Here’s what will drive electric vehicle sales in the future

With the Saudi Public Investment Fund’s investments in electric car-makers Tesla and Lucid Motors, it is clear that there is significant global interest in the potential for electric vehicles.

According to a recent report by Bank of America Merrill Lynch, EVs are estimated to rise from 1 percent of car sales in 2017 to 2.5 percent in 2020, and 12 percent by 2025. Growth will continue to rise to 34 percent by 2030, and as much as 90 percent by 2050, the bank estimates.

The report indicates several factors that will drive sales of EVs, as follows:

-Policy: Governments are increasingly incentivizing the use of EVs, and supportive factors like low emission zones, access restrictions, and higher taxes or charges for internal combustion engine (ICE) vehicles are becoming more commonplace, with potential full bans on the horizon. As many cities and countries become more punitive towards combustion engine vehicles, incentives are being offered for EVs in the form of purchase subsidies and tax breaks.

-Batteries: According to the report, the increased size, reliability, cycle lives and declining costs of EV batteries are making EVs more viable. Lithium ion battery packs for EVs were a fifth of the price in 2017 compared to 2010, and costs are expected to continue declining by virtue of scale and automation. BofAML’s chemicals/tech team forecasts a 6 percent CAGR reduction to 2030, enabling larger/longer-range batteries to be used in vehicles. This, in turn, will make EVs more viable for the mass market.

-Total cost of ownership: EVs are already cheaper than ICE vehicles in some countries and this will likely continue to improve, largely driven by lower battery prices, and their relatively cheaper fuel, maintenance and tax.

-Charging: Charging EVs is becoming more accessible, although the majority is done at home (over 90 percent currently).

-Latent demand: While EV sales were only 1 percent of total in 2017, some markets such as Norway and China offer significant room for growth. In Norway, 45 percent of car sales were EV in September 2018. In China, EVs rose from 1 percent of sales in 2016 to 2 percent in 2017 and 5 percent of sales in August 2018. In BofAML’s Global Mobility survey, 10 percent of respondents, out of a total 26,022, said they would consider purchasing an EV as their next vehicle.

-Increasing consumer appeal: EVs initially were unable to gain traction with customers, particularly with higher prices and the absence of a dense charging network. However, with marked improvements to vehicle range and model availability/styling, EVs are becoming more appealing to the mass market.

However, there are some challenges that could hinder widespread adoption of EVs:

-Battery cost: If battery costs do not drop as quickly as expected, costs of EVs would be higher and their market share lower.

-Charging: Slow build out of the charging network could also delay EV adoption, especially for those without access to sufficient charging infrastructure.

-Residual values: EV residual values are worse than conventional vehicles, mainly due to battery degradation and new models.