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The future of electric vehicles [Part I]

Electric vehicles (EV) are thought to be an essential player in reducing oil demand. The former Danish minister for climate, energy and utilities, Dan Jorgensen, declared, “There is no future for oil and gas in a 1.5-degree world.” The International

Energy Agency (IEA) Net Zero Emissions Scenario (NZE) predicts that use of fossil fuel should fall by 75 percent by 2050 to achieve net-zero targets.

The transport sector uses the bulk of the global oil. If oil consumption has to fall so drastically to achieve climate objectives, the transport sector should be decarbonised. This calls for a shift of the automotive sector from oil to renewable electricity like wind and solar. Electric vehicles are the best way to achieve this target as they run on renewable electricity.

Global net zero target requires 50 percent EV population by 2050 and the Clean Energy Initiative (CEI) requires a 30 percent market share of EV sales by 2030. In 2021, global EV car sales stood at 6.5 million units per year; China sold three million cars (30 million motorcycles) per year, and the EU and the US sold 2.5 million and under one million units respectively.

Pakistan’s ambitions – if not target – in this respect is the same (to ensure that EV sales are 30 percent of the total sales by 2030), matching with the renewable energy target. One is not sure if the 30 percent target can be achieved in all EVs including four-wheelers, but it is possible that the 30 percent market share or even more may be achieved in the case of two-wheelers. The reason is that there is a large growing market (RoG eight percent) of two-wheelers, in terms of both annual sales (two million units) and vehicle population (20 million). And it is simple technology. Motorcycles consume 40 percent of the annual gasoline requirements of Pakistan.

EVs are relatively quiet and simple to drive and have no gears or clutches. They are also easy to maintain as they don’t require filter or oil change. They have higher pickup and are equipped with electronic controls some of which have anti-collusion and safety features. Drivers won’t need to visit petrol pumps as these vehicles can be charged at home with the help of dedicated home chargers. But they require three to four hours to charge and have a typical range of 100 kms per charge. This may be a disadvantage for those who may have a longer travel activity in a day.

There is a new development in the automotive sector, especially in the area of EVs. Established brands are losing their foothold, and new players are emerging, particularly out of China. Chinese products are cheaper as well. It is expected that these new and cheaper brands will get established in developing countries, something that could not have been thought of earlier. This would create opportunities for countries like Pakistan to achieve indigenisation – the manufacturing of EV motorcycles is more likely in this respect.

In the 1970s, Japan emerged as a leader in the automotive sector, replacing Europeans. It seems that in the case of EVs – if not the total automotive sector – the new leader will be China. A major Chinese automaker, BYD, is exporting EV buses to Europe and the US, and is perhaps the largest manufacturer in this area. China’s market share in supplies of EV parts such as batteries is already 74 percent of the global sales.

Pakistan’s four-wheeler market has been monopolised by two or three leading Japanese manufacturers without any serious efforts to localise the market, although Suzuki did play a major role in indigenisation. This was, to be fair, due to the larger market size and simpler products, compatible with customers’ buying power and attitude. Today, one or two Chinese companies can play a significant role in developing an EV industry and market, provided that government policies do not fragment the market by awarding permissions without disdain. Now, an exciting opportunity is standing outside our door – in the case of two-wheeler EVs, if not four-wheeler EVs. The motorcycle market offers a great opportunity for economic growth, exports and industrialisation due to its market size. Although the EV component has started recently, it has the potential to grow.

A typical problem in small developing economies like that of Pakistan is that annual sales are much smaller, and the park size is much larger. Thus, there is a larger market potential in replacement and conversion. There would be opportunities in the area of conversion of conventional automotive to EVs. Two-wheelers and buses have this potential. Standardisation is likely to help create economies of scale. The main components in EVs are electric motors and battery (with and without regenerative braking).

Thailand is a developing country with a population of 70 million and per capita GDP of $8356 (nominal). It has only 60 percent of the area as that of Pakistan. It is the eleventh largest producer of automotive in the world. Thailand hosts some 35 automotive brands, national and international. In 2020, it produced around three million automotive units out of which more than one million units were exported. Thailand has more than 1,800 vendor companies out of which one-third is tier-1 suppliers and two-thirds are tier-2 and 3 suppliers.

There are other successful examples of Malaysia and Turkey in the automotive sector. Similarly, Iran and Turkey have developed their automotive sectors in an impressive manner, reaching the mark of 1.5 million vehicles per year with a very sizeable level of local content. Under the Regional Cooperation for Development (RCD) – now the Economic Cooperation Organisation (ECO) – there used to be a joint programme of co-production among three countries – Iran, Turkey and Pakistan – under which a ball-bearing company was established in Pakistan.

By comparison, Pakistan could not achieve much despite an early start in the automotive sector in the 1960s. Its smaller market size was quoted to be one of the reasons for its failure. The total automotive market production is limited to 250,000 units per year, even today. However, cheaper Chinese motorcycles have helped expand the demand rather steeply in the last 10 years. Motorcycle demand and production has reached two million units per year which has opened the doors of opportunities in indigenisation and exports, especially in the area of EV bikes.

However, there appears to be more excitement among traders, investors and the environmental lobby than among potential EV buyers. While the EV car potential in developing countries appear to be questionable in the short- to medium-term, there appears to be some optimism for EV motorcycles. But last year’s sales of EV motorcycles in Pakistan were 10,000 units only. Let us review the EV status in India which might have some relevance to us. In India, gasoline prices are relatively higher than in Pakistan. There should be a stronger economic incentive in India to switch to EV motorcycles. Last year’s sales of EV motorcycles in India were limited to 150,000 or 1.1 percent of the two-wheeler market. The installed capacity of EV motorcycle manufacturing units is already 2.5 million, more than 15 times the demand. The emerging oil market will possibly determine a switchover to EVs.

The EV industry can have a multiplier effect in other areas as well. EVs require li-ion batteries, which are required in other areas of the economy, like electric storage, communication infrastructure, etc. EVs will boost electricity demand, and we already have excess capacity in the power sector, which has partly given rise to the circular debt issue. A lower night-time tariff for EV charging at home will go a long way in boosting the utilisation of the unused capacity and incentivising use of EVs by lower-income groups using motorcycles. This would also reduce expensive oil imports and have a significant downward effect on roadside pollution.

To be continued

Email: akhtarali1949@gmail.com

Syed Akhtar Ali, "The future of electric vehicles [Part I]," The News. 2022-03-29.
Keywords: Economics , Economic growth , Economic Cooperation , Developing economies , Traders , Imports , Exports , Pakistan , RCD , ECO , BYD