Electric vehicles (EVs) grew significantly over the past decade, underpinned by supportive policies and technology advances. Emission standards enforced prompted innovation and altered production, while incentives introduced by governments and a change in consumer trends – in favour of a greener environment, buoyed consumer demand. 

Although to-date EVs make up a relatively small share of the global automotive market, this shall undoubtedly change in the foreseeable future. 

Efforts on a global scale

As the fight towards a greener environment intensifies, efforts by all stakeholders involved are being made on a global scale. Authorities, longing for a reduction in CO2 emissions set high standards from a regulatory perspective. Auto manufacturers, having to adhere with such laws, had no option but to invest heavily in such technology. This push presented its own challenges for industry players both financially, as costs spiked particularly through R&D, but also from a supply chain perspective, due to a current shortage of semiconductors. 

Nevertheless, the sector still poses an opportunity given the clear set emission targets set by the more developed countries. Government incentives such as bonuses and tax rebates, shall certainly not subside in the very near future, steering demand and thus offsetting the increased expenditure posed through the imposition of more rigorous regulation.

Europe: The European Commission seeks to have at least 30 million EVs on the region’s roads by the end of the decade under a plan that would require the automotive industry to massively accelerate its transformation. The goal is indeed ambitious considering the number of battery-electric vehicles currently being driven in Europe. To achieve these goals, the EU plans to revisit and toughen up its current emission standards in the summer of 2021.

Although stimuli in the form of either tax benefits and/or purchase incentives are available in nearly all 27 EU member states, the monetary value of these benefits and incentives widely vary. With the EU commission targets set in stone, we expect renewed efforts by all EU member states, which shall undoubtedly bode well, driving growth for all auto manufacturers which have heavily invested in such technology.

US: In his first few weeks in office, US President Joe Biden sent a clear message to the world: the U.S. is serious about climate change. On his inauguration day, Biden re-joined the Paris Agreement on climate change and only recently has made the increasing use of EVs a top priority, pledging to spend billions of dollars to add 550,000 charging stations. 

In addition to bolstering the current infrastructure, Joe Biden is in favour of new tax credit for purchases of EVs and retrofitting factories for their production – the latter aiding manufacturers while the former certainly boosting demand.

China: China’s recent rapid economic growth enabled more and more consumers to buy their own cars, in-turn improving mobility and possibly becoming the world’s largest automotive market. Ensuing this growth, China saw increased urban air pollution, high greenhouse gas emissions, and a growing dependence on oil imports. To counteract the latter worrying trends, Chinese authorities introduced policies to encourage the adoption of greener auto vehicles, ones that emit less CO2 emissions. 

Given the price differential and thus premium on the traditional ICE, in 2009 the government started providing benevolent subsidies. A move which is certainly bearing fruit. Ensuing the substantial cost to the Chinese government, China’s policy makers decided to phase out the subsidies by the end of 2020 and instead rely on a mandate imposed on car manufacturers. 

However, the coronavirus outbreak, which exerted huge pressure on China’s EV industry led China’s policy makers to re-think their stance. China’s policy makers extended the EV purchase subsidy, albeit at a lower rate, by a further two years until 2022.

Rise in EV Sales

More than 2.8 million electric vehicles were sold across the world’s major automotive markets in the first 9 months of 2020, with Europe surpassing China in the number of EV sales.

Albeit staging a recovery in Q2 and Q4, the EU passenger automotive market contracted by 23.7 per cent to 9.9 million units in 2020 – the most significant drop on record, consequent to the coronavirus pandemic. All 27 EU nations recorded double-digit declines throughout 2020. Despite double-digit drops across the bloc’s largest automotive markets, EVs proved more resilient to the coronavirus pandemic, generally. This, sending a strong signal that the transition to clean transportation and thus greener energy is moving into a phase of rapid adoption.

Outlook

Although to-date EVs make up a relatively small share of the global automotive market, the future is bright. The push towards a greener environment shall continue to dictate the governments’ agenda, undoubtedly bolstering demand. 
The expected strong demand has pushed well renowned companies to explore joint ventures, while established auto manufacturers continued to ramp up their EV production. Apple continues its search for an EV partnership, while Volkswagen intends to surpass Tesla in its EV sales by 2025. In China, NIO continues to fly, while BYD continues to see its monthly sales within the EV space spike.

Given the cohort efforts, globally, towards reduced CO2 emissions, we continue to be constructive on the sector given the prolonged demand in the foreseeable future. Structural dynamics continue to pose an investment opportunity as the step towards a greener world, also led by EV, is inevitable.

Disclaimer: This article was written by Christopher Cutajar, credit analyst at Calamatta Cuschieri. The article is issued by Calamatta Cuschieri Investment Services Ltd and is licensed to conduct investment services business under the Investments Services Act by the MFSA and is also registered as a Tied Insurance Intermediary under the Insurance Distribution Act 2018.

For more information visit https://cc.com.mt/. The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.

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