SUMMER 2022 NO.64 / THOUGHT LEADERSHIP BRIEF 2 ISSUE As the green transition takes off globally, the adoption of electric vehicles (EVs) has become a fundamental part of this strategy because cars are an important source of carbon emissions (about 12% globally), although not as much as industrial production and supply chains, which are responsible for at least half of global emissions. One might wonder why so much attention is being paid to electric vehicles in the green transition if other sectors are bigger emitters. Furthermore, analyzing which countries leading the race, who dominating the heart of EVs and the risks that the sector facing also provides a clue for its future evolution. ASSESSMENT The answer to the first question, why EVs stand out in the green transition, lies in the technical and commercial feasibility of EVs to reduce emissions. In fact, substituting traditional cars with EVs could help governments meet their pledges to cut emissions while buying time for sectors where technology is not yet sufficiently developed to reduce emissions at a reasonable cost. On the other hand, the EV sector offers a great industrial opportunity, and not only for the companies and countries that have traditionally produced cars, but also for newcomers. In fact, some of the most successful EV companies did not exist before, with Tesla as the best example, or have come from very different sectors, as is the case of Foxconn, one of the largest producers of electrical components, having embarked on the production of electric cars. The Eu and China are so far Leading but in Different Ways The European Union, the first economic giant to take serious measures in the face of the challenge of climate change, was also the first to encourage the demand for sustainable cars, and to a lesser extent to produce them, though not necessarily completely electric ones, but rather hybrids, probably because of the interests of the existing European automotive companies. In China, on the other hand, the commitment has clearly been for the fully electric car, both for production and consumption. In this sense, subsidies have been concentrated on the producers, and less so on consumers, to encourage investment in research and development, which to date has been the most determining variable for the success of EV companies, with Tesla as the best example. The reality is that the growth of the EV market has just begun. Sales of EVs are expected to grow from 4% of total car sales in 2020 to 70% by 2040, with China as the main market, followed by the EU, while Asia outside China should become more relevant from 2025 onward (Figure 1). In fact, the adoption of EVs in Asia ex-China has been slow, with only 3% of its total car sales. The main reason for the delay is the very limited government support, except in South Korea. But this also means massive growth opportunities, as Asia excluding China accounts for 20% of the global traditional-car market. Figure 1. Global Traditional and Vehicle Sales (%) Source: Natixis, International Organization of Motor Vehicle Manufacturers, MarkLines, BNEF 100 80 60 40 20 0 China Asia (ex. China) Rest of World 2020 Total 2020 Electric Vehicle 2040f US Europe
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