Electric vehicle boom driving EVs to 35% new car sales in Asia by 2040

Electric vehicles could make up 35 per cent of new car sales in Asia by 2040, driven by a significant reduction in battery prices and a rapidly changing mindset among consumers, industry and governments, a new global investment report has predicted.

The Asia Equity Strategy report, released by HSBC Global Research on Monday, details 10 investment themes for the next decade that are expected to generate above-average growth, “irrespective of the macro backdrop”.

The themes, which range from beauty and healthcare to renewable energy and robotics, include a category dubbed “Charge me”, which predicts electric vehicle sales throughout Asia will rise dramatically, hitting 35 per cent of total car sales by 2040, as has been projected by Bloomberg New Energy Finance.

The report puts the global electric vehicle market in the midst of its third global boom, which it says has been underway since the third quarter of 2015, driven by strong demand in China since Volkswagen’s emission scandal, the launch of the more affordable Tesla model, and a sharp reduction in the cost of lithium-ion batteries, which currently account for 30-40 per cent of the price of an EV.

“At the heart of this story lies a significant reduction in EV battery prices,” say the report’s authors, Herald van der Linde and Devendra Joshi – a reduction that is in turn being driven by a rapidly increasing scale of production.

“If the percentage of electric vehicles on the road rises to 3.8 per cent in 2020 from 0.4 per cent in 2014, demand for lithium-ion batteries will rise 14x,” the report notes. “This benefits battery makers, as well as component makers that benefit from rising electronic content in cars.”

Policy support and stricter environmental regulations have also helped perpetuate this virtuous circle, the report says.

China’s aggressive subsidisation program, for example, based on a target of 5 million electric cars on the road by 2020, is expected to have a positive knock-on effect for the entire EV and lithium-ion battery ecosystem.

Korea has plans to introduce tax incentives for EVs and HEVs, the report adds; while in India, the government last year launched a scheme called FAME – Faster Adoption and Manufacturing of Hybrid and Electric cars – that offers subsidies of up to $US2,000 per green car.

And car markers are already responding. Hyundai, which recently introduced a new EV that can travel 180km on a single charge, aims for a 50 per cent market share in Korea’s EV market by 2020 (about 200,000 units in Korea alone).

But the report also suggests that an important ideological hurdle has been cleared, paving the way for an industry-wide shift from internal combustion engines to electric cars.

“Tesla has shown that the barriers to entry in the car industry are far lower than widely assumed. It has taken the luxury car market by storm and in the process redesigned the economics of making electric cars.

“Earlier this year Tesla launched its Model 3, a cheaper car aimed at the upper end of the mass market,” the report says.

“Electric vehicles are here to stay.”