Bumps in the road for electric vehicles but long-term drivers intact
The long-term prospects for electric vehicle (EV) growth remain undimmed, but global EV adoption is unlikely to occur in straight lines.
Transport has been a high profile focus of climate policy and investor interest. Greenhouse gas (GHG) emissions from transport represent just over one-eighth of global emissions, with passenger cars most of that contribution. Meeting the commitments global leaders have made to limit temperature rises to 2°C will therefore have an unavoidably disruptive impact on the industry.
The latest International Energy Agency (IEA) analysis shows that putting the global economy on track for a 2°C outcome will require fundamental changes in how transport is powered. The chart below plots the change needed in the energy sources fuelling global transport.
On its modelling, one-fifth of the energy used in the transport sector will need to come from non-petroleum sources in the next decade and a half. The IEA’s forecasts for electric car use mirror that transition, pointing to 300 million electric vehicles (EVs) on the world’s roads by 20401. Those projections demand rapid growth from the current stock of EVs; below three million vehicles.
We have written before about the policies countries - including the UK, France, Netherlands, Norway and India - have announced to phase out internal combustion engines over the next few decades. We have also referenced China’s ambitious plans to maintain leadership in the industry2.
However, the industry also provides a helpful reminder that growth rarely occurs in straight lines. Since the start of 2018:
- The US has announced it is relaxing fuel efficiency standards introduced under President Obama3. The impact of that move is unclear, given the country’s largest car market, California, has (for now at least) a waiver to impose tougher standards, along with 12 other States
- We have seen an unexpectedly sharp drop in global EV sales (see figure 2). Global sales in January and February were 70% higher than a year ago, but slipped to the slowest pace of growth in over 12 months in February.
- The Indian government has dropped its plans to introduce a national policy supporting EV use4. While the announcement has spurred criticism from environmental groups, the government’s limited investment in the infrastructure needed to support a transition to electric vehicles have made delivery unlikely since its announcement.
None of those data points change our conviction in low carbon transport’s long term growth prospects. Governments around the world continue to introduce new policies (figure 3) and the economics of electric vehicles are quickly falling into line with internal combustion engines as the market grows and costs fall.
However, no industry can expand at the exponential rate required of low carbon transport without bumps along the way.
Focusing on companies well placed to thrive despite hiccups, rather than those which are reliant on ever-expanding markets for their profitability provides a foil against those vagaries.
To help monitor and navigate trends across key markers of climate progress, we introduced the Climate Progress Dashboard last July, tracking change across a range of markets including the global electric vehicle market. We update that dashboard every quarter on our website5.
This communication is marketing material. The views and opinions contained herein are those of the named author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds.
This document is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroder Investment Management Ltd (Schroders) does not warrant its completeness or accuracy.
The data has been sourced by Schroders and should be independently verified before further publication or use. No responsibility can be accepted for error of fact or opinion. This does not exclude or restrict any duty or liability that Schroders has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions.
Past Performance is not a guide to future performance. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested. Exchange rate changes may cause the value of any overseas investments to rise or fall.
Any sectors, securities, regions or countries shown above are for illustrative purposes only and are not to be considered a recommendation to buy or sell.
The forecasts included should not be relied upon, are not guaranteed and are provided only as at the date of issue. Our forecasts are based on our own assumptions which may change. Forecasts and assumptions may be affected by external economic or other factors.
Issued by Schroder Unit Trusts Limited, 1 London Wall Place, London EC2Y 5AU. Registered Number 4191730 England. Authorised and regulated by the Financial Conduct Authority.