The Fuse

EV Outlook “Brighter Than Ever,” But Long Way to Go For Climate

by Nick Cunningham | June 18, 2021

Electric vehicle adoption is gaining momentum as costs decline, policy grows more supportive, and financial markets mobilize to back the sector’s growth. Crucially, as the climate crisis deepens, a sense of urgency continues to grow.

The market for EVs is a $46 trillion opportunity, according to a new report, and the growth of EVs is accelerating. But the pace is still far too slow for the world to align with necessary climate targets.

Outlook for EVs “brighter than ever”

Today, there are 12 million passenger EVs on the world’s roads, along with 1 million commercial EVs, and over 260 million electric two- and three-wheelers, according to BloombergNEF. The firm recently published its Electric Vehicle Outlook 2021.

By 2025, passenger EVs will capture 16 percent of the market. That share will be much higher in certain regions, such as Germany (nearly 40 percent) and China (roughly 25 percent). In Norway, EVs already capture almost 60 percent of new sales.

Electric buses are even further along. E-buses capture 39 percent of new sales globally today, and account for 16 percent of the existing fleet. Much of that is in China, but e-bus sales are beginning to take off elsewhere.

The cost declines of battery packs are pushing EVs closer to mainstream adoption. “A 90% drop in the last decade and we’re going to see another 70% drop in the battery prices in the coming decade,” Michael Liebreich, chairman and chief executive of Liebreich Associates, said in a recent conference hosted by the Institute for Energy Economics and Financial Analysis.

The falling cost of batteries and the commitment by a growing number of automakers is adding momentum to the transition.

The falling cost of batteries and the commitment by a growing number of automakers is adding momentum to the transition. GM is preparing to announce a major increase in investment in EVs, ramping up spending to $35 billion through 2025, a 30 percent increase from its previous forecast, according to Reuters. GM also plans on building two brand new battery manufacturing facilities in the U.S. The decision comes less than a month after Ford said it would spend $30 billion through 2030 on EVs. In other words, the two automakers alone are funneling $65 billion into EVs in the coming years.

Those announcements are just the latest in a long string of commitments from global automakers to shift entirely to EV models, with varying degrees of ambition between them.

Policy is also starting to become more supportive. An estimated 15 countries along with 31 regions and cities have announced a phaseout of sales of the internal combustion engine. California is preparing regulations to phaseout the gasoline and diesel vehicles by 2035. And fiscal stimulus from many countries is increasingly taking on a green tinge, putting more public money into the energy transition.

Still not fast enough

The BNEF report details current trends and also what it would take for the transportation sector to get on a net-zero emissions track by 2050. If 100 percent of the world’s road fleet is to be electric by 2050, roughly 60 percent of new car sales need to be electric by 2030. “The last internal combustion vehicles need to roll off the line around 2035, and even that will require some early retirements of older vehicles in the 2040s,” the report said.

But the world is not on track to meet that. “The window for achieving net-zero emissions in the road transport sector by 2050 is closing quickly,” the report warns.

“The growth of electric transport is an amazing success story to date, and the future of the EV market is bright. But there are still over 1.2 billion combustion cars on the road and the fleet turns over slowly,” Colin McKerracher, head of the advanced transport team at BNEF, said in a statement. “Reaching net zero by mid-century will require all hands on deck, particularly for trucks and other heavy commercial vehicles where the transition has barely started.”

Charging infrastructure also needs to scale up. By 2040, EV charging networks need to expand to over 309 million stations, which would add another 9 percent to global electricity demand. BNEF estimates roughly $589 billion will be needed for charging infrastructure.

Costs are still coming down, but still have a ways to go before mass adoption takes over. BNEF says that average battery pack costs stood at $137 per kilowatt hour in 2020, and will need to drop to around $100/kWh to reach parity with conventional vehicles. However, because consumers are generally going to want longer ranges and heavier vehicles, battery pack costs realistically need to fall to around $60-$80/kWh. BNEF says that the $80/kWh threshold will be reached in all segments and in all countries at around 2026, before falling to $60/kWh in 2029.

The timing and magnitude of demand destruction for the oil industry is up for debate, but directionally the trajectory is clear. BNEF says that absent any policy change, the current economic-technological pathway means that EVs erase 21 million barrels per day of oil demand by mid-century. Obviously, tighter climate policy would significantly accelerate and magnify those impacts.

In other words, on the economics alone, the shift to electrification is a foregone conclusion. At the IEEFA conference, Michael Liebreich said: “The oil companies have been a little bit slower to catch up.”

But in order to bend the emissions curve at the speed that is necessary, the market alone won’t get us on track.

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