Electric cars in 2021 and beyond

The automotive industry is changing before our eyes. Electrification has become the main goal of the entire automobile industry. If a company does not have electric-powered models, or at least a plan to switch to electric cars, new players are likely to take over some of the market with their technological innovations. In 2020, more than 10 million cars drove electric batteries, and consumers doubled their spending on them to $120 billion.

According to IBISWorld, the size of the auto market was estimated at $2.7 trillion as of April 2021, and is expected to grow nearly 10% by the end of the year. There are currently about 1 billion cars on the road (Fig. 1).

Electric vehicles (EVs) sold accounted for 4.6% in 2020 (vs 2.7% in 2019). China is a major market for both internal combustion engines and electric cars (Fig. 2).

The industry tends to be cyclical and highly dependent on supply chain issues and semiconductor shortages. One car requires more than a thousand chips. Therefore, chip shortages have led to less capacity utilization and reduced sales (Fig. 3). For example, U.S. passenger car sales reached their lowest point in more than a decade, not counting the pandemic-induced production shutdown.

Supply problems led to record prices: the average cost per car reached $42k in September 2021 (Fig. 4).

If the consumer's high costs ended with the purchase of an auto... Fluctuating gasoline prices are forcing consumers to pay attention to fuel efficiency, durability, engine power and vehicle quality. As gasoline prices continue to rise, this may not only cause consumers to cut costs, but also encourage them to switch to electric cars.

However, regardless of gasoline and oil prices, the industry will continue to move toward more EVs. UBS predicts that by 2025 about 25% of new cars worldwide will be electric. At least 15% will be all-electric, battery-operated vehicles (BEVs), and the rest will be plug-in or all-hybrid. By 2030, UBS expects EVs to account for 60-70% of new cars, of which BEVs will account for over 45%. Car-sharing, car-hailing services, and robotaxis will play an important role here, all of which are favorably influenced by trends in the adoption of autonomous driving.

The total market volume in 2025, according to the UBS forecast, will reach $450 billion (3-4 times more than today), and by 2030 it could reach $2 trillion.

In 2020, consumers spent $120 billion buying electric cars (+50% vs 2019), a 41% increase in sales and a 6% increase in average prices. Europe, where prices on average are higher than in Asia, accounts for a larger share of new electric car registrations. In 2020, the global average price for a BEV was about $40k and a PHEV was about $50k.

Incentives from governments around the world also play a role in the development of the electric car industry (Fig. 5). Last year, $14 billion was spent on direct purchase incentives and tax credits for electric vehicles (+25% YoY). Despite this, the share of government incentives in total electric vehicle spending has declined from ~20% in 2015 to 10% in 2020. Almost all of the increase in government spending came in Europe, where many countries introduced incentive programs that boosted electric car sales. In China and Europe, price caps have been introduced, i.e. subsidies are not provided for cars whose price exceeds a certain threshold. This may be the reason why the average price of an electric car in Europe and China has dropped: BEVs sold in China were 3% cheaper in 2020 than in 2019, and PHEVs in Europe were 8% cheaper. 

Major industry players

According to Morgan Stanley, global EV sales as of August 2021 reached more than 350,000 units (+110% YoY). Tesla is currently the leading EV manufacturer with a 14% market share, followed by Volkswagen and General Motors (Fig. 6). Volkswagen expects BEVs to account for 25% of its global sales by 2025 and about 60% by 2030. General Motors, for its part, expects $10 billion in EV sales in 2023 and $90 billion by 2030.

China remains the leader in electric vehicles (Fig. 7). Right now, the U.S. market share of EV sales is only a third of China's electric car market, and the growth rate of the electric car market in the U.S. is lower than in China and Europe. This is partly due to a lack of sufficient charging stations in the U.S.

U.S.

With the entire auto market down 23% in 2020 (EV sales up 2%), there were 327k fewer cars registered in the U.S. than in 2019 - 295k.

New York has signed into law a ban on new gas-powered car sales by 2035, and California has decided to ban new cars with internal combustion engines. Biden's Build Back Beter Agenda aims for half of all new cars sold in 2030 to be zero-emission vehicles. Also included in the program is the construction of a network of charging stations.

China

China has the largest share of the electric car market, with 5.4 million electric cars and 1.3 million new registrations in 2020, according to the EIA. China is also the market leader in electric cars. It grew by 9% in 2020, registering 78k new vehicles and gaining a sales share of 27%.

Europe

Europe had the highest number of new registered electric vehicles in 2020 at 1.4 million (3.3 million total). In particular, the share of sales of electric vehicles in Norway reached a record level of 75%, and in Iceland electric vehicles exceeded 50%.

Risks

The global chip shortage, which could last until next year, is a major risk for the industry. As the interdependence between chip makers and the auto industry increases, the industry will have to rethink its stance on technology and semiconductors.

As the industry moves closer to fully autonomous cars, the issue of safety becomes critical. It can impose additional costs on manufacturers. GM, for example, was forced to recall all of its Bolt electric cars due to the risk of fire caused by faulty batteries. The repairs were expected to cost $2 billion.

A lack of sufficient charging stations is also limiting the development of the industry. To meet the expected growth in EV adoption, significant investment in charging station infrastructure will be required. China is leading the way, with more than 800k public EV charging points installed by the end of 2020, or 60% of all points installed worldwide, followed by Europe. Currently, there is one public charging point for every five cars in China, but even that ratio is insufficient. By 2030, BCG predicts that the number of public EV chargers in Europe will reach 1.8 million, nine times the current level.

As EV adoption increases significantly in the near future, raw materials for batteries may also be in short supply. Some materials (lithium, for example) are available in abundance, while cobalt and nickel, could potentially come in smaller quantities and be more expensive.

To summarize, at the initial stage, when the technology is just developing, we should expect the price of electric cars to rise. However, as the number of players in the market increases, there will be a decrease in margins and prices. In the future, the auto industry will rely on technology as it approaches self-driving cars.