The global electric vehicle market size was valued at USD 168 billion in 2021 and is estimated to reach an expected value of USD 3109 billion by 2030 at a CAGR of 38.3% during the forecast period (2022 – 2030). An electric motor powers an electric vehicle (EV) instead of an internal combustion engine, which produces power by burning a mixture of fuel and gases. Therefore, to solve issues such as increased pollution, global warming, the depletion of natural resources, etc., such a vehicle is considered a potential substitute for current-generation automobiles. Initiatives implemented by governments of various nations to encourage the production and acceptance of electric vehicles are driving the industry (EVs). Customers are being encouraged to embrace electric vehicles by growing knowledge of the environmental dangers posed by emissions from combustion-engine automobiles.
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Rising Crude Oil Prices
Petrol and diesel are the most commonly used fuel sources for internal combustion engine vehicles. Although internal combustion engines have a lower purchase price, the overall cost of owning the vehicles includes the fuel costs incurred over the vehicle's lifespan. Thus, the rise in fuel prices ultimately adds up to the vehicle's cost of ownership. Crude oil prices had risen from 36.95 USD per barrel in January 2016 to 61.85 USD per barrel in December 2019. The continuous usage of these fuels on a large scale also leads to the depletion of their reserves. Thus, one of the reasons contributing to the rising prices is the decision to discourage its usage among consumers. The increasing fuel prices contribute to adopting electric vehicles as a substitute for petrol and diesel vehicles. Lithium-ion batteries, which provide a hybrid charging facility, power electric automobiles. These automobiles are pollution-free and environmentally friendly. When in operation, they don't release any dangerous greenhouse gases. These vehicles' operating costs are lower than those of other petrol and diesel automobiles since electricity is significantly cheaper than the cost of fossil fuels. Owing to all the abovementioned factors, rising crude oil prices are expected to drive electric vehicle demand.
Advantages of Electric Vehicles over Conventional Vehicles
Electric vehicles generate power using an electric motor compared to the internal combustion engine, which burns a mix of fuel & gases for power generation. Rising carbon footprints and other environmental impacts of internal combustion vehicles have resulted in the increasing popularity of electric vehicles and a paradigm shift in customers. The shift from conventional vehicles to electric vehicles can be attributed to the following benefits provided by electric vehicles:
The growing preference for electric vehicles is prompting the leading automotive manufacturers to launch electric vehicles. For instance, Maruti Suzuki, a leader in the conventional vehicle market, has announced its plan to launch electric vehicles for personal use in the following years for the Indian market. The market's lucrative nature is expected to attract more conventional vehicle manufacturers to shift into the electric vehicle space.
Price Sensitivity and Range Anxiety Amongst Customers
Although an electric vehicle's total overall ownership cost is lower than conventional vehicles, an electric vehicle's initial purchase price is considerably higher than combustion vehicles. According to an article published by Natural Resources Defense Council, the average purchase price of an electric vehicle is USD 19,000 more than a gasoline vehicle. Due to such a high disparity in the vehicle's initial purchase price, price-sensitive customers find it challenging to choose an electric vehicle while making a purchase decision. With increasing awareness and understanding of the overall benefits and low ownership cost of an EV, this scenario is expected to change over the coming years. Moreover, as the battery technology matures and production volume increases, the difference in purchase prices of the vehicles is expected to nullify in the next few years.
In addition to the high purchase price, another prominent factor affecting the electric vehicle market growth is range anxiety among customers. Range anxiety is the worry that an electric vehicle won't have ample charge to complete its duty. Range anxiety stems from earlier EV models' significantly lower battery backup and would not last for more than 70 miles on a single charge. As a result, customers fear that if the battery backup is exhausted in the middle of a journey, with no proper charging infrastructure developed in most countries, it may result in a bad experience. However, electric vehicles have come a long way since their inception. Manufacturers have made tremendous progress in developing new-age lithium-ion batteries that can propel a light-duty EV for almost 300 miles on a single charge. For instance, Tesla Model 3 has an estimated range of 310 miles on a single charge. Similarly, Jaguar I-pace has a range of 292 miles. Other manufacturers such as Kia, Hyundai, Mercedes, Nissan, and Audi also have vehicles that have a range of more than 200 miles. Thus, price sensitivity and range anxiety are the challenges faced by the market owing to the perception that has been established in customers' minds. With awareness advertisements and other modes of educating customers, the market is expected to overcome these challenges in the near future.
Battery Technology's Maturity
Battery pack accounts for most shares, accounting for almost a third of the overall price of an electric vehicle. Thus, the high purchase price of an EV, which is a significant challenge to market growth, is primarily attributed to battery packs' high prices. Although the electric vehicle battery costs have reduced significantly over the last ten years, it has a long way to go to match its internal combustion engine counterparts. Companies are investing heavily in research & development to come up with technologies that reduce battery prices. In September 2020, Elon Musk, CEO of Tesla, Inc., suggested that technological innovations and a shift to in-house manufacturing are crucial to reducing electric vehicle prices by almost half.
Statistics and expert opinions suggest that reducing battery costs significantly addresses EVs' price concerns. The battery prices are high due to the use of expensive metals such as cobalt, manganese, lithium, and nickel. One of the techniques adopted by manufacturers to reduce costs is to replace high-cost cobalt with nickel. In addition to being cheaper, nickel also holds more energy than cobalt. Panasonic Corporation has announced its plans to commercialize cobalt-free high-energy batteries in the coming years. Other means manufacturers adopt to reduce battery prices are producing low-energy batteries and simplifying the battery designs. According to a research paper published by the international council on clean transportation, battery pack prices in the U.S. are expected to drop from USD 11,500 in 2018 to USD 8,000 in 2025.
Apart from reducing costs, another factor contributing to the battery technology's maturity is the capacity of the batteries used in EVs. High capacity battery improves the range of vehicles that addresses the concerns of range anxiety among customers. The statistics reported by the International Energy Agency state that, according to the Stated Policies Scenario, battery capacities are expected to rise from 170 GWh per year today to 1.5 TWh per year by 2030. Thus, the market is expected to record substantial growth as battery technology matures over the forecast period.
The global electric vehicle market is segmented by product and region.
By product, the global electric vehicle market is segmented into Battery Electric Vehicles (BEV) and Plug-in Hybrid Electric Vehicles (PHEV). The Battery Electric Vehicles (BEV) segment accounted for the largest market share and is estimated to grow at a CAGR of 30% during the forecast period. Battery Electric Vehicles need to be plugged into a power source to charge, and depending on the vehicle, they have varying charging times and driving ranges. BEV has no internal combustion engine or fuel tank at all and runs on a fully electric drivetrain powered by rechargeable batteries. The dominance of this segment is attributed to the increasing environmental awareness and benefits of BEV among people.
The Plug-in Hybrid Electric Vehicles (PHEV) segment is the second largest. Plug-in Hybrid Vehicles (PHEV) is a hybrid electric vehicle that uses rechargeable batteries or another energy storage device that can be recharged by plugging it into an external electric power source. These vehicles also consist of internal combustion engines, which run on commercial fossil fuels such as petrol or diesel. The government-led efforts to encourage the use of electric vehicles in developing nations like India and China are to blame for the increase. Additionally, organizations like the Volkswagen Group are concentrating on boosting sales of plug-in electric vehicles. The business announced in January 2020 that plug-in electric car sales had increased roughly 60.0% from the previous year. Such changes fuel the segment's expansion.
By region, the global electric vehicle market is segmented into North America, Europe, Asia Pacific, Latin America, the Middle East & Africa.
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Asia Pacific accounted for the largest market share and is estimated to grow at a CAGR of 30% during the forecast period. The Asia Pacific is anticipated to rank among the revenue-producing areas. This increase results from China, Japan, and India's rising demand for electric vehicles. Approximately 45.0% of all-electric vehicles on the road in 2018 were in China, up from 39.0% in 2017. Additionally, several businesses are concentrating on producing electric automobiles in China. For instance, the Volkswagen Group intends to produce 22 million electric vehicles (EVs) by 2026, half of which will be produced in China. Similarly, Tesla, Inc. intends to produce approximately 150,000 3s Model vehicles in Shanghai, China. Additionally, the Indian government promised tax breaks for electric cars in 2019. The government intends to deduct interest paid or loans taken to purchase electric vehicles from income tax.
Europe is the second largest region. It is estimated to reach an expected value of USD 400 billion by 2030 at a CAGR of 32.2%. The synchronized advances in the implementation of stringent immigration laws by the European Union and the addition of attention to reducing the number of conventional buses are primarily responsible for the uptick in the growth of the electric vehicle market in the European region. Norway is paving the way for Europe to abandon electric mobility.
North America is the third largest region. The growth in North America is linked to the U.S.'s rising desire for electric automobiles. A new non-profit group called "Veloz" has also been established by charging network firms, non-profit organizations, legislators, and automobile manufacturers. This new company wants to increase the use of electric vehicles in North America through marketing, innovation, and investment. In addition, Electrify America, a business established to encourage EV adoption, declared in 2018 that it would invest USD 200.0 million in California. Thus, throughout the projection period, there will be an increase in demand for electric vehicles in North America.