In the last ten years the number of cars sold in the developed countries has seen a decrease (or at best a flattening out). The increasing number of sales per year worldwide has been sustained by the emerging markets, most notably China and India. The pandemic struck a blow on the automotive industry, however sales are now rebounding to the pre-pandemic level (although the Russia-Ukraine conflict is increasing the cost of aluminum, iron and copper with an impact of 17% increase in cost for the automotive industry in the short term).
The recent McKinsey report on the transition towards Electric Vehicle (EV), that has become a priority in several Countries to foster a mobility net-zero transition, is foreseen a sharp increase in sales of EV and a corresponding decrease in ICE (Internal Combustion Engine) sales, as shown in the graphic.
Notice the expected increase of vehicles sold per year, from the present 66.7 million units up to 130 million units expected in 2050. This increase is fuelled by the replacement of ICE that is likely to be accelerated by Government policies to meet the agreed CO2 reduction levels. Today, 2022, there is an estimated 1.45 billion cars in the world.
If you do the math, considering a life time of an ICE car around 8 years (average) and a 10 years lifetime for an EV (estimated average), it turns out that a full replacement of ICE will not occur before the 2060 timeframe. This is reflected in the curve on the right hand side showing the expected decrease in CO2 emission that will reach 40% of what is today in 2050 (indicating that a significant number of ICE vehicle will still be around at that time).
Of course, strong Government measures may accelerate the transition but the underlining cost is huge both in terms of:
- revamping the current electrical grid to sustain the increased need of electricity (gasoline will need to be replaced by electricity, that means A LOT of it!)
- investing in electricity power generation with emphases on both renewable sources and back up generation with sources that are compatible with on demand energy – that is gas and nuclear /fission and, hopefully, fusion
- sustaining the demand for EV in spite of their higher cost in up-front capital (buying expenses) for the customer.
Notice that the TOC (Total Cost of Ownership) is expected to be in favour of EV as soon as 2025 for the European and Chinese owners and frtom 2030 onward for the US customers, as shown in the graphic on the side. However, the up-front expense to buy an EV car (without Government support) is likely to remain higher well into the next decade and this can hamper the uptake.
The actual “drive” from Government to push for the shift towards EV will depend on several factors like the feasibility (as mentioned before you need to flank the penetration of EV with a supporting infrastructure -electricity generation and distribution) and general impact on the market and society. I’ll consider this in the next post.