Many people of a certain age can remember the first time they held a smartphone. The devices were quirky and expensive and innovative enough to draw crowds at parties. Then, less than a decade later, it became unusual not to own one.
That same societal shift is now happening with electric vehicles, according to a Bloomberg analysis of global adoption rates. The United States is the latest country to pass what has become a critical tipping point for electric vehicles: 5% of new car sales powered solely by electricity. This threshold signals the start of mass adoption of electric vehicles, the period when technology preferences are rapidly reversing, according to the analysis.
Over the past six months, the United States has joined Europe and China – collectively the three largest auto markets – in passing the 5% tipping point. If the United States follows the trend set by 18 countries before it, a quarter of new car sales could be electric by the end of 2025. That would be a year or two ahead of most major forecasts.
Why is 5% so important?
The most powerful new technologies – electricity, televisions, cell phones, the Internet and even LED bulbs – follow an S-shaped adoption curve. (The top of the Scurve represents the last holdouts who refuse to give up their old phones to clapper.)
In the case of electric vehicles, 5% seems to be the point where early adopters are overtaken by mainstream demand. Before that, sales tend to be slow and unpredictable. Subsequently, a rapid acceleration in demand ensues.
It makes sense that countries around the world are following similar patterns of EV adoption. Most barriers are universal: there aren’t enough public charging stations, cars are expensive and in limited supply, buyers don’t know much about them. Once the road has been paved for the first 5%, the masses soon follow.
So the adoption curve that South Korea followed from 2021 ends up looking a lot like the one taken by China in 2018, which is similar to Norway after its 5% first quarter in 2013. The Next Big Markets automobiles approaching the tipping point this year include Canada, Australia and Spain.
A higher bar for hybrids
The above analysis is for battery-powered vehicles only. Some countries, mainly in Europe, have been quicker to adopt plug-in hybrids, which have smaller batteries backed by a gasoline engine. Including these, the world just passed 20 million electric vehicles on the road, and that figure will double again by the end of next year, according to a recent report from analysts BloombergNEF.
Since using a plug-in hybrid doesn’t require the same level of infrastructure or consumer awareness, the first phase of adoption has been less consistent. A consistent tipping point for this broader category of electric vehicles was only reached when 10% of new vehicles had a plug.
The United States and China have mostly ignored plug-in hybrids and gone straight to fully electric vehicles, and the United States has yet to cross the 10% threshold.
Behind every country that has gone through an EV tipping point is an agenda of federal incentives and pollution standards. In the United States, the Biden administration issued an executive order last year calling for electric vehicles to make up half of new vehicles by 2030 (including plug-in hybrids). According to tipping point analysis, it should beat that target with several years to spare.
Tip car manufacturers
Continued growth also depends on the ability of automakers and their suppliers to ramp up production fast enough. Volkswagen, Ford and BMW are each targeting 50% or more of their global sales to be fully electric by the end of the decade.
Turns out automakers have tipping points too. Factories need to be retooled and supply chains reconfigured. To achieve maximum savings, the entire vehicle must be redesigned with electrification in mind. In Europe, once 10% of a carmaker’s quarterly sales go electric, the share triples in less than two years.
The graph below does not include Toyota, which is the largest automaker that has not reached the 10% EV threshold in Europe. Toyota’s target of 3.5 million annual electric vehicle sales by 2030, as a share of its 10 million annual vehicle sales, is among the least aggressive of major automakers. The chart also does not include Tesla, the world’s largest electric vehicle maker, whose sales are all-electric.
Is the global transition to electric vehicles inevitable?
Until now, 90% of global electric vehicle sales have come from the United States, China and Europe. This means that the countries responsible for around a third of global annual car sales have not passed the tipping point. None of the countries in Latin America, Africa or Southeast Asia has taken the plunge. If they do, it is uncertain whether global miners will be able to meet the demand for battery metals.
Yet global electric vehicle sales have tripled in the past two years, according to the International Energy Agency. All of the net growth in global car sales in 2021 has come from electric cars, and it’s a trend that BloobmergNEF predicts will continue indefinitely. This year could be the culmination of vehicles on the road without a plug.
Applying the tipping point analysis to the entire world, the share of fully electric vehicles worldwide exceeded the 5% threshold for the first time last year. Including plug-in hybrids, the 10% tipping point will be exceeded later this year. If the trends are confirmed, we can expect an acceleration in demand.
Date of first publication: Jul 10, 2022, 10:33 AM IST