by Nina Rodríguez-Quirós: Is now the right time to buy an electric vehicle?
The Covid-19 pandemic has had a devastating economic impact around the world, and the automotive sector is no exception. The Congressional Research Service reported that since the outbreak surged in December 2019, it has impacted the economy more than any other event in the past century. It estimated that the virus could trim global economic growth by 3% to 6% in 2020.
The CounterPoint Research official website states that its forecast for 2020 is an over 24% annual decline in global passenger vehicle demand. This forecast also indicates that “Tesla’s market capitalization now exceeds Toyota’s, making it the most valued carmaker in the world,” making the electric vehicle market one of the least affected industries during the pandemic compared to gasoline and diesel-powered automobiles.
Another uncertainty that the automotive industry faces is whether the crisis will change the types of cars that buyers are interested in and whether consumers will be inclined towards more sustainable options. Now, buyers have a greater appreciation for environmentally friendly technology; this has resulted in people investing in vehicles that produce little to no tailpipe emissions and positively affect climate change.
What Has Resulted by People Driving Less Due to COVID-19
Since the outbreak started in late 2019, stay-at-home orders have been mandated around the world. This has led to fewer drivers on the road, and many countries have seen a dramatic fall in carbon dioxide emissions. In fact, in terms of impacts on the environment, NASA has stated that one of the positive effects is “seeing better air quality with less traffic.” A Nature Climate Change research shows that the population confinement led to drastic changes in energy use, “daily global CO2 emissions decreased by 17% by early April 2020 compared with the mean 2019 levels, just under half from changes in surface transport. At their peak, emissions in individual countries decreased by 26% on average.”
The International Energy Agency (IEA) says that electric car sales this year have resisted Covid-19’s blow to the global car market. It expects that “the number of electric cars on the road will reach almost 10 million this year, with sales of electric vehicles set to buck the trend of declining sales in gas-powered cars and broadly match the 2.1 million sold in 2019.” IEA’s report on how electric cars remain a bright spot during the pandemic indicates that electric vehicles will see a lower impact on sales than the overall car market — accounting for about 3% of total global car sales.
It’s Getting Easier to go Green
An acceleration of green technology has been seen throughout the decade, especially in how the electric market has grown in demand and production. This results in significant price drops, making green tech more affordable. A BloombergNEF’s annual long-term forecast indicates that “lithium-ion battery pack prices fell 87% from 2010 to 2019, with the volume-weighted average hitting $156/kWh.”
Bloomberg estimates that the price drop represents a cut of 13% from 2018 to 2019 alone, and claims that the introduction of new manufacturing techniques and designs will keep prices in decline and increase demand
The development of electric charging infrastructure makes green technology more accessible. Just a few years back, the lack of charging stations was a deterrent for consumers looking into purchasing an electric car. With charging stations emerging worldwide and people wanting to get into a more eco-friendly lifestyle, electric cars are more relevant than ever. The electric vehicle industry is so prominent that countries are creating policies to incentivize citizens that buy electric vehicles. In June 2020, an IEA report said that “17 countries have announced 100% zero-emission vehicle targets or the phase-out of internal combustion engine vehicles through 2050.” The report also indicates that in 2010, there were only about 17,000 electric cars on the world’s roads; by 2019, that number increased to 7.2 million. In July 2020, the Environmental Defense Fund announced that 15 states in the U.S. committed to zero-emission trucks and buses to help mitigate the negative impact carbon dioxide and greenhouse gases have on our health and the planet.
Start-Ups On The Rise
An automobile forecast conducted by J.D. Power in June 2020 indicates that total vehicle sales (new and used) were 25.1% lower than June 2019. BloombergNEF’s article forecasts electric vehicles accounting for 58% of new passenger car sales globally by 2040, including personal vehicles, buses, commercial business and two-wheelers. This means that electric cars will make up at least 31% of the global car fleet in the next 20 years.
More manufacturers are showing interest in electric vehicles (EV) and the attention that this sector has been getting sets a precedent for other companies. An example of this is Tesla’s bet on demonstrating that there are greener ways to create cars that challenge traditional carmakers. In 2019, Tesla generated $24.6 billion in revenue, influencing others to go into the EV market. Other start-ups getting a head start in the EV industry are Nikola, Byton and Lucid. Nikola announced earlier this year a pre-sale for their Badger pick up model. Meanwhile, Byton and Lucid announced that the pandemic has forced them to move production to a later date. Both companies are still expecting to launch their models around the beginning of 2021.
Will Auto Insurance for EVs be Impacted?
A Bankrate.com article states that typically, electric cars have higher insurance rates than their conventional counterparts. The main reason driving this spike in monthly payments is that electric cars usually cost more than traditional vehicles, including reparations and any car part replacements.
Bankrate’s research team requested quotes for electric vehicles and were surprised at the rates they received. The cost of insurance for internal combustible engine vehicles with an average of 6-months premium coverage starts at $450. In comparison, the average Electric Car Insurance for Chevy Spark starts at an average of $471. As you can see, even though insurance premiums for electric cars tend to be higher, the difference isn’t that significant. Big brand insurance companies like Allstate, Farmers, Geico, Liberty Mutual, Nationwide, Progressive, State Farm and USAA provide policies for EV, and even Tesla offers car insurance to Tesla vehicle owners. An important step in the process of shopping for car insurance is to compare policies available for combustible engine vehicles and electric vehicles to ensure you are getting the best possible rate.
Post-Pandemic Public Policy Will Influence EVs Landscape
What the future holds for electric vehicles is still unknown. What is certain is that the expansion of EVs in the United States relies heavily on government regulations and incentives to encourage consumers to invest in electric cars. An article from CleanTechnica states that the steady sales growth of electric vehicles across Europe is mainly driven by EU regulatory agencies, which are being aggressive in limiting carbon and nitrogen dioxide emissions. CleanTechnica also claims that “Norway has become the world’s EV capital, thanks to generous purchase subsidies and other incentives. Last year, pure electric cars accounted for over 20% of new registrations.”
The change to more environmentally friendly practices seems likely to happen soon in the U.S.; the House Democrats released a net-zero plan, including 100% EV sales by 2035. The proposal looks to stimulate a transition to EVs and green energy by providing tax incentives, new infrastructure and rebates. A Pew Research Center study demonstrated that two-thirds of Americans think the government should do more on climate. Even though there is still a long way to go, there are various support measures in the works like building charging stations and public co-funding corporate fleets for bulk procurement of electric cars, buses and trucks. These could support the continued growth in electric vehicle sales while impacting economic activity by employing millions across an entire greener supply chain.
One thing we know for sure, the pandemic has had a significant impact on the automotive industry. But, electric vehicles are well placed to dominate the auto market in the future. We are in the midst of an automotive revolution heading into a future of sustainability. If you are currently shopping for a new car, an EV might be what you are looking for.