The rise of battery electric vehicles (BEVs) has been one of the biggest disruptors in the automotive industry over the past few years. Global BEV sales are expected to rise to 17 million units by 2025 and more than double to 37 million units by 2030, according to GlobalData’s LMC-driven market forecast.

Despite the strong underlying demand for BEVs, affordability remains a key issue due to the stubbornly high component prices, particularly for batteries. On top of this, supply constraints have resulted in a large order backlog, which is expected to support demand into 2023. However, there is a risk that further consumer weakness might be felt later this year or in 2024, magnifying the cost problem.

Tesla aims to capitalise on the growing middle-tier market

Tesla, the current electric vehicle (EV) market leader, has taken steps to capitalise on the growing middle-tier market by cutting the prices of their EV range globally by up to 20%. The company is aiming to respond to the competitive pressure and overall risk in the current market. The growing demand for EVs has been driven by a combination of factors such as government emissions regulation, improving EV efficiency and infrastructure, consumer focus on environmental issues, and sustained high gas prices. Expanding the product range and offering more affordable EVs will be crucial for sustained sales growth and expansion of the market to replace the lower end of the new vehicle market.

Despite the challenges, the outlook for the BEV market remains positive

The efficiency gained by increased production volumes, price-cutting moves (like that seen from Tesla), and new-found commitments from Japanese original equipment manufacturers (OEMs) are all expected to help support demand. Additionally, the expectation of price parity between BEVs and internal combustion engine vehicles (ICEs) being achieved by the second half of the decade will also play a role in driving demand for BEVs.

Government regulation will be highly influential for the EV market

Government financial support for BEVs is also expected to continue, at least until the middle of the decade. The Biden administration’s recent Inflation Reduction Act (IRA) introduced $7,500 worth of tax credit for EV purchases in the US, starting in January 2023, offering an opportunity for manufacturers to expand the EV market and reach customers seeking more affordable EV vehicles.

Further emissions regulations, such as the UK government’s plans to expand London’s ultra-low emission zone (ULEZ) will be pivotal in changing the consumer market’s opinions on EVs and encouraging BEV adoption. Gas-powered vehicles will no longer be a practical or affordable future option for those living in emission-regulated cities.

EVs will prevail despite economic pressures sequestering the market

The ongoing supply chain issues and rising inflation are disrupting the tech and automotive industries, but the overall electric vehicle market is expected to grow significantly over the next several years. Companies like Tesla are taking steps to respond to the competitive pressure and overall risk in the market and expanding their product range and offering more affordable EVs will be crucial for sustained sales growth.

On the path to a fully electrified market, there will likely be additional challenges, including part shortages and elevated commodity prices. But the strong demand for BEVs and government support will help support the market.

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