Why are sales of electric vehicles slowing – and how long will it last?
- COP28 President Sultan Al-Jaber told a gathering of oil and gas companies at CERAWeek that emissions from methane must be eliminated.
- Five airlines sued the Dutch government over plans to cut the number of flights operating out of Schiphol, Europe’s third-busiest airport.
- Polish politicians traded accusations of planning to push the country’s meat-loving citizens into eating worms.
After a boom year, electric vehicle sales are sputtering. In China, the world’s largest EV market, January sales fell 50 per cent month-on-month and were flat year-on-year. In the UK, the market share of EVs narrowed from 40 per cent of all car sales in December to 20 per cent the following month.
Another straw in the wind: at Tesla’s first investor day last week, executives said the company was working on producing a cheaper vehicle, but did not give details of when this new model would be available or how much it would cost. Tesla shares fell by around six per cent.
So what? Electrifying road transport has been one of the bright spots in the energy transition, with EVs going from near-zero a decade ago to 10 per cent of the global car market last year.
Emissions from transport are still rising though, with the end of pandemic restrictions fuelling demand for travel. To hit net zero by 2050, carbon dioxide emissions from transport need to fall 3 per cent every year to the end of this decade, the IEA says.
Why are sales falling now? One reason is that subsidies in China and many European countries were cut at the start of this year. While consumer appetite to go electric is strong, tax credits have played a big part in getting motorists to make the switch. Carmakers may need to respond by cutting prices, suggests Abhishek Murali, clean tech analyst with Rystad Energy.
In the short term, the US Inflation Reduction Act doesn’t help either, as EVs assembled overseas are not eligible for subsidies (Hyundai and Kia are among manufacturers that assemble abroad for the US market).
Rising electricity prices are a further deterrent; power prices in the UK were up 67 per cent year-on-year in January, while petrol was up 10 per cent year-on-year according to the ONS.
But there are reasons to believe this is just a speed bump.
Technology. Goldman Sachs forecasts that global EV sales will rise to 16 per cent of the market by 2025 and reach 50 per cent by 2035. Goldman’s analysts suggest the industry will overcome its hurdles through technological innovation. For example, one way of bringing prices down is by switching to batteries that are less rich in nickel – this is less costly, though it reduces range.
Prices. On Monday Tesla cut prices in the US for the Model S and Model X, its two most expensive vehicles. (Ford has also cut the price of its Mustang Mach-E this year, though so far other manufacturers have not joined in). Meanwhile Elon Musk’s company is extending control of its supply chain, moving forward with plans for a lithium refinery in Texas. The future for EV makers looks like a squeeze on profits, combined with a push for greater integration. Goldman suggests the turning point for consumers, when the cost is conducive to widespread ownership, will be 2027.
Regulation. President Biden has set a target for half of all new vehicles sold in 2030 to be zero emissions. Sales of new petrol and diesel vehicles will end in the UK on the same date. In 2021, EVs enabled a net reduction of 40 million tonnes of carbon dioxide equivalent, the IEA says, or roughly what Finland’s energy sector emits.
Sandra Roling, director of transport at Climate Group, a non-profit focused on climate action, said government action was the most important factor: “Clear signals such as the UK’s 2030 phase out target… stimulate the market and give both businesses and manufacturers the confidence to invest.”
The year ahead may be rocky, but the long-term trajectory is clear.
