When it comes to technological disruptions and innovations in the years to come, the automotive industry will be among the most affected sectors in the economy. The continued development of electric vehicles will likely cause transformations in the automotive industry akin to those that the internet caused in retail and other industries.
Check out our 16 reasons why electric cars are the future. The first seven deal with the price-related dynamics that will increasingly make electric vehicles more competitive on the market. The remaining eight address the governmental incentives and environmental and other benefits of electric vehicles relative to their gas counterparts.
Electric Cars Will Be Competitive in the Market
A major obstacle to the widespread adoption of electric vehicles has been their prohibitive price. While the price has certainly decreased in recent years, they continue to be more expensive than their gas-powered alternatives. Indeed, the overwhelming majority of EV purchasers are individuals making more than $100,000 per year.
The key contributor to the price of electric vehicles is the price of the battery.
- Rapidly decreasing costs associated with the production of batteries will have a dramatic effect on the price of electric vehicles
- According to some estimates, battery costs have decreased by as much as 50% in the last five years
In addition to their decreasing cost, batteries are becoming more dependable and efficient. For example, Catl, a Chinese manufacturer of car batteries, announced its readiness to manufacture a car battery that can last over 16 years and power a vehicle for 1.2 million miles, vastly outperforming existing batteries on the market.
These developments could soon make the price of electric vehicles comparable to their gas-powered counterparts. Bloomberg NEF, an energy research firm, estimates that the average cost per kilowatt-hour for batteries will hit $101 in 2023. At this price, electric cars are likely to be fully or close to fully price competitive with gas and diesel vehicles.
There is an Increasing Production of EV Vehicles
Virtually all major automobile manufacturers, including Volkswagen, Volvo, Jaguar, Daimler, and others have all committed to increasing the production and sale of electric vehicles relative to their gas and diesel counterparts. For example, Jaguar, Lotus, and Volvo plan to sell exclusively electric vehicles by the end of the decade.
- The increased production of electric vehicles is being increasingly adopted by consumers around the world
- For example, while the global sales of electric cars increased by 43% in the previous year, overall car sales dropped by about 20% as a result of the COVID-19 pandemic
According to the investment bank UBS, approximately 20% of all new cars that are sold globally will be electric by 2025, rising to approximately 40% by 2030. As consumers continue to adopt these vehicles, their price will continue to decrease, making them even more affordable and thus reinforcing the positive loop.
Europe, which is amongst the richest and most developed regions of the world, is at the forefront of this transition. For example, the European market for electric cars and hybrids grew by more than 70% in the first three months of 2020 compared to the same period in 2019 and it is expected to grow further in 2021.
Continued Increase in the Sales of Electric Vehicles
Over the past decade or so, there has been a dramatic increase in the sale of electric vehicles, especially in Europe, China, and the United States. While these vehicles still account for a small fraction of all vehicle sales, their growth in sales has been exponential in all major markets.
- Globally, while car sales were down approximately 16% in 2020, electric vehicle sales increased by more than 40%
- In the first quarter of 2021, global electric vehicle sales increased by 140% to more than 1 million vehicles
- The growth has been particularly strong in Europe and China
In Europe, more than 10% of all new cars sold in 2020 were either electric or plug-in hybrid vehicles. This increase in the sale of electric and hybrid vehicles contributed to a 12% drop in average greenhouse gas emissions caused by commercial vehicles in 2020, compared to 2019.
In China, which is the largest market for electric vehicles, there was also a year-on-year growth in sales. Analysts expect China’s sales of electric vehicles to expand by more than 80% in 2021 compared to 2020, which only saw a growth of about 3% due to the COVID-19 pandemic.
Electric Vehicles Save Consumers Money
Gas and maintenance are two costs inherent to owning a vehicle. These costs often vary significantly depending on the global fluctuations in oil prices and the quality of the roads and the car. Electric vehicles promise to reduce the cost of both over the long run, thus making them even more attractive to cost-conscious consumers.
Making direct comparisons between electric and gas vehicles is often not straightforward. There are regional variations in gas and electricity prices that can complicate the overall picture. For example, the price of gasoline is significantly higher in California than it is in Texas or states in the Gulf of Mexico.
When it comes to maintenance costs, electric vehicles are undoubtedly cheaper, especially when considering the vehicle life span. For example, in 2019, New York City saved more than $1,000 in maintenance costs per each electric vehicle in its fleet. The greater the number of these vehicles, the greater the savings.
Just like any other product, as the number of electric vehicles on the road increases, all associated costs surrounding their production and maintenance will decrease. Overall, even if gas prices are somewhat comparable to electricity costs to power an electric vehicle, maintenance costs alone promise consumer significant savings.
Continued Advancements in Battery Technology
One of the major obstacles to continuous adoption of electric vehicles is the current state of battery technology. Most electric vehicles on the road use lithium ion batteries, which are more effective than traditional lead-acid batteries. However, these batteries still have some limitations, namely their price, range, and limited availability of lithium.
One of the major criticisms of electric vehicles is that they have a large carbon footprint during the production stage.
- While electric vehicles have lower greenhouse gas emissions over the lifespan of a car, they start out with a bigger carbon footprint
- This is a function of the mining process to develop batteries and their limited recyclability
However, researchers have discovered ways to recycle batteries, which can reduce both their costs and carbon emissions. This practice is known as direct recycling and it preserves components such as the cathode and anode. This procedure would reduce the carbon footprint from battery waste and make the technology more affordable.
In addition, as the technology underpinning batteries becomes more advanced, the range of electric vehicles will continue to increase. Volvo plans to develop batteries by mid 2020s that will increase the range to more than 600 miles (approximately 1,000 kilometers). This would be a major development in battery technology.
Global Market Incentivizes EV Production
China, Europe, and the United States are the three biggest electric vehicle markets in the world. All three offer their citizens incentives to forego purchasing gas vehicles and opt for the electric alternatives. As the leading economies of the world continue to incentivize the transition to electric vehicles, other countries are likely to follow.
- China has imposed a mandate on car manufacturers that demands they sell a certain percentage of electric vehicles every year
- In addition to putting pressure on manufacturers, the government has been providing generous financial and other incentives to citizens to encourage the widespread adoption of electric vehicles
The European Union is also aggressively moving towards the widespread adoption of electric vehicles. The regional body may require that all new cars that are sold be electric-powered by 2035, in addition to offering financial incentives to both manufacturers and consumers and demanding strict vehicle emission targets.
In the United States, at least 45 states and the District of Columbia have offered financial incentives that range from price reductions for charging electric vehicles during off-peak hours to tax credits and reductions in registration fees. In addition, many states now require manufacturers to sell at least some electric vehicles every year.
Charging Stations Will Continue to Develop
Another obstacle to widespread adoption of electric vehicles is the relative dearth of charging stations. This problem is exacerbated by the limited mileage range that is the function of the limited capacity of current batteries. Of course, gas powered vehicles do not have this problem as gas stations are present in both urban and rural areas.
National governments across the developed world seem committed to improving the infrastructure necessary to support a large fleet of electric vehicles. This includes building new charging stations, expanding the capacity of existing ones, and improving the electricity production capacities.
In the United States, there is an ongoing effort to increase the number of charging stations. While there are approximately 42,000 public charging stations, there are only 5,000 fast chargers, which are significantly faster than regular charging stations. As the technology continues to develop, the charging capacity will increase as well.
President Biden plans to add 500,000 charging stations, in addition to imposing restrictive gas emissions. Britain announced a 300 million pound investment to triple the number of charging stations across the country. China built approximately 18,000 charging stations in seven years as cities and local governments continue to offer incentives.
Tesla Is the Most Valued Automobile Brand
The dramatic increase in the share price of Tesla Motors in the last decade has arguably been the most consequential development in the automotive industry since Henry Ford introduced the modern assembly line. In 2010, Tesla’s market capitalization was $2.3B; today, it is more than $600B.
- Tesla Motors is the most valuable car company in the world by market capitalization
- Tesla’s market capitalization is larger than Ford and General Motors combined, despite producing a small fraction of vehicles compared to these companies
- In addition, Tesla has been profitable in 2020, which is a major milestone for the company
Tesla continues to expand its vehicle selection. In addition to sedans and SUV’s, the company plans to start the production of pickup trucks and launched an entirely separate truck division in 2017. The company plans to manufacture up to 100,000 electric trucks per year, which would make it one of the largest truck manufacturers.
As Tesla continues to expand internationally, build more factories, and develop more models of its vehicles, other car companies are following suit. The switch to electric cars will only intensify as other exclusively electric vehicle companies continue to emerge, such as the truck maker Nikola.
Ride Sharing Services May Adopt Electric Vehicles
Uber, Lyft, and other ride sharing companies have in the last decade revolutionized the taxi industry. These companies provide an alternative to personal car ownership and offer an easy and relatively inexpensive transportation method, especially in cities and over smaller distances.
As these companies continue to account for a larger share of vehicles on the road, they are increasingly coming under the scrutiny of regulators interested in reducing their greenhouse gas emissions. For example, in 2020, California Governor Gavin Newsom signed an executive order that will ban the sales of gas-powered vehicles by 2035.
Ride sharing companies are also increasingly interested in switching to a fleet of fully electric vehicles, not least because of increased regulatory scrutiny. For example, Uber announced in 2020 that it aims to have all rides on its electric platforms take place in electric vehicles by 2030 in the United States, Canada, and Europe.
This will primarily be accomplished by offering financial incentives to drivers. More specifically, Uber plans to add a surcharge fee for consumers who request electric rides. This surcharge fee will then be shared with drivers to incentivize them to make the switch from gas to electric powered vehicles.
Consumers Are More Environmentally Conscious
Over the last several decades, individuals across the globe, and particularly in developed countries, are becoming increasingly more conscious of the environmental implications of their behavior. In addition to adopting electric vehicles, they are making other environmentally friendly choices, such as adopting plant-based alternatives to meat.
Looking at different economic sectors in the United States, the most significant contributor to greenhouse gas emissions is transportation, accounting for 29% of 2019 total greenhouse gas emissions. Transportation is a broad term that includes not only personal, but also commercial vehicles, such as planes, ships, trucks, buses, etc.
As individuals become aware of the extent to which personal and commercial vehicles contribute to greenhouse gas emissions, they are likely to demand alternatives. The sale of electric vehicles continues to increase in all of the biggest markets (e.g., China, Europe, and the United States) and is likely to become accelerated in the coming years.
The combination of favorable governmental regulations and consumers’ preferences for environmentally friendly transportation options will only accelerate the switch to electric vehicles. Combined, these two forces will create strong market incentives that will make gas-powered vehicles increasingly more obsolete.
A Broader Range of Options
At their inception, electric vehicles were extremely limited in the number and type of models. Initially, there were only a few options available and Tesla Roadster was arguably the first electric vehicle to truly capture the imagination of consumers and investors.
Today, the number of available options continues to increase.
- Virtually every major manufacturer is investing in the infrastructure to produce these vehicles
- In addition, there are many new startups that focus exclusively on producing electric vehicles or the corresponding technology to power them (e.g., batteries, charging stations, etc.)
Indeed, electric vehicles are predicted to account for approximately two thirds of all vehicles by 2050. They include sedans, SUVs, pickup trucks, sport vehicles, etc. This is a major development because electric vehicles were initially seen as a niche market, almost exclusively targeted towards rich customers.
As competition develops, the price of these vehicles will decrease, making them more affordable. In addition, as the technology develops, manufacturers will start producing larger numbers and will be able to target the biggest purchasers in the world, which are state and national governments.
Younger Consumers Prefer Electric Vehicles
Younger individuals are more likely to consider purchasing electric vehicles in virtually all major markets in the world. This is a major development because these consumers and their children will be the driving force in automobile purchases in the future.
For example, individuals in the United States born between 1981 and 1996 are more eager to consider purchasing electric vehicles. Majorities of Generation Z (56%) and millennials (57%) are in favor of gradually eliminating the production and purchase of new gas-powered vehicles.
The charging infrastructure is less of a concern for millennials as they tend to live in urban areas.
- Almost 40% of millennials live in urban areas where charging stations are more easily accessible
- As younger professionals enter the workforce in the post-COVID environment, they are more likely to make electric vehicles their first choice
In China, the largest car market in the world, 86% of those surveyed responded that they would consider purchasing an electric vehicle. The number is significantly lower in other major markets. For example, approximately ⅓ of respondents in Germany and France responded affirmatively to purchasing electric vehicles.
Switch to Electric Trucks and Buses
Commercial transportation is one of the biggest sectors in the economy. From taxis and ride sharing services to buses, trucks, and planes, billions of dollars are generated every year from simply moving people and goods from one place to another.
Any sector in the economy that relies primarily on vehicles to generate income will be especially incentivized to adopt electric vehicles, primarily due to their significantly lower maintenance costs. While the primary focus today is on personal vehicles, companies like Nikola are building fully electric trucks with increasingly bigger mileage.
While personal vehicles have been the primary focus of regulators, electric trucks and buses are also becoming more relevant. For example, FedEx announced recently that it will only purchase electric vehicles from 2030 on, and plans to have an exclusively electric vehicle fleet by 2040. Others are likely to follow suit.
Federal, state, and local governments are making the switch to electric as well. Fairfax County plans to spend more than $4M to purchase all-electric buses, trash, and recycling trucks. In addition, New Jersey Governor Phil Murphy plans to spend $100M to purchase electric buses and trucks and build more charging stations.
Militaries May Adopt Electric Vehicles in the Future
In addition to local, state, and federal civilian government agencies, militaries may soon start adopting electric vehicles. This would arguably be one of the most consequential developments that would provide even stronger financial incentives for manufacturers to continue investing in electric vehicle technology.
The United States Army operates one of the largest vehicle fleets in the world, with over 225,000 vehicles of all kinds.
- Today, all of these vehicles use traditional internal combustion engines and are powered by gas or diesel
- This creates logistical and financial hurdles as gas is expensive to ship and store on the battlefield
General Motors has already developed an electric version of the Infantry Squad Vehicles that are used to transport soldiers to and from the battlefield. These provide several advantages. First, as they do not rely on gas or diesel, there is no need to transport fuel across the globe, which decreases the vulnerability of supply lines.
Second, electric versions of military vehicles can be more useful on the battlefield because they are quieter compared to gas powered engines. Finally, because they are usually lighter, electric vehicles can also be more easily transported on the battlefield, which increases the military’s mobility and operational effectiveness.
Electric Cars Are Safer than Gas Powered Vehicles
The measure of vehicle safety is an important concern when it comes to vehicles. Manufacturers pride themselves on developing safety measures that make cars resistant to crashes. Consumers continue to cite safety as an important factor when deciding what vehicle to purchase.
- Studies suggest that electric vehicles are as safe or safer than gas powered vehicles
- For example, the Highway Loss Data Institute estimates that injury claims for electric cars are 40% lower relative to their gas-powered counterparts
- This is a substantial difference that can not be explained solely by the lower mileage of electric cars
In addition, Li-ion batteries that power electric vehicles have a significantly lower risk of fire or explosions. This difference stems from the limited concentration of fire that results from a damaged battery as opposed to spilled gasoline. In the case of the latter, the fire tends to spread to other areas and is relatively more difficult to extinguish.
Arguably the key measure of vehicle safety is the likelihood of passenger injuries in crashes. In this metric, electric vehicles are at the very least as safe if not safer than gasoline vehicles. The National Highway Traffic Safety Administration (NHTSA) found that electric vehicles actually have a slightly lower likelihood of passenger injuries.
Electricity is a Renewable Resource
Gasoline that is used to power cars comes from oil, which is a non-renewable and finite resource. According to some estimates, there are approximately 1.65 trillion barrels of proven oil reserves. At current global consumption levels, and excluding the discovery of new reserves, the world has about 47 years of oil consumption left.
- Electric vehicles can be powered using renewable energy, which theoretically means that the supply is infinite
- Solar, wind, and hydroelectric power can be used to generate electricity, which is then transported to charging stations using the existing infrastructure
In addition, electricity is also cheaper than gas in most global markets. Unlike gas powered vehicles, customers can install charging stations at home or in parking garages. This makes the ownership of electric vehicles substantially more convenient. Rather than driving to gas stations, consumers can charge their cars at home.
Finally, electric vehicles also produce less noise and provide for a more enjoyable driving experience. Batteries are generally located in the floor of the car, which guarantees more weight distribution and an easier driving experience. This is especially important for consumers who value not only safety, but also overall comfort.
The Future is Electric
Despite some obstacles, the future is bright for electric vehicles. Continued advancements in battery and other technologies, combined with a positive regulatory environment and often generous financial incentives will likely mean that the sale of these vehicles will continue to grow in the future.
- Absent a major change in the regulatory landscape, gas powered vehicles will continue to account for a lower fraction of all vehicles, especially in developed states
- By mid century, electric vehicles will likely constitute the majority of all new vehicles on the road, making the transition essentially irreversible
Financial, environmental, and regulatory developments are clearly pointing toward an electric future. Major automotive manufacturers and early startups are both investing heavily in the technology to power these cars. As their prices continue to drop, they will become more affordable to people in developing countries as well.