To anybody paying attention, 2018 was a remarkable year for the global auto market. Yes, there were trade disputes, industry titans laid low, ill-advised tweets and the rise of mobility service companies. But the story of the year should go to electric vehicles.
Staring up at the S-curve
In September 2018, the cumulative number of passenger EVs sold hit four million, up from under a hundred thousand a few years ago. The final sales data are still being tabulated, but it looks like around 2 million EVs were sold in 2018 alone and the time to sell each additional million is shrinking rapidly. Automakers around the world are jostling to outdo each other on their electrification announcements, with over $140 billion earmarked for spending on EVs in the next 5 years alone. EV battery pack prices meanwhile have plummeted, dropping from almost $1,000/kWh in 2010 to $176/kWh in 2018.
These are heady times for a product that was dismissed as irrelevant in very recent history. So, where are we on the famous s-curve and what do the next years hold?
Towards the inflection point
EVs are still a relatively small share of global vehicle sales at around 1-3% in most markets. But dig deeper and the picture looks different. In China for example, EVs were around 1% of sales in 2016, 2% of sales in 2017 and then around 6% of sales in Q4 2018. The same scenario has played out in other regions; EVs take the better part of a decade to reach 1% market share but then rapidly move to 2%, 3% and beyond.
In some parts of the world, the steep point of the S-curve for electric vehicles has already arrived. Spend a day in Oslo, Palo Alto or parts of Beijing and it feels like the future is definitely here. But the global vehicle market is highly varied and there will be different S-curves in different areas, segments and customer types. Performance sports cars for example, are going to go electric quite quickly. So are delivery vans, buses and other high utilization urban vehicles. In these segments the inflection point has either already arrived, or will in the next 2-3 years. Two-car families with a garage or access to charging will also go very quickly in the 2020s once the economics improve a bit more.
Other segments will take longer; think of the apartment dweller in Seoul or Tokyo with limited charging options. There the S-curve isn’t diffusing into an open market, but rather battling significant infrastructure constraints along the way.
Policy support is also still very important. Take away EV purchase incentives, fuel economy regulations and the outright EV mandates and the market will quickly fall back. Full consumer-driven adoption takeoff on a global scale will require unsubsidised, cost competitive EVs in almost every segment. The market is not there yet, but with battery costs marching steadily downwards and almost 400 EV models on the market by 2022, it will be soon. At BloombergNEF, our best estimate is that unsubsidised price parity comes beginning around 2024. In auto terms, that’s just over one cycle away.
It would be a mistake to think this growth is purely policy driven. One of the biggest assets the global EV market has is its army of passionate EV owners who have an excellent track record of convincing their neighbours, family and friends to make the jump. This shouldn’t be underestimated – products with a high net promoter score are usually the ones that grow quickly and catch industry watchers by surprise.
It is remarkably difficult to maintain perspective when something is changing quickly. We all take the latest information, integrate it into our world view and adjust our outlook accordingly. But what we miss is an understanding of how fast our own views of what’s possible are changing. When it comes to consumer adoption, things generally take longer than expected to get going and then go faster than expected when they do.
Investment has a habit of chasing growth, not absolute market share. This has profound implications for the choices that companies will make over the coming years. While EV’s are still a small part of the global market, they are set to represent most – if not all – of the new growth in the passenger vehicle segment over the next decade. Automakers are already shifting their plans as the inflection point approaches.