Electric Vehicles Rapidly Cannibalizing Market Share of Gas/Diesel Counterparts

In its recent look forward in ‘Big Ideas 2023‘, popular investment fund manager ARK Invest touches on a variety of industries set to evolve in a big way.  Unsurprisingly, Electric Vehicles (EVs) made the cut, as industry growth and pending regulations point to their inevitable cannibalization of the internal combustion engine (ICE).

Market Share Forecasts

So just how bullish on EVs is ARK Invest?  The company believes that by 2027, EV yearly sales will top 60M – a sales increase more than 7-fold from 2022.

It should be noted that ARK Invest has made its projections based on healthy production.  Unforeseen circumstances like COVID wreaked havoc on supply chains over the past few years, resulting in cutbacks in vehicle production.  If similar issues arise for whatever reason in the coming years, this rate of adoption may be slightly muted.

Adoption Rates

So we know the kind of growth trajectory ARK Invest has envisioned for the EV sector, but what about current adoption levels?  ARK Invest notes that dating back to at least 2018, EVs and Hybrids have continually sold more vehicles each year, while their ICE counterparts decreased each year over the same frame, except for 2021.

Source: ARK Invest – Big Ideas 2023: Electric Vehicles

There are various reasons that this trend continues – shifting public sentiment towards EVs, media attention, etc.  The following are a few of the more notable reasons why.

Price Parity

One major hurdle that EVs cleared in 2022, allowing for a continued surge in adoption, is price parity.  Until only recently, owning an EV meant making sacrifices in functionality unless you were ready to doll out major capital for the privilege of owning one.  Now, there are various EV options on the market that offer equal or greater range than their ICE counterparts, while not costing anything extra.

Joining the Fray

Another major reason for the recent surge in adoption is the most obvious one – accessibility.  Until 2020, there was essentially only one name in the EV market widely known, and it goes by the name of Tesla.  Yes, there were niche offerings, but few if any were able to compete with the range and price combination on offer with EVs throughout the Tesla lineup, like the Model 3.

Jump ahead to 2022, and ARK Invest notes that there are now 15+ EVs that offer 300+ miles of range on offer, from across at least 9 different manufacturers.  A few of these include,

As you can see from the list above, EVs are no longer being pushed by niche upstarts alone.  Backed by decades of experience, and the ability for massive research and development efforts, many of the major automotive names have managed to play catch-up, and succeed, in a very short amount of time.

Pending Regulations

Finally, governments themselves have played a large role in pushing the EV narrative.  Not only have rebates on such vehicles been around for years now, dates have been set for the demise of the ICE.

Norway is the most ambitious of all, with 2025 being the line drawn in the sand (or snow in its case) for ICE sales.  In Canada, the sale of new ICE powered cars are set to be banned by 2035.  France has announced a similar ban by 2040.  Meanwhile the United States is headed down the same path, with the Biden administration having already issued an executive order that would mandate EVs must constitute 50% of all vehicle sales by 2030.

The above are only a few examples of pending government enforced EV adoption.  As it stands, the majority of developed countries around the world already have plans to either limit, or ban ICE sales altogether within a 15 year timeframe.  With that being the case, chances are that the next ICE vehicle you buy will be your last.

Lingering Skepticism

We've noted various reasons for increasing adoption of EVs.  The fact of the matter though, is that while sales trends are showing decreased interest in ICE vehicles vs. EVs, they still sell in droves.  This is largely due to various lingering misconceptions and hurdles surrounding EVs, preventing skeptics from being convinced.  And to be fair, there are still issues.

Charging Infrastructure

Living in a city centre? EVs will be no problem.  A nation like Canada though, is astoundingly vast.  As the second largest nation on Earth, Canada boasts a road network over 647,600 miles (1 million km) in length.

With such a staggering road network, it will be some time before EV charging networks become sufficient to allow for their use to be a reality for many – even with the increased range of new EVs.

In addition to servicing a vast road network, range anxiety still exists in many regions.  Recent studies have shown that, despite range improvement in ideal conditions, many EVs continue to lose up to 35% of their range in cold weather.  This is a significant number, that when paired with bare-bones charging infrastructure, makes EVs a hard sell to many.  While some may point to adoption rates in Norway as an example of EVs thriving in colder climates, this does not take in to account the fact that Canada in particular is more than 31x its size.

Environmental Impact

Much of the draw towards EVs is the idea that they will cut down on our negative environmental impact.  Many remain unconvinced however, with the most common counterpoint being how we dispose of spent energy cells at the end of an EVs life.

While this is currently a genuine concern, governments have already begun working with manufacturers to develop efficient recycling techniques that will mitigate the issue in the coming decades when the first tranche of EVs inevitably hit the end of their life.

Cost of Living

Various EV models are now achieving price parity with their ICE counterparts.  Although this is a great thing, it doesn't change the fact that vehicles as a whole continue to increase in cost.  Vehicles are essentially becoming unattainable, regardless of drivetrain, resulting in many making financially ill-advised purchases, or just looking towards the used-car market.

At the end of the day, price parity means nothing if the vehicles remain unattainable to the bulk of the public.  In the United States, the average price of a new vehicle was over $48,000USD – a huge sum for a depreciating asset.

Final Word

Overall, the trend is clear.  Whether the public likes it or not, EVs are not only hear to stay, they are set to continue cannibalizing sales of ICE based vehicles – and quickly at that.  For those willing to recognize and accept this, easy exposure to the sector can be obtained through investments funds like those on offer from ARK Invest.