The demand for new ICE vehicles peaked in 2017 and has been falling at a rate of 5% a year since. Two years later, the global oil demand for cars reached a peak and is currently on a typical plateau

The rise of electric vehicles (EVs) is testing the dominance of internal combustion engine (ICE) vehicles. While there are some challenges before EVs are adopted on a mass scale, more and more people are showing interest in using EVs when compared to the vehicles that run on gasoline. In part, this transition is fuelled by environmental concerns and monetary benefits offered by EVs over their lifetime. This change is expected to get a boost in coming years as the EV technology and related infrastructure further improves.

Amid this quiet revolution in the automobile sector, many people are faced with a question that has a significant bearing on their travel behaviour. They are asking whether this is the beginning of the end of the ICE age or the way they have known the automobile sector for decades?

Certainly, if the latest RMI report is to be believed. It says the demand for new ICE vehicles peaked in 2017 and has been falling at a rate of 5% a year since. Rising scrappage and falling sales mean that the ICE fleet is about to peak and will be falling after that. This coming decline in the ICE fleet is being compensated by cleaner alternatives, mainly EVs. The rapid growth of EV means the global oil demand for cars has already peaked and “will be in freefall” by 2030.

The report underlines that the global oil demand for cars reached a peak in 2019 and is currently on a typical plateau. By 2030, oil demand for cars is expected to falL at a rate of more than 1 million barrels per day (mbpd) every year, likely vanquishing one quarter of global oil demand in a matter of years.

EV Sales Growth

Data collected over the years show that there is a clear exponential growth pattern for electric vehicle sales with an S-curve. In broad terms, it is taking around six years for EVs to get from 1% to 10% market share of new car sales, and in leading countries another six years to get to 80%. By 2030, EVs will dominate global car sales.

If the challenges in the EV ecosystem are addressed quickly and sales continue on the S-curve, the report estimates that EVs will make up between 62% and 86% of global car sales by the end of this decade. And China will be a big benefactor of this EV domination with a gigantic market share of at least 90%.

Fig 1: Electric vehicles’ share of global car sales following an S-curve

Rapid Growth of EV Sales – Factors Driving the Shift

There are various factors supporting the rapid shift to EVs. The first one undoubtedly is that most people now trust EVs as the transport technology of the future. A big boost has come from policymakers who have set clear deadlines and targets they want to achieve, pumping investments in research and development (R&D) as well as triggering behavioural change among the buyers.

Their efforts are supported by the industry, which is continuously innovating to bring down the upfront cost of an EV and increase the performance of batteries. For instance, the battery capacity has increased from 0.5 GWh in 2010 to 1,500 GWh in 2022. Battery costs have fallen by 88% since 2010. The average global price in 2022 was $151 per kWh, and $131 in China. Meanwhile, the energy density of batteries increased by around 6% per annum.

As a lucrative market opens up, companies are racing to build enough battery and car factories for EV to dominate sales. Many start-ups have set their eyes on creating infrastructure – deploying charging networks and recycling used batteries – to find an early foothold in the market that is, according to a Fortune Business Insights forecast, to be valued at $1.5 trillion by 2030, growing at a CAGR of 17.8% during the next seven years.

India’s EV market is likely to grow at greater speed than the global average. According to the Economic Survey 2022-23, it is expected to grow at a CAGR of 49% between 2022 and 2030 and is likely to hit 1 crore units annual sales by 2030. This may create 5 crore direct and indirect jobs.

Fig 2: Share of EV sales and share of those planning to buy an EV: Global

Decline of ICE Vehicles?

In 2015 no major countries had set a date to phase out ICE sales. By 2022, 21 countries, accounting for over half of global car demand, had set a date to phase out ICE sales. A rising number of countries have put in place measures to support the growth of EV sales. These included price subsidies for EV, ICE bans, preferential tax treatment, and parking and driving privileges.

There are now policy targets to ban the sale of ICE cars by 2035 in the largest and third-largest car markets in the world: China and Europe. India, a major emerging market for the automobile industry, is aiming to achieve a sales penetration of 30% for private cars, 70% for commercial vehicles and 80% for two and three-wheelers by 2030. The US has set a target for 50% of US sales to be EV in the next 7 years.

Meanwhile, EV penetration has been running ahead of targets in a number of markets, most notably in China. For example, Beijing’s EV share target for 2025 was 25%, but it already reached 29% in 2022.

Transport is one of the main contributors to climate change with road transport representing 19% of energy-related CO2 emissions. Lower-cost EVs give governments a ready tool to reduce emissions and reach their commitments under the Paris Agreement.