That hum in the distance is the sound of the concept of mobility changing—for the better. While challenges to the electrification of the vehicle parc persist, opportunities worth fighting for also lay ahead. This is particularly evident in cities, where emissions, congestion, and safety constitute major issues today. If the status quo continues, mobility problems will intensify as population and GDP growth drive increased car ownership and vehicle miles traveled. In response, the mobility industry is unleashing a dazzling array of innovations designed for urban roads, such as mobility-as-a-service, advanced traffic management and parking systems, freight-sharing solutions, and new transportation concepts on two or three wheels.
The current opportunity to transform the way we move fundamentally results from changes in three main areas: regulation, consumer behavior, and technology.
Regulation. Governments and cities have introduced regulations and incentives to accelerate the shift to sustainable mobility. Regulators worldwide are defining more stringent emissions targets. The European Union presented its “Fit for 55” program, which seeks to align climate, energy, land use, transport, and taxation policies to reduce net greenhouse gas emissions by at least 55% by 2030, and the Biden administration introduced a 50 percent electric vehicle (EV) target for 2030. Beyond such mandates, most governments are also offering EV subsidies.
Cities are working to reduce private vehicle use and congestion by offering greater support for alternative mobility modes like bicycles. Paris announced it will invest more than $300 million to update its bicycle network and convert 50 kilometers of car lanes into bicycle lanes. Many urban areas are also implementing access regulations for cars. In fact, over 150 cities in Europe have already created access regulations for low emissions and pollution emergencies.
Consumer behavior. Consumer behavior and awareness are changing as more people accept alternative and sustainable mobility modes. Inner city trips with shared bicycles and e-scooters have risen 60 percent year-over-year and the latest McKinsey consumer survey suggests average bicycle use (shared and private) may increase more than 10 percent in the post-pandemic world compared with pre-pandemic levels (See also “The future of micromobility: Ridership and revenue after a crisis,” July 2020). In addition, consumers are becoming more open to shared mobility options. More than 20 percent of Germans surveyed say they already use ride-pooling services (6 percent do so at least once per week), which can help reduce vehicle miles traveled and emissions (See also “Shared mobility: Where it stands, where it’s headed,” August 2021).
Technology. Industry players are accelerating the speed of automotive technology innovation as they develop new concepts of electric, connected, autonomous, and shared mobility. The industry has attracted more than $400 billion in investments over the last decade—with about $100 billion of that coming since the beginning of 2020. All this money targets companies and start-ups working on electrifying mobility, connecting vehicles, and autonomous driving technology (See also “Mobility’s future: An investment reality check,” April 2021). Such technology innovations will help reduce EV costs and make electric shared mobility a real alternative to owning a car.
Electrification will play an important role in the transformation of the mobility industry and presents major opportunities in all vehicle segments, although the pace and extent of change will differ. To ensure the fast, widespread adoption of electric mobility, launching new EVs in the market is an important first step. In addition, the entire mobility ecosystem must work to make the transformation successful, from EV manufacturers and suppliers to financers, dealers, energy providers, and charging station operators—to name only a few (Exhibit 1).
The future of passenger vehicle powertrains is electric; the transformation is ongoing
The tipping point in passenger EV adoption occurred in the second half of 2020, when EV sales and penetration accelerated in major markets despite the economic crisis caused by the COVID-19 pandemic. Europe spearheaded this development, where EV adoption reached 8 percent due to policy mandates such as stricter emissions targets for OEMs and generous subsidies for consumers.
In 2021, the discussions have centered on the end date for internal combustion engine (ICE) vehicle sales. New regulatory targets in the European Union and the United States now aim for an EV share of at least 50 percent by 2030, and several countries have announced accelerated timelines for ICE sales bans in 2030 or 2035. Some OEMs have stated their intentions to stop investing in new ICE platforms and models and many more have already defined a specific date to end ICE vehicle production. Consumer mindsets have also shifted toward sustainable mobility, with more than 45 percent of car customers considering buying an EV.
However, the continued acceleration of electrification is putting significant pressure on OEMs, their supply chains, and the broader EV ecosystem to meet these targets. This is particularly obvious with respect to setting up the required charging infrastructure.
By 2035, the largest automotive markets will go electric
Regulatory pressure and the consumer pull toward EVs vary greatly by region. Europe is mainly a regulation-driven market with high subsidies, while in China consumer pull is very strong despite reduced incentives. In the United States, EV sales have grown slowly due to both limited regulatory pressure and consumer interest, although the regulator trend is set to change under the new administration.
On a global level, we expect EV (BEV, PHEV, and FCEV) adoption to reach 45 percent under currently expected regulatory targets. However, even this transformative EV growth outlook is far below what’s required to achieve net zero emissions. EVs would need to account for 75 percent of passenger car sales globally by 2030, which significantly outpaces the current course and speed of the industry.
We believe Europe—as a regulatory-driven market with positive consumer demand trends—will electrify the fastest and is expected to remain the global leader in electrification in terms of EV market share. In addition to the European Commission target, which requires around 60 percent EV sales by 2030, several countries have already announced an end to ICE sales by 2030. In line with this, seven OEM brands have committed to 100 percent EV sales by 2030 within the European Union. In the most likely accelerated scenario, consumer adoption will exceed regulatory targets and Europe will reach around 75 percent EV market share by 2030. The European Union announced a zero-emissions target for new cars by 2035.
China will also continue to see strong growth in electrification and remain the largest EV market in absolute terms. Uptake results from strong consumer pull, despite low EV subsidies and no official end date for ICE sales. However, the government’s dual-credit policy has led to an increased EV share in OEMs’ portfolios. Our adoption modeling yields a Chinese EV share above 70 percent for new car sales in 2030 in the accelerated scenario.
In the United States, the Biden administration announced a 50 percent electrification target for 2030, strong investments in charging infrastructure, and more stringent fleet emissions targets. EV uptake will result mainly from regulatory support in California and other states that follow its CARB ZEV regulation. US OEMs support electrification targets and have declared ICE bans by 2035, meaning the United States will follow Europe and China in EV uptake with a small delay; it is expected to exceed current regulatory targets and reach 65 percent EV sales by 2030 in the accelerated scenario (Exhibit 2).
