Global EV Outlook

The world has recently experienced a series of unprecedented climate disasters, including droughts, flooding, and searing heatwaves accompanied by record-high temperatures. Examples include the worst drought in 1,200 years in the Southwest U.S., and the hottest temperature ever recorded in the United Kingdom. (The eight hottest temperatures ever recorded in the U.K. have all happened since 1990, with the four hottest happening in just the last two years.) Scientists agree that these events were either caused by or made much more likely by climate change. These events have made the world more aware of how important it is to reduce our global carbon footprint, including from cars and other vehicles. The transportation sector currently accounts for approximately 16% of all annual global greenhouse gas emissions. This awareness is leading countries to develop and adopt new transportation methods that generate few or no greenhouse gas emissions, and are therefore more environmentally sustainable. One such example is the automotive industry, which is gradually shifting to electric vehicles (EV). EV sales have continued to increase each year. According to the International Energy Agency, “worldwide sales of EVs doubled in 2021 to set a record of 6.6 million,” which is four times the market share just two years earlier. “This brings the total number of EVs on the road worldwide to 16.5 million.” The increase in EV sales in 2021 was primarily led by the People’s Republic of China, which accounted for half of the growth. In the U.S., “sales of the 31 EV models for which OEMs reported sales publicly had a combined 43% increase in Q2 over Q1.” EVs are becoming more popular primarily because they are much more environmentally friendly than traditional gasoline-powered cars. This surge in consumer demand is causing carmakers to more quickly electrify their fleets, including by increasing the number of EV models available to consumers. It is also causing governments to create incentives and policies that support EVs. This article examines the global impact of the increase in EV sales, including their impact on the economy, energy markets, and the environment. It concludes that despite their increasing popularity, EVs will not be carbon neutral by 2050. It also highlights the need for policymakers to aggressively promote EVs, including ensuring that every country and therefore the entire global economy benefit from this cleaner form of transportation.

Impact of the Adoption of EVs

1.    Economy.

EVs are critical in the fight against climate change, and also offer a significant opportunity to stimulate economic growth. A recent study by the University of California, Berkeley concluded that all new cars and trucks sold in the U.S can be electric by 2035, which “would save consumers $2.7 trillion by 2050.” That would also “support a net increase of over 2 million jobs in 2035.” The study concluded that EVs would benefit several sectors, including the auto industry, electricity generation, transmission, and oil. EVs have many economic benefits. Their increased efficiency reduces fuel and maintenance costs, they require fewer raw materials than traditional gasoline-powered cars, and their manufacture and production generates demand for a wide range of new products and services, from batteries to charging stations. But to realize these economic benefits, governments must adopt policies that promote the adoption of EVs. Those policies could include initiatives to build EV infrastructure, financial incentives that encourage the purchase of EVs, and regulations that mandate the use of EVs in specific sectors. By taking these actions, governments can help mitigate climate change and also help their economies. 

2.    Energy Markets.

EVs have triggered an increase in the demand for electricity, which has strained power systems worldwide. This strain can be alleviated by expanding EV infrastructure and enhancing the smart capabilities of grids. Smart grids often integrate sensors and complex algorithms to become more efficient and enable the redistribution of power to where and when it is needed. They do so with two-way communications that constantly monitor conditions on the grid. Smart grids can also help reduce the strain on power grids by promoting EV uptake in emerging and developing economies, through reducing the cost of charging EVs in these economies. Deeper investments into smart grid technologies are critical. 

3.    Environment.

The increased use of EVs has been a boon for the environment, which will only continue as their market share grows. EVs emit far less pollution than traditional gasoline and diesel cars. One problem, however, is that the production of EVs can generate significant amounts of pollution, especially their battery manufacturing process. EVs are also not carbon neutral if they use traditional electric sources, so it is essential to ensure that the electricity they use comes from renewable sources, like solar and wind. Other challenges include the increased demand for battery materials like lithium and cobalt, which has caused their prices to increase.  Mining and processing these materials can also have significant negative environmental consequences. But EVs still have a much smaller environmental footprint than gasoline-powered cars or diesel vehicles, even when accounting for the impact of their battery production.

 

Recommendation to Promote EV Worldwide

1.    Further Invest in the Heavy Duty Vehicle Market.

The market for EVs is not just limited to passenger cars – buses, trucks, and other heavy-duty vehicles account for a significant share of total emissions from the transportation sector. In Europe, for example, buses and trucks account for approximately one-third of the emissions from road transportation. Several cities and countries are now starting to switch their bus fleets to EVs, including Beijing, London, and Paris. This is an important step because buses tend to last longer than passenger cars. Switching to EVs will therefore dramatically reduce emissions for many years. In addition, as buses typically travel much longer distances than cars, the potential fuel savings from switching to EVs are much higher. But given the high upfront cost of EVs, financial support from governments will be critical to kickstart their market. The switch to EVs will not happen overnight – it will require a coordinated effort from governments, businesses, and consumers. But we need to make these kinds of efforts to meet our climate change goals. 

2.    More Strongly Encourage EV Uptake in Emerging and Developing Economic Countries.

EVs are not just for developed countries – they offer a real opportunity for emerging and developing economies to leapfrog traditional technologies and move straight to a low-carbon future. This is particularly true in Africa, where many countries are still electrifying their transportation systems. A recent study by the International Energy Agency concluded that with the right policies, Africa could have as many as 130 million EVs on the road by 2030. That would reduce emissions by 1.5 gigatonnes (Gt) of CO2, which is the equivalent of taking 325 million passenger cars off the road. The adoption of EVs in Africa is hampered by several factors, including a lack of financing, infrastructure, and awareness of their environmental benefits. But several initiatives are underway to overcome these barriers, including the Africa EV Alliance, which promotes the adoption and use of EVs throughout the continent.  Many countries, including Ethiopia, Kenya, and South Africa, have also introduced financial incentives to encourage EV purchases. While the switch to EVs will not happen overnight, doing so is an essential step towards their ability to move to a low-carbon future. 

3.    Rapid Expansion of EV Infrastructure and Smart Grids

The absence of charging infrastructure is a significant impediment to the broad adoption of EVs. For EVs to become a mainstream option, a comprehensive network of charging stations must be installed, particularly in urban areas where they are most likely to be used. This is a significant challenge, but one that can be overcome. Some countries, like China, the U.K., and France, have mandated the installation of charging infrastructure, which is an effective way to promote EV uptake. In addition, the development of smart grids – which allow electricity to be distributed more efficiently – will also be critical to the success of EVs. Smart grids allow for the integration of large numbers of EVs into the electrical system and therefore help reduce their overall costs.

4.    Encourage Private and Public Investment.

To make the most of the worldwide opportunities arising from the electrification of road transportation, it is essential to encourage private and public investment in that sector. Public investment can work in tandem with private investment to help promote competition and also allow for better risk sharing. A wide variety of policy instruments are available to governments to support private investment in the road transportation sector, including tax breaks, loans, return on equity strategies, risk sharing arrangements, and government equity stakes.

5.    Increase Transparency and Certainty in Raw Materials Markets

A proper and transparent policy has to be implemented to measure how much the increase in EVs also increases the demand for critical minerals, particularly lithium, cobalt, and nickel. Increased EV use will pressure the supply chains that are already struggling to meet the demand for mobile phones and battery storage. To avoid or at least minimize this problem, governments should work with industries to increase supply chain transparency and improve mineral production and recycling efficiency. In the long term, measures and policies that increase EV use will help to reduce dependence on oil and thereby increase the security of supply chains. 

Conclusion

The switch to EVs is an essential step towards a low-carbon future and one that will create many benefits, including reduced air pollution and emissions, increased energy security, and reduced dependence on oil. EVs may be more expensive to build than traditional gas-powered and diesel vehicles, but they cost less to operate and maintain. Governments and companies must work together to overcome any obstacles to their construction, including a lack of money, infrastructure, and awareness, in order to make the change to EVs a reality. Switching to EVs is definitely possible, and doing so will lead to a healthier and more environmentally sustainable future for everyone.