The headwinds for electric vehiclesEven if we take very aggressive forecasts for the transition of new car sales to EVs, the overall composition of the car fleet will take many decades – arguably too long – to shift. There are two key reasons for this. The first is that not even a fraction of the battery factories required to power all of the world’s automobiles exist. The investment required to build the needed manufacturing capacity will be huge. The first “Gigafactory”, built by Tesla, cost an estimated $5 billion for a 50GWh factory. If we assumed future factories only cost 60 per cent of this initial factory build, the cumulative industry spending needed to fully convert the automobile industry to EVs is over $400 billion. Clearly, very large new markets will be created and destroyed in the transition. Investors may want to take note of the major markets that are developing in battery components such as electrodes, power electronics, and electric motors.
"EVs will only represent just over 11 per cent of the overall fleet in 2030"The second factor slowing electric car uptake is replacement speed: the average life of a car is over 15 years. It is even longer in emerging economies. Assuming that EVs represent 25 per cent of all new global car sales in 2030, and 75 per cent in 2040, EVs will only represent just over 11 per cent of the overall fleet in 2030, still less than 45 per cent in 2040 and only 77 per cent in 2050 (which is when transport needs to be essentially zero-emission to meet the Paris goal). Most consumer car journeys would still be generating substantial greenhouse gas (GHG) emissions in 2040, and the only way to overcome that would be a forced early retirement of combustion engine vehicles.
Source: Schroders, April 2019