Electric vehicle sales continue to rise sharply, but the performance has been uneven globally. The U.S. and China have the largest number of EVs on the road, while European countries are seeing the EV share of sales increase. But the prospects for EV adoption in other parts of the world appear dim. Why have EVs taken off in some markets but not others? And can countries where EVs sales are rising replicate the extraordinary success of Norway, where one out of every three vehicle sales is electric?
Despite forecasts for aggressive EV penetration in coming decades, only a handful of countries have so far seen substantive adoption.
Despite forecasts for aggressive EV penetration in coming decades, only a handful of countries have so far seen substantive adoption. A favorable political environment is needed to support policies, and countries must be wealthy enough to afford subsidies to reduce costs for drivers. EV policy also needs to be clear and sustained to give consumers and automakers certainty.
“It’s clear that subsidies equal EV uptake,” said Tammy Klein of Future Fuel Strategies.
So, what factors motivate countries to incentivize EVs? Klein highlights what those committed to EVs have in common: All are net importers of petroleum (except Norway); national oil companies do not exist or are not dominant; transportation sectors are overwhelmingly reliant on oil; most have standards for fuel quality and efficiency; and domestic auto companies have begun manufacturing EVs.
Norway provides the best example of successful EV policy. It is, however, a unique market. The country’s light-duty vehicle sales are low at just 150,000 to 200,000 per year. The EV market is more mature than in other countries. Consumers were introduced to charging and EV benefits early, and sales were able to reach two percent of the country’s total by 2010. “Norway has had state support from the beginning, and it’s been that way ever since,” Roland Irle of consultancy EV Volumes told The Fuse. “The high adoption has been a source of national pride.”
Revenues from oil production have supported the state’s EV subsidies, and also critical to Norway’s success, the subsidy scheme is stable and easily understood by consumers. By contrast, the Netherlands instituted confusing incentives to push consumers from plug-in hybrids to fully electric vehicles, but it backfired and sales fell last year. Also in Norway, charging infrastructure is abundant (some light poles have been converted to chargers) and EV users are exempt from tunnel and ferry tolls, providing further incentives. The only country to replicate Norway’s success so far is Iceland, another small market.
The rest of Europe is experiencing a boom in EV sales, but still represents only a low portion of overall sales. Sweden is far behind its neighbor, though its initiatives have boosted sales to five percent of total, and others are seeing tremendous growth, as shown in the following chart.
Germany is an interesting case. The growth rate was a massive 108 percent last year, and total volume will pass Norway this year. “Skeptics are warming up to EVs, and there is a lot of momentum from consumers and industry,” said Irle. Several factors are behind Germany’s strong growth. For one, the government instituted purchase incentives for EVs in early 2016. At first, consumer response was sluggish, but it has picked up. Second, diesel scandals among domestic car manufacturers reduced the appeal of the fuel and motivated motorists to consider EVs. Now, car companies are touting their electrification plans.
In Germany, the growth rate was massive 108 percent last year, and total volume will pass Norway this year.
Third, in controversial moves, cities in Germany are introducing bans on diesel vehicles. The longer-term impact on oil demand and the vehicle market is still very uncertain, but the bans have moved some consumers to switch to EVs. They are concerned about access to urban areas and the resale value of their cars. At the same time, however, sales of gasoline-powered cars have also increased. It may still be too early to tell how significantly diesel bans will lead to advanced fuel vehicles.
The U.S. and China are the two largest vehicle markets and together lead the world in petroleum consumption. For major changes to occur in global oil markets, these two countries need to significantly expand their EV markets. China represents half of the world’s market and is growing faster than all other markets put together. Last year in the U.S., approximately 200,000 were sold, slightly above one percent of sales. The extension of the federal $7,500 credit last year will be a key driver to continue strong growth, while lower retail prices and new models are also contributing to more consumer interest.
While both countries have put in place successful policies to boost EVs during the current period of transition, their low market share reflects the daunting challenges ahead. To reach the market share level of Norway, U.S. annual sales will have to be 30 times higher than they are currently. The vehicle markets in both the U.S. and China are fragmented. As EV sales rise, so has the appeal of SUVs. In the U.S., this trend toward larger and less fuel-efficient SUVs is partly the result of entrenched cultural preferences and the utility of a big vehicles for long trips. In China, consumers aspire to build more luxurious lives and become part of a rapidly growing middle class.
Potential in other countries
Meanwhile, in other parts of the world, EV adoption has been and will continue to be much harder. As Klein points out, EVs will face particularly strong headwinds in countries that rely on national oil companies and heavily subsidize the use of petroleum products. This list would include all OPEC countries, Russia, and other petrostates that export large volumes of crude. Countries that have successful penetration of other advanced fuels, with Brazil as a prime example because of sugar ethanol, may also sidestep EVs. Another big obstacle is countries lacking the wealth to afford subsidies and investment in infrastructure.
The current disparate global EV market suggests that adoption will continue to be uneven amid competing factors and different motivations among countries.
The current disparate global EV market suggests that adoption will continue to be uneven amid competing factors and different motivations among countries. We should see a clearer picture in the coming years as battery costs continue to decline, as the link between autonomy and electrification materializes, and as policy continues to play a large role in helping shape the transportation sector’s transformation.