop.”

To see continued growth in EVs, there needs to be more than strong regulations. Consumers still need financial incentives, such as direct rebates, tax breaks, or exemptions, to entice them to buy EVs. The IEA says that these enticements “initiate and reinforce a positive feedback loop.” As such, rising sales, new technology, and higher EV production will reduce costs for batteries and other important components, further providing incentives to more consumers to buy EVs.

Besides reducing costs for EV consumers, other efforts that increase the appeal of using EVs over a longer term are also vital. These include exempting drivers from usage fees and access restrictions in urban areas, providing available parking, and boosting infrastructure for charging. These efforts are usually best when implemented at the local level or with private industry support.

Higher penetration occurring in different markets

There are now six countries where EV market share is above one percent: Norway, the Netherlands, Sweden, France, the United Kingdom and China. Norway has the highest, with EVs seeing a 29 percent market share, according to the IEA. EV buyers there are exempt from an acquisition tax, while fully electric cars also don’t include a value-added tax. Last year, plug-in electric hybrids more than doubled as a result of rebates and tax exemptions. In this environment with strong government support, EVs will continue to have a good future in Norway. Other European countries are moving forward too. Both the Netherlands (6.4 percent market share) and Sweden (3.4 percent market share) have established sophisticated charging networks and provided sweet incentives for consumers, while Germany, France, and the UK have pledged to ban the ICE by 2030-40.

IEAEV2

In Asia, India said earlier this year that it plans to sell only electric cars by the end of the next decade, while China saw the largest rise in EV sales last year, thanks to aggressive policy luring more customers toward electrification. Subsidies, however, are lower this year, but reports show that for the first half of the year, electric vehicles a sold in China are more than 40 percent higher than the same time in 2016. The Japanese, meanwhile, have seen a surge in sales for battery electric vehicle (BEV) models since the government announced a new subsidy last year that allows for higher subsidies based on the vehicle’s range, another example of how government support can drive sales.

China saw the largest rise in EV sales last year, thanks to aggressive policy luring more customers toward electrification.

The U.S. fell behind China last year in total number of annual sales, but its own market is seeing a string of successes despite low gasoline prices and some states nixing EV tax incentives. Based on the latest data, there are now 21 PHEVs and 13 BEV models available for consumers. Since the beginning of 2011, automakers have sold more than 661,000 EVs.

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Autonomy to support EVs

Despite the bright outlook, the IEA provides a sober reminder that EVs still have a long way to go before they will make “a significant dent” in oil demand. But the consumer watchdog notes that oil price fluctuations and the desire to reduce oil dependence are factors that will make EVs desirable for decades to come.

The agency also touches on another factor that will be crucial in making electrification favorable—autonomy. While lower battery costs, government regulations, and enticements for consumers are key to the electrification of the car fleet, the adoption of autonomy will eventually go a long way in making EVs more mainstream.

“Urban areas are also excellent platforms for the experimentation of novel passenger and freight transport services based on vehicle and ride-sharing concepts or autonomous driving capabilities.”

Self-driving cars are likely to first take off on city streets, with ride-sharing and ride-hailing providing an impetus for fleet managers to provide them to customers. These trends will reinforce electrification. “Urban areas are also excellent platforms for the experimentation of novel passenger and freight transport services based on vehicle and ride-sharing concepts or autonomous driving capabilities,” the IEA concluded. “Given the high mileage of shared vehicles, these concepts have strong synergies with transport electrification.”

The IEA isn’t the only one seeing strong connections between autonomy and electrification. Bloomberg New Energy Finance (BNEF), in its latest long-term projections, says that by 2040, roughly 80 percent of all autonomous vehicles that are shared will be electric as a result of lower operating costs, providing another piece of good news for EVs as they are poised to bring greater diversity in the transportation sector over time.

 

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