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Morningstar | BMWYY Updated Forecasts and Estimates from 19 Oct 2018

On Oct. 8, the Intergovernmental Panel on Climate Change released a report that calls for faster electric vehicle and hybrid adoption as part of the actions needed to limit the effects of climate change. The report calls for emissions to be reduced 45% versus 2010 levels by 2030. The report will be a key topic at the Katowice Climate Change Conference in December, where governments from around the world will review the Paris agreement. We think the report's conclusions could lead to governments setting stricter regulations and investing in EV charging infrastructure that would result in increased EV adoption.

We continue to see regulation as the driving force behind medium-term EV adoption. Regions with EV-specific regulations and incentives will provide a stronger push for EV adoption. China will continue to make the strongest regulatory push to increase adoption. Tightening fuel standards in the European Union will push automakers toward electrification over the next decade, while fragmented U.S. policies that vary between the state and federal levels will have a mixed impact.

Over the long term, EV adoption will take off where regions combine abundant charging infrastructure with strong regulation. In China and the EU, we forecast EV adoption to reach 25% and 20%, respectively, of annual new light-vehicle sales by 2028. In the United States, where charging infrastructure will be less developed and regulations less stringent, we think EV adoption will lag, reaching only 12.5% by 2028. Using a regional buildup, we forecast that EVs will make up 15% of global auto sales in 2028, above the consensus forecast for 11%. We forecast hybrids to make up 21% of global auto sales in 2028, which would make EVs and hybrids 36% of total vehicles. Our top picks to invest in growing EV adoption include Albemarle, BMW, BorgWarner, Edison International, General Motors, and SQM.

For more information, please see our Sept. 24 Observer, "Electric Vehicle Sales in China and Europe Will Leave U.S. in the Dust, Driving Above-Consensus Global Adoption Rates."