Traditional auto manufacturers and middle distillate refiners should be wary that a niche technology could be about to snowball into full-scale disruption

Clayton Christiansen’s classic business book The Innovator’s Dilemma argues that value to innovation is an S-curve, with a long initial phase of relatively slow value growth followed by an explosive ramp-up once the disruptive innovation reaches an inflection point. Data from China and the US and China suggest that electric vehicles (EVs) might be at least close to hitting said point.

“If you look at how policy is currently lined up, … EVs will be taking a 20% market share for new vehicles in China by 2025,” says Hui He, senior researcher and policy analyst at the San Francisco-based International Council on Clean Transportation (ICCT). The ICCT analyses policy to suggest likely outcomes, and the data says the 2025 outcome is likely. In August, Chinese EV sales hit 100,000 units, a new monthly record, putting cumulative EV sales for the year to date at 600,000. The most optimistic forecasts for full year 2018 sales were just shy of 1m at the start of year but may now need to be revised to at least 1.1m and even as much as 1.3m, as, like in the US, Chinese auto sales tend to be at their strongest in the year’s final four months.

In a Chinese new vehicle market expected to reach 29.2m units this year, EVs may take a 3.8% market share. Next year, with a forecast 1.7% increase to 29.7m new vehicles, EV sales could top 1.6m, or a 5.4% market share, and well on target to reach 20% by 2025 if not before.

Staying alert

The key to achieving a disruption innovation break-out is maintaining high annual growth rates once overall volumes grow to material levels. In the Chinese EV market’s infancy, 100% year-on-year growth rates were unsurprising. But the market, even at much higher sales levels, is still maintaining a 45% growth rate.

The ICCT’s He sees two key Chinese aims in fostering the rapid adoption of EV—the first being reduced air pollution, and the second developing world-leading EV car makers. What established auto manufacturers and the refiners that supply their fuel may have underestimated, says He, is China’s history of supersizing markets through bold policy initiatives.

China’s EV market also merits drilling into the headline figures. “A lot of analysts look at the quantity of EVs being sold, but it is also important to look at types,” says He. “In China’s Tier 2 cities outside the mega-regions, 70% of EVs sold are dedicated electric ultra-minis. They have more limited range, but are cheap, and the growth rate has been incredible.” China has, in effect, two separate EV car markets, and, according to He, adoption rates in the Tier 1 cities have been lagging their smaller counterparts. When Tier 1 cities start to catch up, that could extend the country’s high growth rate for longer.

In the US, EVs’ share of the new vehicle market looks set to surpass 2% this year, with a 75% annual growth rate. In California, their market share was close to 5% in 2017, and will climb above 8% in 2018. Relatedly, the US’ EIA predicted that 2019 gasoline demand was expected to be flat for a fourth consecutive year.

Read more: Petroleum Economist

• Electric vehicle sales are likely to jump over the next two to three years as prices fall and more options are made available to customers, according to Evy Hambro, BlackRock’s global head of thematic and sector investing.
• Customers will have more opportunities to move away from traditional combustion engines to electric vehicles and their options will not be restricted to only certain auto suppliers, he told CNBC’s “Squawk Box.”
• Earlier this year, the International Energy Agency predicted that electric vehicle ownership will jump to about 125 million by 2030, spurred by policies that encourage the purchase of clean-running cars.

Electric vehicle sales will likely jump over the next two to three years as prices fall and more options are made available, according to BlackRock’s global head of thematic and sector investing.

Customers will have more opportunities to move away from traditional combustion engines to electric vehicles and their options will not be restricted to only certain auto suppliers, Evy Hambro told CNBC’s “Squawk Box” on Thursday.

“I think we’re at this tipping point of change,” Hambro said. “Over the next two years, we’re going to see this massive extension of breadth of models, we’re going to see price point of entry drop as well. We’re expecting to see a big lift in electric vehicle sales over the next two to three years.”

Earlier in the year, the International Energy Agency predicted that electric vehicle ownership will jump to about 125 million by 2030, spurred by policies that encourage the purchase of clean-running cars. That would mark a big jump from 2017 when the agency estimated there were 3.1 million electric vehicles in use.

That’s because most traditional automakers are now investing to create their own electric vehicles. For example, Volkswagen recently said it will spend about $50 billion on new plants, electric cars, autonomous driving and other mobility services in an attempt to be the most profitable maker of electric cars.

Read more: CNBC

Recent cuts to the grants available for the purchase of electric vehicles are intended to move the sector away from “buyer subsidy”, according to energy and clean growth minister Claire Perry.

Speaking to the business, energy and industrial strategy select committee, she added that grant payments potentially offered cash to vehicle owners who could already afford to pay for electric vehicles.

Plug-in car grants for new plug-in hybrids were recently scrapped earlier, while cash for fully electric vehicles were cut from £4,500 to £3,500.

Perry added that public grant reductions would help lower the cost of electric models, suggesting that vehicle manufacturers were selling their vehicles at lower prices in other markets. She added that consumer demand for lower prices would see companies respond.

“We cannot transition to a low carbon economy through government subsidy. Somebody has to pay; it’s either taxpayers, consumers or shareholders and there is a constant interplay of these three,” the minister said.

Perry went on to place more focus on the role of government to grow the infrastructure required to accommodate increased numbers of EVs, which would help to grow the market in tandem with falling costs.

“We can no longer define success as how much government subsidy is going into a particular technology, we need to define it based on what is actually happening.

“Subsidising or not is not going to change the market, what is going to change the market is a rapid reduction in technology costs and investment in infrastructure,” she told the committee.

Read more: Current News