Morningstar analysts believe China's adoption of electric vehicles (EVs) is primed to take off, reaching 25% of sales by 2028.
China's head start on EV adoption will be driven by its very aggressive regulatory approach. Furthermore, we think China will rapidly build out a high-density fast-charging network before 2028, alleviating range anxiety for potential EV owners.
Morningstar's long-term EV sales forecast is based on the whole product model framework along with the technology adoption curve. The whole product framework suggests that any new technology must become functionally comparable to the old technology before it can reach mass market adoption. For EVs, this means the total cost of ownership, driving range, charging time, and related infrastructure must rival internal combustion vehicles.
We assume that EVs and hybrids reach cost parity with petrol and diesel vehicles over the next decade largely due to advancements in batteries, which account for over 30% of total costs. Battery costs will fall because of new battery chemistries with cheaper raw materials and because of manufacturing efficiencies at so-called gigafactories worldwide. Solid-state batteries should reach commercialisation by the end of our 10-year forecast period.
We think truck fleet owners will switch to EVs en masse in the early 2030s, spurred by compelling economics, a very high-density charging network, as well as likely government regulations. Furthermore, because of the shorter operating lives of heavy trucks, once the conversion begins, we think electrification of the truck fleet will occur much faster than for passenger vehicles.
China Car Use to Rise
Without a more well-calibrated road and highway investment strategy, a shift in the regional mix of vehicle sales will place more vehicles in provinces with less-congested roads and lower overall population density, both auguring for stronger usage intensity. We expect the next generation of new Chinese vehicle owners to be located outside of the very congested major citie like Shanghai and Beijing, which are already strictly curtailing vehicle ownership.
Furthermore, we think that even existing vehicle owners are likely to trend toward higher usage intensity over time. China has entered an era of substantial vehicle ownership only recently, and living patterns have not yet fully adapted. While many new owners may initially have purchased a vehicle chiefly as a status symbol to display their hard-won membership in China's emerging middle class, many will eventually adapt their daily routine to incorporate more practical usage of their vehicle.
For example, owners may shift to commuting via car from public transport. Likewise, shopping patterns will shift to take advantage of the enhanced mobility a car affords, and stores will need build more parking-friendly locations. Furthermore, some shifts, such as moving from dense urban areas to suburbs, will take many years to fully play out.
