Significant Improvements in Cost Competitiveness are Necessary Before Australia Becomes an Adopter of Electric Vehicles, Finds L.E.K. Consulting Report
SYDNEY (June 5, 2018) – Analysts estimate over US$90 billion will be invested globally in electric vehicle technologies over the coming years, but only just under 1% (1.2 million vehicles) of global passenger vehicle sales in 2017 were electric. This begs the question: What will it really take to encourage adoption of electric vehicles?
A new report from global management consulting firm L.E.K. Consulting, identifies three key variables that will drive electric vehicle adoption – cost competitiveness with internal combustion engine vehicles, access to public charging infrastructure and a greater availability of electric vehicle brands and models.
“Investments in public infrastructure and other non-financial incentives are important because they signal to industry and consumers that government is committed to the transition, but fundamentally, cost competitiveness is what will drive long-term adoption,” says Natasha Santha, Principal in L.E.K.’s New Mobility practice and co-author of “Accelerating Electrification: Critical Steps Toward Electric Vehicle Mass Adoption.”
The report considers the situation in Australia. In 2017, the country had some of the world’s lowest battery electric vehicle sales, at less than 0.1 percent of all passenger vehicles. Norway, on the other hand, had the highest sales at 20.8 percent. “In terms of adoption, Australia is well behind its global peers, including New Zealand,” says Monica Ryu, report co-author and L.E.K. Consulting’s Global Co-Head of the New Mobility practice.
“Currently in Australia, you would have to drive over 40,000kms a year for it to be cheaper to own a battery electric vehicle, making it financially unattractive for most consumers. Also, there are only a handful of electric models on sale in Australia for consumers to choose from, compared to overseas,” says Santha.
From a global perspective, there is considerable momentum amongst automakers to move toward an electrified fleet. “Costs are being driven down by improvements in battery technology. Chinese manufacturers have also been focussed on developing more affordable electric vehicles. Should this transpire, we may find ourselves in an ‘Uber moment’ where costs align and consumers move quickly to adoption,” says Santha.
Policy makers can encourage electric vehicle uptake
In Australia, the Commonwealth and State governments can actively create an environment that encourages auto makers to launch electric vehicles in Australia and enables consumers to make informed vehicle purchase decisions.
“Global experience shows that to most directly impact the early adoption of electric vehicles, the Australian government could consider financial incentives that reduce the total cost of ownership, ideally within an emissions policy framework that supports the longer-term transition to electric vehicles. There is also an opportunity to introduce non-financial incentives, such as priority access to parking and road lanes, which have been successful in other markets. Purchasing electric vehicles for government fleets and public transport is another area where the Australian government may look to overseas examples, like China and Europe,” says Ryu.
However, “any policies adopted by governments to accelerate uptake of electric vehicles must take into consideration their broader impact on the energy supply chain, as well as their role in the context of future mobility trends, like autonomous vehicles and new vehicle ownership models,” says Ryu.
Given the auto industry is on track to deliver cost competitive electric vehicles in the near future, even governments favouring a non-interventionist, market-led approach to electric vehicles need to be prepared for what could be a rapid transition.
About L.E.K. Consulting
L.E.K. Consulting is a global management consulting firm that uses deep industry expertise and rigorous analysis to help business leaders achieve practical results with real impact. We are uncompromising in our approach to helping clients consistently make better decisions, deliver improved business performance and create greater shareholder returns. The firm advises and supports global companies that are leaders in their industries, including the largest private and public sector organizations, private equity firms, and emerging entrepreneurial businesses. Founded in 1983, L.E.K. employs more than 1,200 professionals across the Americas, Asia-Pacific and Europe. For more information, go to www.lek.com.
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