The electric vehicles r-ev-olution: Future risk and insurance implications

The basic principles behind electric vehicles (EVs) have been well-known for almost two centuries. The first electric cars were developed in the late 1800s, and by the turn of the century almost a third of cars in the US were electric powered [1], outselling combustion vehicles. However, the abundance and relative low cost of oil eventually favored petrol models which came to dominate the market in the 20th century. Recent years, however, have seen the scales tip back in favor of EVs.

There are three main types: battery electric vehicles (BEVs), plug-in hybrid electric vehicles (PHEVs), and hybrid electric vehicles (HEVs). BEVs, also known as all-electric vehicles, rely 100% on battery power, while PHEVs and HEVs supplement electric power with conventional combustion engines.

Electric car deployment has been growing rapidly over the past 10 years with some five million electric passenger cars on the road in 2018 (of which BEVs accounted for 3.29 million), double the number in the previous year, according to the International Energy Agency (IEA) [2]. The global electric car fleet exceeded 5.1 million in 2018, up by 2 million since 2017. By the end of 2019, it was expected to have totaled around 7.5 million. 2020 had been expected to be a landmark year for EV sales in Europe alone, with projected sales of one million [3], according to forecasts, consolidating the European Union’s (EU) status as the world’s second largest electric car market. However, this forecast was made before the global outbreak of coronavirus (COVID-19) at the end of December 2019 took effect. Amid COVID-19, the outlook for 2020 global EV sales becomes more difficult, given prolonged disruption to dealers, buyers and supply chains. The number of EVs sold in China plummeted 54% in January 2020, according to data from the China Association of Automobile Manufacturers [4].

Nevertheless, China is the world’s largest market for EVs in total, accounting for around 45%, while a quarter (24%) are in Europe and 22% in the US. However, Norway is the world leader in terms of uptake — EVs accounted for 56% of all new car sales in 2019, according to data from ev-volumes. Germany is the largest European market for EVs overall, while the Netherlands and Ireland are the fastest growing markets for BEV sales.

EVs are becoming more attractive to consumers as their cost declines and new models are released — prior to the coronavirus outbreak the number of EV models available to European buyers was expected to rise from around 100 to 175 by the end of 2020 [5] — which make EVs a more realistic alternative to conventional vehicles. For example, the latest Tesla Model S can achieve distances of 630km on a single charge. However, climate change is the biggest single driver behind the push for EV sales going forward.

The need to reduce carbon emissions is driving both government policy and consumer demand for greener vehicles. According to a 2018 EEA study [6], a typical electric car in Europe produces less greenhouse gases and air pollutants across its life cycle, compared with its petrol or diesel equivalent. Today, EVs in Europe produce between 17% and 30% fewer emissions than petrol and diesel cars. However, as more electricity is generated by green sources, the lifecycle emissions of a typical electric vehicle could be cut by at least 73% by 2050.

Government policy is critical with measures ranging from incentives and subsidies for lowemission vehicles, through to proposed bans on combustion vehicles in urban areas or nation-wide. The switch to electric vehicles is seen as essential if governments are to meet emissions commitments, such as the Paris Climate Agreement, which aims to limit the global temperature rise this century to below 2 degrees Celsius.

California and a number of other US states have adopted zero-emissions vehicle mandates while the EU tightened its vehicle emissions targets in 2019 — requiring new cars to emit 15% less by 2025 and 37% less by 2030. The UK government announced in February 2020 that it intends to bring forward by five years a proposed ban on sales of new petrol and diesel cars to 2035, while targets are also in place in Norway, Germany, France and Denmark.

Such policies are likely to have a significant effect on the pace of EV take-up. For example, UK industry figures show that 6,500 new electric cars were sold in the first two months of 2020, more than triple a year earlier. Current policy decisions around the globe are forecast to result in more than 100 million electric cars on the roads in 2030, according to the IEA, with annual sales in the region of 20 million. Such a scenario would contribute to cutting demand for oil products by 127 million tons (about 2.5 million barrels a day).

A more ambitious target, such as the EV30@30 campaign for 30% of vehicles sold being EVs by 2030 [7] — would see electric car sales and stock nearly double to around 40 million annual sales and over 200 million vehicles in total in 2030, driven by growth in China, Europe, Japan, Canada, the US and India in particular.