Despite oil prices being constantly tanking, the electric vehicle manufacturers do not need to fear from slow demand of green cars, as electric vehicles (EVs) are going become a major part of auto industry. According to Bloomberg New Energy Finance (BNEF), electric vehicles (EVs) will not only have a bright future, but there is a possibility that high sales of EVs will create next oil crisis.
This is because the demand for EVs is not going to stop despite oil rout. One of the major reason why EVs will still be a major part of auto sales is because its battery production cost will be reduced significantly. As a result, the cost of owning and using electric cars will be same as to their fuel guzzling counterparts by 2022.
As of today, electric cars comprise of only 1% of the global auto sales. Even though the oil prices are shrinking, sales of green cars are increasing at a rapid pace. Last year, the sales of hybrid and electric cars jumped 65% globally, and it is further expected to surge from now on, considering the pace of research and development (R&D) and heavy investment, which can be seen in this field.
This week, Honda Motor chief executive announced to make two-third of its global sales to be electric vehicles by 2030. Likewise, General Motors plans to see 500,000 of its EVs on roads in US by 2017, as reported by The Wall Street Journal (WSJ). The company, however, is skeptical to achieve this target.
Moreover, one of the biggest hindrance for EVs to get a mass market adoption is its high sales price. High-end variant of Tesla Model S costs more than $100,000, which makes the cars to be targeted for a specific niche market. Another key reason why EVs have such a high cost compared to their gasoline-powered counterparts is its high battery production price.
EV battery constitutes nearly one-third of the total production cost. Luckily, technology companies have entered into the automotive industry to lower the production costs of these batteries. As of last year, battery production cost was $350 per kilo watt per hour (kWh), a drop of 65% since 2010. According to BNEF lead analyst Colin McKerracher, this rate could further drop to $120 kWh by 2030, as reported by The Guardian.
Constant decline in battery prices will lower sales prices, making it more affordable for masses. According to the year 2040, EV sales would rise up to 35% of the total new car sales. According to BNEF, there will be nearly 41 million EVs annual sales by that time. Obviously, the sales would trigger after 2022 when the cost of owning EVs and internal combustion cars becomes same.
However, these estimates look very aggressive, as there are still several factors that restrict people from buying electric cars. Even if EV cost lowers below gasoline-powered cars, people would still be worried about range anxiety, a problem of low electric drive range.
In order to overcome this problem for EV owners, governments and automakers are investing heavily to set more EV charging facilities, so that drivers can go for longer rides without using a drop of oil. Tesla Motors has already set vast network of charging stations dubbed “Superchargers” and “Destination Chargers” across the world that can refill EV batteries within an hour.
What Can Further Drive EV sales
Currently, several automakers that are producing electric vehicles because of the stricter EPA emission standards, as world attention is drawn towards climate change. The focus toward green cars also shifted last year when Volkswagen AG (ADR) (OTCMKTS:VLKAY) was caught red handed cheating on its emission tests. Tesla Motors Chief Executive Elon Musk found it a right time to tout its EV ability, and asked auto regulators to push for stricter auto emission standards to make traditional car makers speed up their efforts toward EVs.
Governments of several countries are also
helping sales of green cars through financial incentives and subsidies.
In the US, zero emission vehicles (ZEVs) are liable for a federal tax
incentive of $7,500, while this subsidy is extended with different
states. In China, the world’s largest auto market, government is
desperately trying to boost EV sales, as several urban cities are
choking on killer smog. Chinese government has announced five-year
subsidy plan for green car manufacturers, and also aims to see five
million hybrids and EVs on road by the end of this decade.
Supported with rapid growing technologies, such as driverless cars and shared mobility, including ride sharing services - currently provided by Uber and Lyft, the usability of electric cars can be extended in future. Last year, Barclays and Goldman Sachs released a report on future of auto industry, in which it predicted that the traditional cars sales will drop as cars will not be owned but shared as a service. Morgan Stanley analyst Adam Jonas has named this term as SHEAM; shared electric autonomous mobility. The analyst rooted this idea for Tesla Motors, but companies such as General Motors and Uber are more willing to capitalize on this opportunity.
By: Talfryn Taylor.
Review: Emerging Market Formulations &
Research Unit, Flagship Records.
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