Opinion

Is the electric vehicle revolution more hype than reality?

Prashant Khorana

Managing Consultant, Power & Renewables

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The electric vehicle (EV) market has gained a tremendous interest from consumers, manufacturers and media over the past 5 years. Management teams from global automotive OEMs have highlighted a sector transformation on the horizon. However, the question everybody is asking is – is it more hype than reality?

The straightforward answer to the above question is that by 2025, EVs will be cheaper than standard internal combustion engine (ICE) cars in some major regions, including Northern Europe, the U.S. and China.

What’s critical to highlight is that an oncoming transformation will largely be a function of economics and not of subsidies. Even regulators in high subsidy markets, such as Norway, will phase out benefits for end-consumers to a large extent by 2025.

EVs originally gained the spotlight as a result of Tesla’s activities within the space. However, outside of the U.S., Tesla does not dominate the market and this is unlikely to change in the future. Many other automotive OEMs, such as Renault, Volkswagen, Jaguar and Porsche, are developing mid-priced luxury EVs. As such, Tesla is unlikely to be the iPhone of the automotive world.

Wood Mackenzie Power & Renewables conducted some research and benchmarked a Chevy Volt with an ICE of comparable use.

We found that by 2024/25, consumers would most likely switch to an EV if the only factor taken into account was total cost of ownership (TCO).

With that in mind, a key factor driving TCO parity between ICEs and EVs is the rapid decline in battery costs.

A crucial force driving battery cost decline is the rapid scaling of the lithium-ion supply chain. Major suppliers, such as CATL, are poised to deliver some of the lowest cost batteries in the world through R&D, automation and access to low cost mining assets. With the planned reduction of cobalt in future nickel magnesium cobalt (NMC) batteries, sourcing concerns regarding the supply chain are also beginning to fade. Furthermore, as mining assets are located in China, Latin America and various other markets, there will never be a monopoly on the battery industry.

So, what’s holding customers back from widespread EV adoption?

Range anxiety – or worrying that a battery will run out of power mid-route – is a key psychological barrier. Although the majority of passenger vehicle users do not drive more than 100km per day, many perceive the range of EVs to not be high enough to warrant a purchase.

Charging infrastructure is a problem, too. Drivers have found that charging points are not readily available throughout the countries they live in, therefore posing problems for long-range driving – a key consideration before buying an EV.

Wood Mackenzie Power & Renewables believes that most customers are likely to charge their cars at home, as utilities will eventually set price signals to incentivise this behavior. Therefore, charging concerns are also a psychological barrier to some extent.

It is inevitable that most customers will eventually opt to purchase an EV over a standard ICE due to the plethora of offerings currently being developed. The oncoming transformation in the automotive sector is not too dissimilar to that seen in the smartphone market. History doesn’t repeat itself but it sure does rhyme. It may take some time for 100% EV penetration, but it will happen eventually.