What Can Drive Global Demand for Electric Vehicles?

Ten years ago, Elon Musk was once touted as a mad man when he said that electric vehicles would be the future of transportation. However, now it seems as though the “mad man” got it spot on once again.

With new registrations of electric cars hitting record highs in 2016 (750,000 in sales), analysts are optimistic about the future of the industry. They believe that the electric vehicle industry will grow at exponential rates from now till 2040 and will eventually overtake fossil fuel cars. So what is driving this change in consumer behaviour?

Government support

With the shift towards cleaner energy, numerous countries have started to seek greener options to power their economy. China is the latest country to have set a deadline to end sales of fossil fuel powered vehicles. This is aimed to encourage companies to increase their efforts to develop electric vehicles for the largest automatic vehicle market in the world.

Not only is China banning fossil-fuel cars, companies are also given huge subsidies to produce new-energy vehicles. With this multi-pronged push towards a shift to electric vehicles in the country, it seems that the electric vehicle industry is set to thrive in China. Already some of the major automobile makers from Europe and Japan are taking the bait and are trying to introduce electric cars in China by as early as next year.

This also comes just months after UK and France announced similar plans in a bid to reduce global air pollution. Both countries aim to ban sales of diesel and gasoline-fueled cars by 2040.

Electric vehicles are getting cheaper

It seems that electric vehicle makers are finding ways to produce them more cheaply. Bloomberg reported that by 2030, electric vehicles would cost less than conventional vehicles.

This will be a huge boost to the industry, which previously had to promote that the cheaper running cost can offset the bigger initial outlay for electric car users. However, with the upfront cost now declining, it is likely that the price will be much less of a stumbling block for potential buyers.

Source: Bloomberg

An industry expert and senior vice president of Renault, Gilles Normand, said that increasing volume and breakthroughs in technology are two of the driving forces that will lead to lower electric vehicle production cost.

Infrastructure improvements

The lack of charging stations worldwide had been one of the major concerns for electric vehicle owners. Thankfully, the charging station infrastructure seems to be improving at a rapid rate as global charging stations are predicted to soar by 2020.

HIS automotive forecast that there will be around 12.7 million charging stations globally in three years’ time. That is a 1200% increase from 2014 when there were just 1 million units installed.

The US has been at the forefront in this regard, but countries like Japan, Netherlands, UK and Norway are fast catching up.

The Foolish bottom line

Despite electric cars currently still only making up a small fraction of the total automotive market, many catalysts are in place for the impending surge in their market share. It now seems that what used to be a far-fetched “dream” by a “mad man” could become a reality in the near future.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Jeremy Chia doesn't own shares in any companies mentioned.