Electric vehicles (EVs) are the future – or at least zero-emissions vehicles are, and that’s close enough to being the same thing, since hydrogen fuel-cell vehicles, the only other option currently available, are not nearly as widely accepted. Even Lamborghini apparently agrees: Earlier this month, the iconic Italian sports-car manufacturer announced that it had taken the order for the last all-gas/internal combustion engine (ICE) vehicle it will ever make. Going forward, a gearhead seeking to buy a blisteringly fast Lambo will only have hybrids and electrics as options.
That’s not surprising: Norway is well on the way to the EV future – in 2022, 80% of all new car sales were of electric vehicles, and by 2025, sales of new internal combustion vehicles will be banned there. There will be a similar ban on new-car sales of ICE vehicles by 2035 in both the European Union and Japan – as well as the state of California. The South Korean government has a raft of policies and incentives in place to encourage the EV transition. Meanwhile, China, the largest market for cars, is incentivizing domestic purchases of electric vehicles through tax breaks, registration-fee discounts, and subsidies for charging-station construction.
In the United States, the Biden administration in April 2023 proposed strict new emissions rules for automakers that essentially require them to shift 67% of their production to electric vehicles by 2032. This was the latest in a series of efforts by the White House to facilitate and speed the U.S. transition from fossil fuel-burning vehicles to electric vehicles. The U.S. has also implemented tax incentives for vehicle producers and purchasers, manufacturing incentives for producers of EV components and batteries, subsidies to speed the building out of the U.S. public EV charging network, incentives to electrify heavier vehicles such as school buses.
The thinking behind these policies is a combination of concerns. Climate change is a primary motivation. But so too are the perceived economic benefits. With consumers increasingly willing to consider buying an EV over an ICE vehicle, countries understandably want to position themselves to get ahead of what is widely seen to be a growth industry.
The various governments are not trying to create a trend out of thin air. According to the International Energy Agency (IEA), electric cars accounted for less than 5% of new car sales in 2020, rose to 9% the next year, and hit 14%, or 10 million, in 2022. In the U.S market, EV sales rose 55% in 2022, though still accounting for only 8% of new-car sales.
The odds seem good that over the next decade, electric vehicles will account for an increasingly large percentage of new car sales – and eventually car ownership. That suggests potential opportunities for companies in several key industries – and for their investors.
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