A range of factors has fueled increased demand for electric cars over the past decade, including growing environmental concerns, greater vehicle choice, cost competitiveness with conventional gas vehicles and improved battery capacity. These factors are expected to continue to drive growth in 2021-31, although a number of headwinds could also impact sales.
For example,Future of EV cars are expensive to produce, and their upfront retail prices are typically higher than those of ICE cars. Nevertheless, battery costs are expected to drop significantly over the next few years, allowing manufacturers to offer models that are as affordable as or even lower than those of traditional vehicles. Achieving price parity will be a critical turning point, particularly for mass-market buyers who are more sensitive to price premiums than wealthier consumers.
EV sales are increasing rapidly in markets around the world, with a wide variety of different models currently on the market. However, the rate of adoption varies widely by country. In some countries, such as Norway after accounting for the EV exemption from the 10% vehicle purchase tax, electric car sales are already on par with ICE vehicles. In other markets, such as China, the sales share of EVs remains lower, but is expected to grow over time.
In addition to pricing, other barriers to widespread EV adoption include range limitations and infrastructure constraints. Battery-electric cars with a limited range can be difficult to operate on long trips, and many buyers prefer the flexibility of plug-in hybrids, which allow for extended range by switching to gasoline mode at low speeds. Additionally, as the EV population grows, charging points may become crowded at peak times, slowing the speed at which new models can be charged.
Over the coming years, some of the major carmakers plan to launch numerous smaller models, which should help to lower the barrier to entry for mass-market buyers. However, when all launch announcements are considered, most of the new EVs that are planned to enter EMDE markets over the 2024-2028 period will be SUVs and large models.
A significant part of the EV’s total cost is attributed to the battery, which can be as much as 30% of the car’s price tag. As batteries become cheaper and more efficient, the total cost of ownership of EVs is expected to decrease further, enabling them to compete more effectively with ICE cars.
In countries where local production is possible, a range of domestically produced EVs has recently entered the market. These include the Mercedes-Benz EQ C300 and Tesla Model Y in Asia, the Renault Zoe and Nissan Leaf in Africa, and the BYD Yuan Plus and Hyundai Ioniq 5 in Uzbekistan. In addition, a number of governments have established purchase incentives and other policies to stimulate EV sales. For instance, in India, the purchase incentive under FAME II and the supply-side incentive under the Production Linked Incentives scheme have helped to drive growth. In addition, a government-led push to increase electricity generation from renewable sources has supported the development of charging networks.