Electrical Vehicles

Managerial Economics

Term Paper

Electrical Vehicles

Introduction :

The electric car market has had a very interesting development over the last few years. It has become a very influent market and predictably will continue to grow due to current oil situation and an increased awareness of our environmental condition. Even though there is still a considerable amount of questions remaining unanswered regarding the future of the electric car, we can express interest in the current situation and what we can expect. It is obviously a very competitive market since there are a lot of car companies that are each developing their own model. Understandably, some other factors like oil have a direct impact on this market, a lot of predictions are made, but which one is true for the future leaves room for discussion.  All these topics will be analyzed in detail to get a better understanding of what is going on and what awaits us.

How will the demand and supply change and what is the current situation?

The electrification of the global vehicle fleet is assuredly a long-term ambitious target. As the world seeks to tackle climate change and to cut greenhouse gas emissions, governments have pinned their hopes on electric vehicles, spending billions on development of electric cars and their components. The Global EV Outlook forecasts that the global stock of electric cars will represent 2% of the total passenger cars in 2020, that is 20 million of these green cars on the road (6). However, the adoption of the electric car shouldn’t be taken as granted as its market shares are still below 1% in most major markets (Appendix 2). The high purchase price and perceived limited range are two major hindrances to consumers. Nonetheless, considerable progress in this market have been made, which suggests a rather optimistic outlook. Indeed, demand for electric car, whose range and convenience are rapidly developing, is rising worldwide fairly sharply, with over 320,000 new vehicles registrations in 2014, representing a global growth rate of 76% and taking the total global market up to 740,000 cars in March 2015 (Cleantechnica, 2015). With a growth rate of 69%, and a total number of 290,000 units in the country, the US experienced strong growth in 2014 and alone accounts for approximately a third of world electric vehicles stock today. As for China, the world’s largest producer of emissions, it didn’t lag terribly far behind with a remarkable 120% growth rate, bringing the total number of electric cars in the country up to 100,000. Alongside the boom, the growing demand is expected to influence in several ways. While many manufacturers now produce electric cars, only a few companies are leading the market (Nissan, Tesla, and Mitsubishi). The growing demand will encourage more firms to supply electric-car components such as batteries and increase competition as a result. The increasing sales will also lead to improvements as it will generate more revenues and it will promote components' cost reduction for car manufacturers. As the market is competitive, the reduced cost will be reflected in the vehicles' final prices. The global electric vehicle fleet would therefore greatly increase in the near future as these cars would be more affordable and practical.