Written by / Liang Weiping
Edit / Meng for
Design / Zhao Haoran
Source / Bloomberg; Written by Tom Randall; Caption / Nic Coury
S-curve is an economic term used to describe the process by which a phenomenon grows slowly at first, then gradually accelerates, and finally flattens out, like an "S" shaped curve. S-shaped curves are often used to analyze markets, product sales, business development, and other fields.
Persuading everyone to adopt a new technology can be tough at first.
The household microwave oven was born in Western Europe in 1955, and after two decades of cold sales, only one in ten households in the United States owns the cooking cooktop. But by the 1980s, microwave ovens were ubiquitous in almost every kitchen, faster than microwave ovens were heating food.
According to Bloomberg Green's analysis of global EV adoption, the fast-growing portion of the S-shaped curve is happening in the EV industry. When the analysis was first completed in 2022, 19 countries exceeded the threshold for electric vehicles: 5% of new car sales were driven by pure electric vehicles. When technology preferences shift rapidly, this tipping point marks the beginning of mass adoption of electric vehicles. In 2023, five more countries made this leap.
The trajectory of these early adopters shows how EV sales have surged from 5% to 25% of new cars in just four years.
Why is 5% so important?
Most successful new technologies, TVs, mobile phones, LED bulbs, etc., follow an S-shaped adoption curve. In the early adoption phase, sales grow slowly, and once it becomes mainstream, sales grow rapidly.
As far as the pure electric vehicle market is concerned, 5% seems to be an inflection point. The time it takes to reach this level varies from country to country, but as long as a handful of countries address the common challenges of car costs, charging supply, and driver skepticism, customers will soon follow to buy an electric vehicle.
The EV market share in 23 countries has reached a critical tipping point of 5%, and everything will change
Source: Bloomberg New Energy Finance; Bloomberg; European Automobile Manufacturers Association; China Automotive Technology and Research Center; Norwegian Road Federation; New Zealand Ministry of Transport
EV adoption has grown rapidly in countries that have crossed the tipping point, with first-quarter sales up 55% compared to the same period last year.
In the United States, the tipping point for electric vehicles did not arrive until the end of 2021, which is relatively late for a country with such strong spending power. There's a reason for this delay, on the one hand, Americans spend more time in their cars than people in any other country, and consumers demand longer range. On the other hand, pickup trucks and large SUVs account for more than half of the U.S. market, and electrification is slow due to the large number of batteries required.
Today, electric vehicle sales in the United States are growing rapidly. The second quarter of 2023 increased by 42% compared to the same period last year, but has not yet embarked on the explosive growth trajectory of other countries. As Tesla, the world's largest electric car maker, prepares to launch the Cybertruck, a pickup truck, and other most iconic U.S. brands are launching large electric vehicles, such as the Chevrolet Blazer and Silverado, the Ford Explorer and F-150, the Jeep Wrangler and Ram 1500, and the fact that the explosion of electric vehicles in the United States has not occurred may change. There are more and more large EV adopters.
Share of electric vehicles in new vehicle sales by country
Source: BloombergNEF, BI, ACEA, CATARC, OFV, Experian, New Zealand Ministry of Transport
Note: Hungary's market share reached 6.2% in the previous quarter and declined in the second quarter
In Italy, EV sales exceeded 5% in two unusual quarters in 2021, before returning below the tipping point in 2022 and 2023. It was removed from the list of critical points before more data was available.
Is the transition to electric vehicles inevitable in the global automotive industry?
So far, 90% of global EV sales come from the US, China and Europe. This means that the countries that account for about a third of global car sales have not yet reached a tipping point. Of the 20 most populous countries, only four have achieved a turning point. Even if the circle of demand continues to expand, it is unclear whether miners can keep pace with critical battery materials.
However, global sales of internal combustion engine vehicles peaked in 2017, and the net increase in vehicle sales is now driven entirely by electric vehicles. BloombergNEF predicts that this trend will continue until gasoline-powered cars become museum curiosities, whether it takes another five or ten years.
Assess EV tipping point countries to track BEV sales and market share over the past 12 months
Source: Bloomberg New Energy Finance; Bloomberg; European Automobile Manufacturers Association; China Automotive Technology and Research Center; Norwegian Road Federation; New Zealand Ministry of Transport
Note: The tipping point is when the share of pure electric vehicles exceeds 5% in the first quarter, while the sales volume and share percentage is in the 12 months ending in the second quarter of 2023. Excluding Norway: 9.75% EV market share and 140,000 units sold in 81 years
In the United States, the Biden administration requires electric and hybrid vehicles to account for half of new cars by 2030, and the Bipartisan Infrastructure Act of 2021 and the Inflation Reduction Act of 2022 pour hundreds of billions of public and private money into everything from highway charging networks to battery recycling plants.
India, the third-largest auto market after China and the United States, may be on the horizon. In the first quarter of 2023, electric vehicles accounted for 3% of new car sales in India, doubling in just six months. India's local automakers have been investing heavily in electrification, with Tesla CEO Elon Musk meeting with Prime Minister Narendra Modi in June. Musk said he plans to enter the Indian market as soon as possible.
As with any new technology, growth rates eventually slow down as the market approaches saturation (i.e., the apex of the S-shaped curve).
The 10% tipping point for hybrid vehicles is a bit higher
The above analysis is aimed at vehicles that rely solely on battery power. Some European countries have adopted plug-in hybrids more quickly, which have smaller batteries and are supported by gasoline engines. Other countries, including the United States and China, have mostly adopted not hybrid vehicles, but directly pure electric vehicles. According to Bloomberg New Energy Finance, if hybrid vehicles are included, global plug-in car sales exceeded 10 million last year, and this number will triple by 2027.
Since hybrid vehicles do not require the high level of infrastructure and complete consumer trust as pure electric vehicles, they are more volatile in the early stages of application, which is initially fraught with errors. A new hybrid model of a popular car may increase the proportion of plug-in cars by a few percentage points, but that doesn't mean there's a shift in consumer preferences.
It is not until 10% of new cars are hybrid or pure electric vehicles that electric vehicles in the broad sense reach a stable tipping point. At this point, the main sales volume in any country will be electric vehicles. In the U.S., thanks largely to incentives introduced this year, sales of hybrid vehicles are likely to pick up.
Including plug-in hybrids, 19 countries have surpassed the 10% cut-off point.
Source: Bloomberg New Energy Finance; Bloomberg; European Automobile Manufacturers Association; China Automotive Technology and Research Center; Norwegian Road Federation; New Zealand Ministry of Transport
Note: By Q2 2023, including plug-in hybrid electric vehicles (PHEVs) and battery electric vehicles (BEVs)
The concept of tipping points is often used to describe price thresholds that trigger widespread adoption. For example, in the early days of renewable energy development, it was cheaper to install new solar farms than to build new coal plants, and after a certain tipping point, utilities' demand for solar energy accelerated.
Sometimes, sales are a turning point in themselves. After Tesla began selling the Model 3 in 2017, the company nearly went bankrupt because it couldn't produce cars fast enough to reduce unit costs. Tesla executives decided to increase production to more than 5,000 vehicles per week to start a virtuous cycle of cost reduction and production increase, and that's what happened later.
The continued growth of electric vehicles depends on the ability of traditional automakers and their suppliers to make blind and confident investments like Tesla before demand is fully apparent. This means that factories must be re-equipped and supply chains must be rebuilt. To maximize cost savings, vehicle electrification must be taken into account when redesigning. Until EV sales become the mainstay, transition costs can be stifling.
Automakers, then, also have a tipping point: EV sales will self-reinforce after that point. According to European experience, once an automaker uses plug-in electric vehicles for 10% of its quarterly sales, that share triples in less than two years on average.
Source: BloombergNEF; Automakers
Note: Until the fourth quarter of 2022, including PHEVs and BEVs, Toyota is the largest automaker in Europe that has not yet reached the 10% threshold
Adopting predictive technology is a tough job. Even the most cautious outlook can be sidetracked by supply chain disruptions, economic changes, politics, bankruptcy, and popular culture. The advantage of the tipping point approach is that it reveals an S-shaped curve that is at least known to be possible, since this adoption curve has already appeared.