Bloomberg New Energy Finance has predicted that 54% of all vehicle sales in 2040 will be electric vehicles (EVs). The big driver of this demand comes from increasingly stringent fuel economy regulations, according to its recently released outlook on EV sales.
Speaking during a webinar about the 2017 EV Outlook earlier this month, Colin McKerracher, head of advanced transport at BNEF, explained that the EV market has shifted in the last 18 months to two years where Europe and China are now seeing significant growth. He added that as these markets begin to see annual EV sales penetration top the 1% mark, there will be an acceleration in uptake.
The major incentive driving the increasing levels of EV adoption is fuel economy standards.
“Basically they get increasingly stringent over the next 5 years and really stringent by 2025. The CAFE targets in the US, the European CO2 fleet-wide targets, China’s targets, these all get very difficult to meet without a significant degree of electric vehicles in the mix,” said McKerracher.
What was once a US story is now, the EV market is being driven by China. Two years ago, the country announced that it wanted all new vehicles sales growth to come from new energy vehicles (this included EVs). This would generate about 2 million EV sales a year in 2020 and 7 million by 2025 which would represent approximately 20% of all vehicle sales.
McKerracher said China is taking such an aggressive trajectory for a couple of reasons. One is to reduce oil imports with another being to improve air quality.
“But the really big one that you might hear a bit less about is this is largely about industrial policy. This is about China trying to build a cluster of globally competitive auto companies capable of leapfrogging western brands and exporting cars to the world in the early 2020s and beyond,” he said.
Another reason BNEF’s bullish projection for EV sales growth relies on the declining costs of lithium ion batteries. According to its research, battery packs are expected to drop to about $100/kWh in 2025 and then down to $73/kWh in 2030. The declining costs of the battery also means that it will constitute a smaller portion of the overall vehicle cost.
BNEF says that the battery represented 48% of the vehicle cost in 2010, but that will drop to 24% in 2026 and 18% in 2030. This also means that around the 2025 time frame, EVs will be cost competitive (on an upfront cost basis) with internal combustion engine (ICE) vehicles.
Some automakers will get there sooner, noted McKerracher, saying “the point of this comparison between these ones is like for like, we think there is an upfront cost parity point coming based on what we can see on where lithium ion battery prices have been and on where they’re going. And we think that happens generally between 2025 and 2029 depending on the vehicle class and depending on the different part of the world.”
Interesting points from BNEF EV Outlook
- EV share of all vehicle sales: 2025 - 8%; 2030 - 24%; 2035 - 43%; 2040 - 54%
- Approximately 2.5 million barrels per day of automotive fuel will be displaced by EVs by 2030. This jumps to 9 million barrels per day by 2040.
- EVs will drive an additional 1800 TWh in electricity demand by 2040 - this won’t break the grid, or shut down air conditioning.