Electric Vehicle Purchase Subsidies

Overview

The transport sector, one of the fastest-growing contributors to global emissions, is now very much a focus of policy makers seeking to decarbonize their economies. Electrification of road transport has attracted the most attention in recent years and has the potential to play a major role in curbing transport emissions. The outlook for electric vehicle (EV) adoption is getting brighter, due to policy support, automaker commitments, improvements in battery density and cost, and the installation of more charging infrastructure. Passenger EV sales are set to increase sharply in the next few years, rising from 3.1 million in 2020 to 14 million in 2025, according to BNEF’s Electric Vehicle Outlook 2021. Globally this represents around 16% of passenger vehicle sales in 2025, but some countries achieve higher shares.

Impact

Policy support – more specifically purchase subsidies – have played a key role in EV deployment to date, in particular for driving early-stage adoption as they lower upfront costs. Countries with such policies in place accounted for over 90% of global EV sales in 2019, and even nations where EVs passed the 10% adoption mark continue to offer purchase subsidies, recognizing that it will likely be necessary until they reach upfront price parity with internal combustion engine (ICE) vehicles. For example, Germany, where EVs accounted for 14% of passenger car sales in 2020, provides purchase subsidies of $10,837 for battery-only models.

However, the effect of such subsidies depends in part on the overall price for an EV, which varies across countries due to numerous factors, such as import fees, exchange rates and domestic taxes. While one country may have a more generous subsidy, a higher vehicle price means that the actual purchasing power of that subsidy is lower. The G-20 countries, for example, fall roughly into two categories: those where purchase subsidies contribute around 6-10% of the vehicle price (eg, Japan and the U.K.), and those where this contribution exceeds 15% (eg, Germany and France).

Generous purchase subsidies are insufficient on their own, however. For example, in 2020, in the U.S., the $7,500 tax credit at the full amount, would have contributed nearly 19% to the price of a Tesla Model 3. Yet, the country’s EV adoption rate that year was less than 2%. This was partly due to uncertainty around the fuel economy targets, coupled with limited EV model availability, and lower gasoline prices.

Source: BloombergNEF, government agencies. Note: BEV = battery electric vehicle. Reference EV is the Tesla Model 3. Where unavailable, we used Hyundai Kona or other EV as a reference. Currencies calculated using the average exchange rates for 2020. Only includes direct purchase incentives in place (rather than purchase/registration tax exemptions, where the level of support offered will depend on vehicle’s purchase price). For more details, please see EV Policy Data Hub.

Opportunity

Passenger EV sales are expected to rise quickly in the next few decades are battery prices fall, according to BNEF’s Electric Vehicle Outlook 2021. Unsubsidized price parity between EVs and ICE vehicles is achieved in most market segments and countries by the late 2020s and some reach this point much sooner. However, the window for achieving net-zero emissions in the road transport sector by 2050 is closing quickly. To get on track to achieve this goal, zero-emission vehicles must comprise almost 60% of global new passenger vehicle sales by 2030. Current techno-economic trends only take us to 34% by that year, meaning significant additional policy support is required.

Source

BloombergNEF. Extracted from G20 Zero Carbon Policy Scoreboard report, published on February 1, 2021. Learn more about BloombergNEF solutions   or   find out how to become a BloombergNEF client.