How Covid-19 Will Impact Key Global EV Markets

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The electric vehicle (EV) segment is expected to weather the pandemic storm better than conventional vehicles due to the commitment of governments to meet their overall emission targets.

By Aman Madhok

According to studies conducted by Counterpoint Research, the impact of the pandemic in 2020 will differ across regions, since the sector is critically dependent on government priorities and policies.

China: Compared to the rest of the world, China will recover the fastest from COVID-19 due to its control on the pandemic’s spread and more ambitious pro-EV policies. In the longer term, the impact of the pandemic will be minimal on the EV sector, and sales will be driven by government regulations and incentives.

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The Chinese government has taken positive steps in 2020 to revive the demand for new-energy vehicles (NEVs). It is expected that the government will continue to support NEVs, with sales mandates and subsidies driving the market.

  • In April 2020, China scrapped its vehicle purchase tax on NEVs, effective in 2021 and 2022, and broadened the scope of the exemptions to include all NEVs.
  • The NEV subsidies were supposed to end this year. However, during the very month they were to expire, the government announced that it would extend the subsidies to 2022, with a slower phase-out pace.

NEV sales in China during the January-May period crossed 260,000 vehicles, declining 44 per cent from last year. However, sales are gradually picking up with each passing month as the pent-up demand is released and business activities return to normal. Counterpoint Research expects a strong H2 (second half) 2020 for EV sales in the country, compensating for the demand lost during H1 (first half) 2020.

Europe: Despite slower recovery in Europe, the EV investments in the region are expected to remain strong in the long term, driven by strong regulatory tailwinds.

European car sales increased around 90 per cent during January-April 2020 compared to last year due to the following reasons:

  • The target year for complying with the European Union’s CO2 emission standards (to limit average CO2 emissions per kilometre per new car sold) is 2020.
  • Germany increased the EV subsidies in February this year, boosting demand in the region.
  • Italy’s move to introduce incentives worth US$ 68 million in 2019, and US$ 79 million in 2020 and 2021, have started impacting sales positively.

United States: Long-term demand in the US will be the lowest if the emission norms remain lenient and the oil prices remain low.

The COVID-19 impact on the US EV market had initially been limited due to strong sales of Tesla during Q1 2020. Subsequent plant shutdowns during the March-May period have started having an impact on all OEMs including Tesla, which reported a 5 per cent YoY decline in deliveries during Q2 2020.

Going forward, the EV sales in the US will be hit hard by COVID-19 and the segment will see slower growth in the coming years, for the reasons listed below:

  • In order to boost EV adoption, the US government had earlier offered a US$ 7500 tax credit qualification to the first 200,000 EVs sold per automaker. In January 2020, GM and Tesla pleaded with the government to increase the number of EVs entitled to this tax credit to 600,000 per automaker. Unfortunately, the government not only declined to do so, but also reduced the tax credit available to the current 200,000 EV buyers per automaker to US$ 7,000.
  • Protracted legal battles between Zero Emission Vehicle (ZEV) states and the Central government will continue to adversely impact EV sales in the US, at least for the next couple of years. Cash-strapped automakers will be encouraged to invest in profitable vehicles like gasoline trucks and SUVs.
  • Low crude oil prices (which fell to US$ 37.6 in April) will encourage car buyers to stick to gas fuelled cars.

The impact of the pandemic will be diluted during the rest of the year as OEMs focus on meeting their emission targets. It is likely that the governments will respond to the pandemic by increasing subsidies and incentives for EVs to meet emission targets, boost economic growth and generate more jobs. The European Union’s proposed US$ 22.6 billion (€20 billion) package for two years for clean vehicles, with 2 million electric and hydrogen vehicle charging stations to be installed by 2025, is a step in this direction.


The author is a senior analyst at Counterpoint Research.

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