Exploring Electric Vehicle Market Trends and Outlook

The electric vehicle (EV) market is experiencing a remarkable surge, driven by a combination of factors ranging from technological advancements to shifting consumer preferences. So much so that ARK Invest focused on electric vehicles as one of its Big Ideas for 2023, saying that the exponential growth in this area will defy critics. 

In its report, ARK projects a seven-fold increase in EV sales from roughly 7.8 million in 2022 to 60 million units in 2027 – a whopping 50% annual growth rate. Let’s take a look at the current dynamics in the EV market and the supporting arguments for ARK Invest’s bold projections. 

Increasing adoption

One of the main reasons for ARK’s optimism is the increasing adoption of EVs across the globe, fuelled by government subsidies as countries push toward decarbonization and a greener future. According to the International Energy Agency (IEA),  2022 saw EV sales exceeding 10 million units, marking a 55% increase year-over-year. 

The adoption of EVs has been particularly notable in China, which has one of the widest offerings of electric car models and is seeing consumers increasingly embracing EVs as a means to reduce air pollution and dependence on fossil fuels. Indeed, China now accounts for some 60% of all EV purchases worldwide, having seen an 82% surge in 2022. In the US, meanwhile, EV sales surged 55% in 2022 reaching a sales share of 8%.

Globally, the share of electric cars in total sales has more than tripled in three years. According to the International Energy Agency (IEA), this proportion rose from approximately 4% in 2020 to 14% in 2022. It saw a further 25% acceleration in Q1 2023 compared to the same period the previous year. Some projections suggest even more substantial growth, with EVs potentially comprising 55% of total global vehicle sales by 2030. 

Government subsidies

One of the policies governments have employed to encourage sales has been EV subsidies. This was the tactic introduced by the Chinese government, with more than 200 billion yuan (US$28 billion) spent on EV subsidies and tax breaks over the 2009-2022 period. These have now been phased out, but demand for EVs in China still hit a new record in 2023. 

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Subsidies have also been prevalent across a raft of European governments, including Norway. The country has introduced various incentives to promote electric vehicle adoption, including tax exemptions, reduced registration fees, toll road discounts, and access to bus lanes for electric vehicles. These incentives were introduced over several years, with the earliest measures dating as far back as the 1990s. 

Norway's approach to EV subsidies has been highly successful, leading to a significant increase in electric vehicle adoption. Today, Norway has one of the highest rates of electric vehicle ownership per capita globally, with electric vehicles accounting for 80% of new car sales in the country in 2022 – the highest in the world. By 2025, Norway aims to phase out internal combustion engine vehicle sales completely.

Demand, Supply, and Wright’s Law

Indeed, the tide appears to be shifting on EVs. Recently, we have witnessed a shift in focus in the EV industry from demand to supply dynamics. While previously, we were more likely to read articles about interest levels, preferences, and purchasing behaviors, there is now more discussion around factors like production capacity, manufacturing efficiency, and technological advancements in EV production.

ARK Invest predicts a continuous decline in EV prices, attributing this trend to Wright's Law, which posits that as production volume increases, the cost per unit decreases. This principle has been demonstrated over time across various industries, indicating a reliable framework for forecasting cost declines. 

Low-Cost EVs

Indeed, empirical evidence already supports the validity of Wright's Law in the EV industry, with a consistent pattern of declining costs as EV production scales up. We can expect economies of scale to kick in as EV manufacturers ramp up production, leading to more efficient manufacturing processes and lower production costs per vehicle. For instance, as battery costs decrease and manufacturing efficiencies improve, automakers can pass on these savings to consumers through lower-priced EV models.

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This year we have already seen the beginning of a “race to the bottom” in terms of EV prices. China has been consistently challenging EV market stalwart Tesla with lower price alternatives, while recently news emerged that Fold is “secretly” working on a low-cost EV platform to rival Tesla’s. As EV prices become increasingly competitive with traditional internal combustion engine vehicles, consumer interest is also likely to surge. 

New Models and Technological Advancements 

With competition heating up, Tesla itself has been growing its repertoire of models, with its lineup now including the Model S, Model 3, Model X, and Model Y, each catering to different consumer preferences and needs. This expansion in model variety not only provides consumers with more options but also fuels greater interest and adoption of EVs.

On top of this, technological advancements, especially in battery technology, are revolutionizing the EV landscape. For instance, Tesla's advancements in battery technology have led to improvements in driving range and performance across its vehicles. Tesla's Model S Plaid boasts an impressive range of over 500 miles on a single charge, addressing concerns about range anxiety commonly associated with EVs. 

A Promising Future

As technology continues to evolve, with ongoing research and development efforts, the future of EVs appears promising, with even more significant improvements anticipated in driving range, performance, and affordability. Together with government subsidies, environmental concerns, and increasing consumer awareness of EV benefits, ARK Invest’s growth projections for the EV market seem entirely plausible. 

Despite facing challenges such as charging infrastructure development, EV performance optimization, availability, and affordability, the momentum towards electric mobility continues to build. As the world transitions towards sustainable transportation, electric vehicles play a pivotal role in reducing greenhouse gas emissions, enhancing energy efficiency, and fostering a cleaner and greener future.

Want to track the performance of the EV market in real time? Check out Truflation’s new EV Commodity Index!