Global uptake of electric vehicles accelerates, growth to depend on consumer constraints

SINGAPORE (ICIS)–The global uptake of electric vehicles (EVs) accelerated last year as sales rose more than 30%, with the pace of adoption to be determined by how quickly the main constraints that affect consumer demand will be eliminated.

The sales of passenger vehicles with internal combustion engines (ICEs), meanwhile, declined by around 21% in 2020, Fitch Ratings said in a research note on Friday.

The growth in EV sales was supported by generous purchase subsidies, stricter emissions controls and rising consumer interest.

Singapore-based research firm Canalys said that global sales of electric vehicles (EVs)  increased by 39% year on year to 3.1m units last year.

“Electric vehicles represented almost 5% of all new car sales in 2020. EVs are forecast to reach over 7% of new car sales worldwide in 2021, a further 66% growth, to exceed 5m units sold,” it said in a note.

The coronavirus pandemic has accelerated EV adoption as stimulus plans include increased EV subsidies, Fitch Ratings said.

The trend is further supported by the US’s renewed focus on climate objectives and Europe’s tightening emissions regulations, it said.

Consistent policy measures remain prerequisites for the EV segment’s transformation into a mass consumer market, according to Fitch Ratings.

“Fundamental demand factors will gradually become key for EV growth. The pace of adoption will be determined by how quickly the main constraints that affect consumer demand will be eliminated,” Fitch Ratings said.

This will require cheaper and longer-range batteries to aid affordability as well as the development of widespread charging infrastructure, it said.

EV sales are still mostly unprofitable for automakers as high battery costs make electric powertrains more expensive than ICEs, while manufacturers also bear research and development costs and capital expenditure (capex) dedicated to electrification, Fitch Ratings said.

However, a greater share of EV sales is essential to avoid fines and comply with emission targets that cannot be met by improved ICE fuel efficiency alone, it said.

In the long term, automakers should gradually improve EV profitability due to economies of scale and lower production costs as battery prices decline, the ratings firm said.

“We expect electrification to be a key rating driver for several manufacturers, particularly in Europe, in the next 12 to 18 months,” Fitch Ratings said.

EV sales will continue to grow throughout the decade, with Canalys forecasting that EVs will represent 48% of all new cars sold in 2030.

“The automotive industry is currently facing crippling semiconductor shortages, so managing future supply chains and production systems to cope with the growth will be make or break for any electric vehicle strategies,” it said.

The automotive industry is a major global consumer of petrochemicals which contributes more than a third of the raw material costs of an average vehicle, and production disruptions could severely weigh on demand.

Focus article by Nurluqman Suratman

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