The automobile industry is experiencing a technological revolution with the rise of electric vehicles (EVs), which are challenging their internal combustion counterparts. Growing environmental awareness, innovation, consumer acceptance, government support, investments by OEMs (original equipment manufacturer), and financial viability are together paving the road for electric vehicles. While EVs have a promising future, it’s going to be a long journey to get close to gasoline-run machines, which have existed for more than a century now.

Adoption So Far

UK

In the first two months of 2016, 3,352 new registrations have been done - higher than 2,443 during the same period in the previous year. Overall, electric cars currently represent just over 1% of the total new car market in the UK. The number of cars, which have registered for the UK governments plug-in grant since its launch in January 2011, has reached a figure of 51,042. The monthly figures released by the Society of Motor Manufacturers and Traders (SMMT) show a distinct rise in the number of electric vehicle (EV) registrations in UK. Within the plug-in category (includes pure electric and other electric, excludes hybrid category), the number of new registrations during 2012 was 2,254, which moved up to 3,586 during 2013. The rise in 2014 was substantial at 14,532 new registrations while the number almost doubled in 2015 at 28,188.

China

According to a report by China Association of Automobile Manufacturers, “In 2015, the production and sales of new energy vehicles reached 340,471 units and 331,092 units respectively, increasing 3.3 times and 3.4 times year on year.” During the first two months, the production and sales of new energy vehicles reached 37,937 units and 35,726 units, respectively, both increasing 1.7 times year-on-year.

The Ministry of Industry and Information Technology expects China's electric car sales to double in 2016. China's new energy vehicle production is getting a strong backing from the government in the form of tax exemptions. According to a recent government announcement, new energy cars and ships are exempted from vehicle and vessel tax in a bid to save energy and combat pollution.

USA

A report by the Electric Vehicle Transportation Center shows that around 118,773 EV were sold in the U.S. in 2014. According to the report, “If a conservative 20% growth rate is used, then the U.S. sales in 2024 will be 740,000 EVs per year with cumulative number of vehicles at 4.0 million.” However, the report released in October 2015 showed a decline of 9.4% in the sales volume of electric vehicles for the eight-month period for January through August.

According to another report, the overall sale by plug-in automakers for 2015 was recorded at 116,099 compared to 122,438 in 2014, a decline of 5.2%. The sharp price fall in U.S. gasoline has been responsible for the slower growth in 2015. However, there seems to be reversal in the trend; during the first two months of 2016, 14,172 vehicles were sold compared to 13,008 the same period during 2015. The U.S. market currently has over 20 electric vehicle models from 12 manufacturers.

To increase the adoption and use of plug-in electric vehicles, the “EV Everywhere Challenge” was announced by President Obama in 2012 as a part of Energy Department’s Clean Energy Grand Challenges. It aims “to make electric vehicles more affordable and convenient to own and drive than today’s gasoline-powered vehicles within the next 10 years.”

Other than the U.S., China and UK, countries like Norway, Japan, Germany and Netherlands are active markets for electric vehicles.

Projections

A Bloomberg New Energy Finance report suggests that that the sale of electric vehicles will hit 41 million by 2040, representing 35% of new light duty vehicle sales. This would be almost 90 times the equivalent figure for 2015. The electric vehicle sales for 2015 were up approximately 60% on 2014 at an are estimated 462,000. The report also highlights that by the year 2022, electric vehicles will cost the same as their gasoline-driven equivalents, the point from where, sale of EVs will takeoff.

Barriers

An analysis by UK’s Committee on Climate Change shows that 60% of new cars and vans need to be electric by 2030. The current figure at around 1% showcases the huge distance, which needs to be covered by changing public perception and overcoming technical issues. Overall, the future of electric vehicles globally depends upon multiple factors, some of them being:

• The support by governments of various countries in the form of subsidies, tax exemptions or other incentives.
• Initial vehicle cost, which would depend on cost of batteries and other manufacturing inputs along with profit margins.
• Maintenance costs, especially in terms of battery life.
• Availability of charging stations, distance between such points and charging time.
• Resale value of electric vehicles.
• Decrease in customer anxiety and increase in their awareness, enthusiasm and adoption.
• Infrastructure, permits, regulations on CO2 emission and industry standardization.
• Oil prices; a rise in oil prices would make the adoption of electric vehicles a more natural and attractive option for customers.
• The integration of electric vehicles in the product portfolio of OEMs. Currently, every major OEM has at least one model of EV in its portfolio.

Final Word

The electric vehicle market has big players like BMW, Volkswagen, Ford, Tesla, Toyota, General Motors, Mitsubishi, and Renault-Nissan, among others. And, in order to tap the market further, these companies are investing heavily in projects supporting EVs, which holds huge potential in the coming years. However, the dynamics of the EV market would most importantly depend on the interplay of oil prices as well as cost of manufacturing the plug-in vehicles.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.