This is Dana Perkins and you're listening to Switched on the BNAF podcast, and today we're going to talk about electric vehicles in all their shapes and sizes and focus on one of our flagship reports, the Electric Vehicle Outlook. We do this one every year, and in true ben f fashion, we add a few new things to consider each time we approach the topic, and we revisit some lingering questions in the industry, so hopefully we'll be able to clear up a few things for you today. The team in the report look out to twenty thirty, in some cases twenty forty or all the way out to twenty fifty, depending upon the topic. In regions like the US, this last year brought a cooling in demand for electric passenger vehicles, but overall globally adoption is rising. And then there are commercial vehicles which had another record breaking year, and don't forget about buses and three wheelers, which seem particularly well suited to electrification when we look at adoption around the world. In the report, they get into the electricicak of transport, but the conversation is not limited to just evs. What does this mean for fuel cells and hybrids? And then of course there are the fuel sources. They look at things like electricity and oil demand and how these could be impacted, along with battery metals which are required to make the battery packs for the electric vehicles. And overall, what's the point if we don't also look at this in terms of the impact on CO two emissions. Today we'll hear from Colin Mcerricer, head of Advanced Transport and Energy Storage at BNF, and he's joined by Head of Electric Vehicles, Alexandra O'Donovan. The Electric Vehicle Outlook or EVO report for short, can be found at BNF on the Bloomberg terminal, or at BNF dot com for our clients. If you're not yet a client, you can see the executive summary and some great bits of data at about dot BNF dot com forward slash Electric Dash Vehicle Dash Outlook. You can also find it in the show notes. Right now, though, let's jump into our conversation with Colin and Alex about some of the things that stood out to them in this year's Electric Vehicle Outlook. Alex, welcome to switched on, Welcome to I Know, and Colin, thank you for coming back.

This is Dana Perkins and you're listening to Switched on the BNAF podcast, and today we're going to talk about electric vehicles in all their shapes and sizes and focus on one of our flagship reports, the Electric Vehicle Outlook. We do this one every year, and in true ben f fashion, we add a few new things to consider each time we approach the topic, and we revisit some lingering questions in the industry, so hopefully we'll be able to clear up a few things for you today. The team in the report look out to twenty thirty, in some cases twenty forty or all the way out to twenty fifty, depending upon the topic. In regions like the US, this last year brought a cooling in demand for electric passenger vehicles, but overall globally adoption is rising. And then there are commercial vehicles which had another record breaking year, and don't forget about buses and three wheelers, which seem particularly well suited to electrification when we look at adoption around the world. In the report, they get into the electricicak of transport, but the conversation is not limited to just evs. What does this mean for fuel cells and hybrids? And then of course there are the fuel sources. They look at things like electricity and oil demand and how these could be impacted, along with battery metals which are required to make the battery packs for the electric vehicles. And overall, what's the point if we don't also look at this in terms of the impact on CO two emissions. Today we'll hear from Colin Mcerricer, head of Advanced Transport and Energy Storage at BNF, and he's joined by Head of Electric Vehicles, Alexandra O'Donovan. The Electric Vehicle Outlook or EVO report for short, can be found at BNF on the Bloomberg terminal, or at BNF dot com for our clients. If you're not yet a client, you can see the executive summary and some great bits of data at about dot BNF dot com forward slash Electric Dash Vehicle Dash Outlook. You can also find it in the show notes. Right now, though, let's jump into our conversation with Colin and Alex about some of the things that stood out to them in this year's Electric Vehicle Outlook. Alex, welcome to switched on, Welcome to I Know, and Colin, thank you for coming back.

Great to be back on the program, We're going.

Great to be back on the program, We're going.

To talk about the long term electric Vehicle Outlook from your teams today, and there's no way we're going to be able to get through absolutely everything. It's such a comprehensive report. When we think about the future of the electric vehicle space, I mean and everything from passenger to commercial, to three wheelers, to batteries to oil demand. There's so many different things we can go into. So as we think about the different highlights that we want to touch upon, and probably the questions I should be asking in the next couple of minutes, can we start with this outlook? And really, you know, why do we do it? And how far in the future are we looking.

To talk about the long term electric Vehicle Outlook from your teams today, and there's no way we're going to be able to get through absolutely everything. It's such a comprehensive report. When we think about the future of the electric vehicle space, I mean and everything from passenger to commercial, to three wheelers, to batteries to oil demand. There's so many different things we can go into. So as we think about the different highlights that we want to touch upon, and probably the questions I should be asking in the next couple of minutes, can we start with this outlook? And really, you know, why do we do it? And how far in the future are we looking.

So we've been doing this for a decade now and the idea idea is to pull together all of the threads of different bits of research that we do. So our team at Bloomberg ENIF publishes a huge amount of data sets and research reports about what's going on in road transport and particularly around the decarbonization of road transport, and we have various teams covering that. What we try and do with the Electric Vehicle Outlook is take all those different threads and pull it together. And even despite the name being the Electric Vehicle out Look, it's actually an outlook for all of road transport. So we're looking at trends around electrification. Certainly that's one of the big vectors of change in the passenger vehicle market, and commercial vehicles and two and three wheelers as well, but we're also looking at shared mobility and autonomous driving or urbanization and changing driving patterns, all these sorts of things that come together to shape the way people and goods move. So in doing it for a decade, we've refined it a lot. We've added more segments, we've added more countries. Each year we try and add more detail into the outlook. The timeframe goes out to twenty forty for most of it, but for some of the climate scenario stuff where we're trying to look at net zero and these broader climate targets that countries and companies have put in place, that goes out to twenty fifty. Though there's a lot of analysis about the near term too. The twenty twenties are going to be critical for keeping any of this stuff on track, and there's really interesting things things happening in the near term. So while it does have a longer timeframe. It also has a lot of near term detail as well.

So we've been doing this for a decade now and the idea idea is to pull together all of the threads of different bits of research that we do. So our team at Bloomberg ENIF publishes a huge amount of data sets and research reports about what's going on in road transport and particularly around the decarbonization of road transport, and we have various teams covering that. What we try and do with the Electric Vehicle Outlook is take all those different threads and pull it together. And even despite the name being the Electric Vehicle out Look, it's actually an outlook for all of road transport. So we're looking at trends around electrification. Certainly that's one of the big vectors of change in the passenger vehicle market, and commercial vehicles and two and three wheelers as well, but we're also looking at shared mobility and autonomous driving or urbanization and changing driving patterns, all these sorts of things that come together to shape the way people and goods move. So in doing it for a decade, we've refined it a lot. We've added more segments, we've added more countries. Each year we try and add more detail into the outlook. The timeframe goes out to twenty forty for most of it, but for some of the climate scenario stuff where we're trying to look at net zero and these broader climate targets that countries and companies have put in place, that goes out to twenty fifty. Though there's a lot of analysis about the near term too. The twenty twenties are going to be critical for keeping any of this stuff on track, and there's really interesting things things happening in the near term. So while it does have a longer timeframe. It also has a lot of near term detail as well.

Now you reference it every year, we look to improve it a little bit more invariably that people who are actually writing this report are really intellectually engaged with the subject matter. But for this year, what's new? What were the things that your team came up with that they wanted to explore in more detail.

Now you reference it every year, we look to improve it a little bit more invariably that people who are actually writing this report are really intellectually engaged with the subject matter. But for this year, what's new? What were the things that your team came up with that they wanted to explore in more detail.

Yeah. The first one is I mentioned we add some new countries. So the big one that we added this year was Brazil. So we're seeing a lot of interesting activity in Brazil. There's not only is there interest in electric vehicles and some Chinese manufacturers setting up in Brazil, but there's also this really interesting dynamic there with ethanol too. So a big part of the transport mix includes ethanol, and so the dynamics of that market are a little bit different. It's a big emerging economy. We wanted to try and cover that and see sort of how that's going. So we added Brazil to the mix this year of core countries, so we now cover the fourteenth biggest auto markets in the world really, and then also we added a new Tier two country approach, so we said, look, there's the core markets we model, what about all the other smaller markets, can we do a more generic modeling exercise for them, So we did that as well, and that covers all of the EU and the FTA countries. So then we've also added a lot more detail on some of the other vehicle types, so things like hybrids and compressed natural gas vehicles. Those compress natural gas vehicles are taken off actually in India, which is quite an interesting market, about half a million of them sold last year. More details on China on the heavy truck side, so we're seeing some really interesting activity going on on electric heavy trucks and fuel cell trucks in China, and not just regular plug in trucks, but also battery swappable heavy trucks, so we wanted to add some more detail on that. And then we updated and sort of refined all of our battery chemistry forecasts going into different vehicle segments, and in particular, there's one chemistry that's really winning. We can talk about that a bit later, but that's changing the demand outlook for some of the raw materials that are going into batteries as well. And then lastly we've also updated our investment needs to deliver all of this, so looking at how much investment needs to flow into the battery materials and refining side as well as the battery manufacturing side too, and then we've done some more granular work on electricity demand and charging infrastructure needs in each one of the regions that we cover.

Yeah. The first one is I mentioned we add some new countries. So the big one that we added this year was Brazil. So we're seeing a lot of interesting activity in Brazil. There's not only is there interest in electric vehicles and some Chinese manufacturers setting up in Brazil, but there's also this really interesting dynamic there with ethanol too. So a big part of the transport mix includes ethanol, and so the dynamics of that market are a little bit different. It's a big emerging economy. We wanted to try and cover that and see sort of how that's going. So we added Brazil to the mix this year of core countries, so we now cover the fourteenth biggest auto markets in the world really, and then also we added a new Tier two country approach, so we said, look, there's the core markets we model, what about all the other smaller markets, can we do a more generic modeling exercise for them, So we did that as well, and that covers all of the EU and the FTA countries. So then we've also added a lot more detail on some of the other vehicle types, so things like hybrids and compressed natural gas vehicles. Those compress natural gas vehicles are taken off actually in India, which is quite an interesting market, about half a million of them sold last year. More details on China on the heavy truck side, so we're seeing some really interesting activity going on on electric heavy trucks and fuel cell trucks in China, and not just regular plug in trucks, but also battery swappable heavy trucks, so we wanted to add some more detail on that. And then we updated and sort of refined all of our battery chemistry forecasts going into different vehicle segments, and in particular, there's one chemistry that's really winning. We can talk about that a bit later, but that's changing the demand outlook for some of the raw materials that are going into batteries as well. And then lastly we've also updated our investment needs to deliver all of this, so looking at how much investment needs to flow into the battery materials and refining side as well as the battery manufacturing side too, and then we've done some more granular work on electricity demand and charging infrastructure needs in each one of the regions that we cover.

Now we talk about the energy transition on this show all the time, every week, and oftentimes the industries that we're talking about are things that actually feel really far away from your everyday person. And my theory is that when I talk to people who are actually not working in this space and are not at our company as well, they're really interested in the electric vehicle space almost immediately. And I think that's because all of us have this experience of getting in a car and moving ourselves around, and it's the fact that it falls into the well least the passenger vehicles fall into the consumer discretionary bucket that makes it so tangible for so many people. So let's start there. Let's start with this tangible part of the market, which is passenger vehicles. Can you just give me the headline on what last year held in terms of progress, and you know, what's the benchmark that we essentially are comparing next year to you know, how many vehicles were sold.

Now we talk about the energy transition on this show all the time, every week, and oftentimes the industries that we're talking about are things that actually feel really far away from your everyday person. And my theory is that when I talk to people who are actually not working in this space and are not at our company as well, they're really interested in the electric vehicle space almost immediately. And I think that's because all of us have this experience of getting in a car and moving ourselves around, and it's the fact that it falls into the well least the passenger vehicles fall into the consumer discretionary bucket that makes it so tangible for so many people. So let's start there. Let's start with this tangible part of the market, which is passenger vehicles. Can you just give me the headline on what last year held in terms of progress, and you know, what's the benchmark that we essentially are comparing next year to you know, how many vehicles were sold.

I think to get a really good understanding of what happened last year, we have to really go back to twenty twenty one twenty twenty two, when passenger EV sales were growing at an average one hundred percent or sixty percent annually. So from that perspective, the thirty three percent growth rate recorded in twenty twenty three really doesn't sound like a record high year, which actually was so a lot of the growth in the past years came on the back of the virus COVID stimulus packages, fuel economy targets, and the sort of associated era of new battery electric vehicle models entering the market, and also in China, consumer adoption taking over that policy driven demand. But that means that some of the automakers like GM or Ford, counting on that boom to continue uninterrupted, were likely overly ambitious about their sales targets. So that's why towards the end of twenty twenty three early twenty twenty four, the TV market was dominated by those quite dramatic headlines about global decline in EV sales below expectations. TV sales in reality the twenty twenty three growth rate was in line with what we expected, so in our previous long term Electric Vehicle outlook, we called global annual growth rate to reach roughly thirty four percent. It was thirty three percents, But only because we called it doesn't mean that there isn't a slowdown. The slowdwan is real in EV sales, but it's just not the same everywhere in the world. So countries like China, India, France, they are still showing healthy growth, but the latest data from Germany or the US are much more concerning. So in Germany the market is still getting to grips with the abrupt end of EV subsidies and late in December last year. In the US, lackluster performance from Port and GM and aging EV lineup from Tesla, and also the uncertainity around the outcome of the upcoming presidential elections are keeping the marketmuted. So in our outlook in the new term, EV sales continue to grow, but that growth is much slower than what we've been used to in previous years. So EV sales are set to rise from the thirteen point nine million in twenty twenty three to over thirty million by twenty twenty seven in our base case scenario, and that means that in the next four years the growth rate is an average twenty one percent per year, and not sixty one percent that was between twenty twenty and twenty twenty three. At the same time, the TV share of global new passenger vehicle sales jumps to thirty three percent by twenty twenty seven, and only China and Europe really are above that global average line by then. But just as with the slowdown, which isn't uniform for all the countries, some countries are growing much faster than that global average. So with many new low cost EV models set for launch in the next few years, some of the fastest growth rates that we are recording right now in our outlook are actually in those emerging economies. So EV sales are set to quintupol in Brazil by twenty twenty seven and triple in India by then. So, just to summarize, I think I sort of disagree with some of the statements that the demand for evs isn't there. Electric cars are still more expensive to buy than combustion vehicles, and this is quite an effective to terrent right now, especially in the environment of high interest rates. But as consumers have proven time and time again, I think when the price is right, the demand is there. And what really is blocking evsls at the moment is the lack of those affordable evs across mass market segments. And another proof of consumers actual real interest in evs. We're highlighting that in EVO this year is actually comes out and in tracking the actual bad vues. So in markets where evs are quite developed have a strong foothold, there's a growing evidence that they are winning over those most active drivers, so professional drivers. And actually it looks that in some of those countries matter election, vehicles are driving way more than combustion vehicles in China, in Netherlands that can be up to sixty percent more than combustion vehicles. So I think the overall message here is that high usage of evs among working drivers is really a strong signal to us that these vehicles are in demand.

I think to get a really good understanding of what happened last year, we have to really go back to twenty twenty one twenty twenty two, when passenger EV sales were growing at an average one hundred percent or sixty percent annually. So from that perspective, the thirty three percent growth rate recorded in twenty twenty three really doesn't sound like a record high year, which actually was so a lot of the growth in the past years came on the back of the virus COVID stimulus packages, fuel economy targets, and the sort of associated era of new battery electric vehicle models entering the market, and also in China, consumer adoption taking over that policy driven demand. But that means that some of the automakers like GM or Ford, counting on that boom to continue uninterrupted, were likely overly ambitious about their sales targets. So that's why towards the end of twenty twenty three early twenty twenty four, the TV market was dominated by those quite dramatic headlines about global decline in EV sales below expectations. TV sales in reality the twenty twenty three growth rate was in line with what we expected, so in our previous long term Electric Vehicle outlook, we called global annual growth rate to reach roughly thirty four percent. It was thirty three percents, But only because we called it doesn't mean that there isn't a slowdown. The slowdwan is real in EV sales, but it's just not the same everywhere in the world. So countries like China, India, France, they are still showing healthy growth, but the latest data from Germany or the US are much more concerning. So in Germany the market is still getting to grips with the abrupt end of EV subsidies and late in December last year. In the US, lackluster performance from Port and GM and aging EV lineup from Tesla, and also the uncertainity around the outcome of the upcoming presidential elections are keeping the marketmuted. So in our outlook in the new term, EV sales continue to grow, but that growth is much slower than what we've been used to in previous years. So EV sales are set to rise from the thirteen point nine million in twenty twenty three to over thirty million by twenty twenty seven in our base case scenario, and that means that in the next four years the growth rate is an average twenty one percent per year, and not sixty one percent that was between twenty twenty and twenty twenty three. At the same time, the TV share of global new passenger vehicle sales jumps to thirty three percent by twenty twenty seven, and only China and Europe really are above that global average line by then. But just as with the slowdown, which isn't uniform for all the countries, some countries are growing much faster than that global average. So with many new low cost EV models set for launch in the next few years, some of the fastest growth rates that we are recording right now in our outlook are actually in those emerging economies. So EV sales are set to quintupol in Brazil by twenty twenty seven and triple in India by then. So, just to summarize, I think I sort of disagree with some of the statements that the demand for evs isn't there. Electric cars are still more expensive to buy than combustion vehicles, and this is quite an effective to terrent right now, especially in the environment of high interest rates. But as consumers have proven time and time again, I think when the price is right, the demand is there. And what really is blocking evsls at the moment is the lack of those affordable evs across mass market segments. And another proof of consumers actual real interest in evs. We're highlighting that in EVO this year is actually comes out and in tracking the actual bad vues. So in markets where evs are quite developed have a strong foothold, there's a growing evidence that they are winning over those most active drivers, so professional drivers. And actually it looks that in some of those countries matter election, vehicles are driving way more than combustion vehicles in China, in Netherlands that can be up to sixty percent more than combustion vehicles. So I think the overall message here is that high usage of evs among working drivers is really a strong signal to us that these vehicles are in demand.

So this year, as I said, roughly twenty percent of global car sales will be plug in. So that's a pretty remarkable jump from just a few years ago. So one in five cars sold this year will be will be a plug in, And there's some countries further ahead and further behind, and about four percent of all the cars on the road in the world will be electric vehicles this year, so one in twenty five cars in the world. That fleet turnover takes time, but it is it is happening, and so I think our view is one of sort of cautious optimism that, yeah, there have been some headwinds, the growth rate is slowing, but the product is still getting better and consumers who use them are still generally happy with them. So I think that kind of underpins if there's a bit of a tension between the near term slow down and the long term writer outlook that Alex was sort of talking about there. That's kind of what's driving our optimism that that is that the trend isn't being derailed by some of this near term stuff. It's more just this is naturally what happens as industry is mature and get larger, the growth rate tends to slow down a little.

So this year, as I said, roughly twenty percent of global car sales will be plug in. So that's a pretty remarkable jump from just a few years ago. So one in five cars sold this year will be will be a plug in, And there's some countries further ahead and further behind, and about four percent of all the cars on the road in the world will be electric vehicles this year, so one in twenty five cars in the world. That fleet turnover takes time, but it is it is happening, and so I think our view is one of sort of cautious optimism that, yeah, there have been some headwinds, the growth rate is slowing, but the product is still getting better and consumers who use them are still generally happy with them. So I think that kind of underpins if there's a bit of a tension between the near term slow down and the long term writer outlook that Alex was sort of talking about there. That's kind of what's driving our optimism that that is that the trend isn't being derailed by some of this near term stuff. It's more just this is naturally what happens as industry is mature and get larger, the growth rate tends to slow down a little.

So at one point it seemed like every car company was making a battery electric vehicle, and you know, this was becoming a very crowded space. But actually there have only been a few companies that have been really truly successful and in many respects are dominating the market. Can you talk a little bit about who you would see those companies to be and also kind of what it takes to be kind of synonymous with electric vehicle companies in various parts of the world.

So at one point it seemed like every car company was making a battery electric vehicle, and you know, this was becoming a very crowded space. But actually there have only been a few companies that have been really truly successful and in many respects are dominating the market. Can you talk a little bit about who you would see those companies to be and also kind of what it takes to be kind of synonymous with electric vehicle companies in various parts of the world.

There's definitely sort of two tiers of automakers emerging. There's some of them that have winning models that are selling in real volume, and there's others that have launched evs but they're just not really at the right price point, the right range, or the right feature set to be able to sell in volume, and volume is really critical of course for getting costs down. You need to be sort of in one hundred thousand vehicles a year and up to sort of get that economies of scale that you need to make the economics of making vehicles really work. And not all automakers across that there's generally a bit of a divide between those who have built dedicated EV architectures that they're building their models on rather than those who are using modified architectures. Most of the automakers now have a dedicated BEEV architecture, though they're at different stages of scaling it up, and some of the models are still on older architecture, so for example, forwards F one fifty, there's been a lot of publicity about how bad the economics of Fords EV division are that is still on the traditional F one fifty platform, and they're not going to have a dedicated EV platform out until next year for larger trucks or twenty twenty six. So what we've seen is that the companies that are pushing hard on EV still are doing well. Byd is growing really quickly. Tesla's growth has slowed down, which is notable, but it's still a significant force and still the largest b EV seller, just barely ahead of BID. Some of the other Chinese manufacturers are doing well. Volvo is doing well, Hyundaikia are doing well again. The groups that have jumped in with both feet rather than sort of putting one toe into it are generally still selling pretty well, though again it varies by region and by brand.

There's definitely sort of two tiers of automakers emerging. There's some of them that have winning models that are selling in real volume, and there's others that have launched evs but they're just not really at the right price point, the right range, or the right feature set to be able to sell in volume, and volume is really critical of course for getting costs down. You need to be sort of in one hundred thousand vehicles a year and up to sort of get that economies of scale that you need to make the economics of making vehicles really work. And not all automakers across that there's generally a bit of a divide between those who have built dedicated EV architectures that they're building their models on rather than those who are using modified architectures. Most of the automakers now have a dedicated BEEV architecture, though they're at different stages of scaling it up, and some of the models are still on older architecture, so for example, forwards F one fifty, there's been a lot of publicity about how bad the economics of Fords EV division are that is still on the traditional F one fifty platform, and they're not going to have a dedicated EV platform out until next year for larger trucks or twenty twenty six. So what we've seen is that the companies that are pushing hard on EV still are doing well. Byd is growing really quickly. Tesla's growth has slowed down, which is notable, but it's still a significant force and still the largest b EV seller, just barely ahead of BID. Some of the other Chinese manufacturers are doing well. Volvo is doing well, Hyundaikia are doing well again. The groups that have jumped in with both feet rather than sort of putting one toe into it are generally still selling pretty well, though again it varies by region and by brand.

I think one thing to add here as well is that really those doing okay right now is automakers releasing more affordable EV models to the market. So those that really have the dedicated platforms have some economies of scale can actually tempt consumers with affordable attractive ypiece.

I think one thing to add here as well is that really those doing okay right now is automakers releasing more affordable EV models to the market. So those that really have the dedicated platforms have some economies of scale can actually tempt consumers with affordable attractive ypiece.

Yeah, because you've mentioned this twice now, Alex, that electric vehicles remain more expensive than internal combustion engine vehicles, and that you know, potentially the early adopters who are willing to pay that premium for the electric vehicle, they have done it, and we might be reaching a saturation point on those early adopters, and the cost competitiveness is going to be the key to unlocking that next big jump in adoption. So how close are we to getting electric vehicles largely at parity or maybe someday less expensive than internal combustion engines from a total cost of ownership standpoint?

Yeah, because you've mentioned this twice now, Alex, that electric vehicles remain more expensive than internal combustion engine vehicles, and that you know, potentially the early adopters who are willing to pay that premium for the electric vehicle, they have done it, and we might be reaching a saturation point on those early adopters, and the cost competitiveness is going to be the key to unlocking that next big jump in adoption. So how close are we to getting electric vehicles largely at parity or maybe someday less expensive than internal combustion engines from a total cost of ownership standpoint?

Absolutely, So the biggest driver here is are obviously falling battery prices, and we can chat about it in detail in the moment, But when that up from price parity will be reached really depends on how fast battery prices will be falling, and it will also depend by the country, the econtoms of scale of each of the automakers the segment about which we're talking. But overall, with current battery buck prices the clients that we're observing, we see that up from price parity reached for most countries and most vehicle segments in sort of flight twenty twenties, early twenty thirties for most cars and segments.

Absolutely, So the biggest driver here is are obviously falling battery prices, and we can chat about it in detail in the moment, But when that up from price parity will be reached really depends on how fast battery prices will be falling, and it will also depend by the country, the econtoms of scale of each of the automakers the segment about which we're talking. But overall, with current battery buck prices the clients that we're observing, we see that up from price parity reached for most countries and most vehicle segments in sort of flight twenty twenties, early twenty thirties for most cars and segments.

Well, let's talk about batteries then, because there's a lot going on in that space. So part of it has to do with battery chemistries, and then part of it has to do with where in the world they're manufactured and the price is associated with that. But let's start on the chemistry side of things. You know, what have been the changes in battery chemistries because we know for a long time different companies that were developing these batteries were looking to increase range or reduce the dependence on specific rare earth metals that had a specific cost or refluctuating too much. What is happening to battery chemistries and is it still actively changing? Are there developments there that have the potential to really disrupt the market.

Well, let's talk about batteries then, because there's a lot going on in that space. So part of it has to do with battery chemistries, and then part of it has to do with where in the world they're manufactured and the price is associated with that. But let's start on the chemistry side of things. You know, what have been the changes in battery chemistries because we know for a long time different companies that were developing these batteries were looking to increase range or reduce the dependence on specific rare earth metals that had a specific cost or refluctuating too much. What is happening to battery chemistries and is it still actively changing? Are there developments there that have the potential to really disrupt the market.

Yeah, there's definitely very interesting changes going on in this market right now. So what you're seeing is that lithium iron phosphate batteries, which contain no nickel or cobalt or manganese, are taking over a larger and larger share of both the EV market and the stationary storage market. They've already got a very highest share in stationary storage also in the bus market. What you're seeing now is they're taking over the passenger vehicle market. Most of the Chinese manufacturers prefer and use lithium iron phosphate batteries. They are generally cheaper, they're very stable. The main thing is their energy density is not as good as the NMC family nickel manganese cobalt family of battery chemistries. So what you've seen over the last couple of years is that LFP is gaining a larger and larger share of that battery market, and it's getting quite close to fifty percent of the global market, and we think it's going to cross over that sometime in the next eighteen months or so. And that's because everyone's looking at trying to cut costs, and this is the chemistry where we've seen the biggest, most significant cost declients. So that's kind of what's happening in the passenger vehicle market. The commercial vehicle market it's also happening as well, so you see more and more of a shift to LFP, again mostly for cost reasons, but also it's very stable and the performances quite reliable, so that's really changing the demand outlook for some of these raw materials that go into the batteries. So we have steadily reduced the forecast for the share or the amount of cobalt, nickel, and manganese that you're going to need to deliver all these batteries. That's been a steady thing that we've reduced over the last few years. As this share has risen, we may have to reduce it further in the future. But I think what's important here is is that there are all these different chemistries that you can make batteries with different cathode chemistries, and you now have sort of a stable of them out there, and if raw material prices for one thing or another go way up or way down, then you see some substitution effect. And part of what you're seeing with this rise of LFP is because a few years ago there was a spike in nickel and cobalt prices and people were all of a sudden very worried that that was going to derail the cost declines and evs in batteries. And what you saw as the market just responded and shifted more towards the lower cost chemistry. You may get a similar effect in the future with sodium ion batteries. We're starting to see the first of those being produced. It's pretty small scale for now, so the market is still very exposed to lithium. All the battery chemistries that we have at scale now still depend on lithium. But again, I think it just sort of highlights how markets respond to things. You get a spike, people don't just reduce in price. They don't just reduce demand and bring on more supply. They look at substitution, and substitution is something that you can now do to some degree within the battery market. So that's something we've been watching for a while and it's kind of picking up speed right now.

Yeah, there's definitely very interesting changes going on in this market right now. So what you're seeing is that lithium iron phosphate batteries, which contain no nickel or cobalt or manganese, are taking over a larger and larger share of both the EV market and the stationary storage market. They've already got a very highest share in stationary storage also in the bus market. What you're seeing now is they're taking over the passenger vehicle market. Most of the Chinese manufacturers prefer and use lithium iron phosphate batteries. They are generally cheaper, they're very stable. The main thing is their energy density is not as good as the NMC family nickel manganese cobalt family of battery chemistries. So what you've seen over the last couple of years is that LFP is gaining a larger and larger share of that battery market, and it's getting quite close to fifty percent of the global market, and we think it's going to cross over that sometime in the next eighteen months or so. And that's because everyone's looking at trying to cut costs, and this is the chemistry where we've seen the biggest, most significant cost declients. So that's kind of what's happening in the passenger vehicle market. The commercial vehicle market it's also happening as well, so you see more and more of a shift to LFP, again mostly for cost reasons, but also it's very stable and the performances quite reliable, so that's really changing the demand outlook for some of these raw materials that go into the batteries. So we have steadily reduced the forecast for the share or the amount of cobalt, nickel, and manganese that you're going to need to deliver all these batteries. That's been a steady thing that we've reduced over the last few years. As this share has risen, we may have to reduce it further in the future. But I think what's important here is is that there are all these different chemistries that you can make batteries with different cathode chemistries, and you now have sort of a stable of them out there, and if raw material prices for one thing or another go way up or way down, then you see some substitution effect. And part of what you're seeing with this rise of LFP is because a few years ago there was a spike in nickel and cobalt prices and people were all of a sudden very worried that that was going to derail the cost declines and evs in batteries. And what you saw as the market just responded and shifted more towards the lower cost chemistry. You may get a similar effect in the future with sodium ion batteries. We're starting to see the first of those being produced. It's pretty small scale for now, so the market is still very exposed to lithium. All the battery chemistries that we have at scale now still depend on lithium. But again, I think it just sort of highlights how markets respond to things. You get a spike, people don't just reduce in price. They don't just reduce demand and bring on more supply. They look at substitution, and substitution is something that you can now do to some degree within the battery market. So that's something we've been watching for a while and it's kind of picking up speed right now.

So since you had brought up China, their role in the battery space is really important. They are definitely a dominant producer from the manufacturing end of batteries used both for vehicles and for stationary storage and other applications. So on the battery side, battery prices in China have really fallen. We discussed this in an earlier episode of this show, and there is some concern around overcapacity ultimately leading to dumping like we've seen solar industry. So what's happening with battery prices, specifically as it relates to Chinese production.

So since you had brought up China, their role in the battery space is really important. They are definitely a dominant producer from the manufacturing end of batteries used both for vehicles and for stationary storage and other applications. So on the battery side, battery prices in China have really fallen. We discussed this in an earlier episode of this show, and there is some concern around overcapacity ultimately leading to dumping like we've seen solar industry. So what's happening with battery prices, specifically as it relates to Chinese production.

Yeah, so battery prices in China are really plummeting. So just to kind of give an idea, when we did our battery price serve last year, globally, the average price of a lithium iron phosphate battery cell was in the nineties. So far January to May, in China, the average cell price is fifty four dollars per kill one hour. We've seen it even dip below fifty in some months. So that's a huge, huge drop. And so what's driving that. One of them is lower raw material prices than in previous years. Another one is over capacity. So we have seen significantly more capacity being built than there is demand for total Chinese battery production last year was more than global demand. So that's just to give an idea of the scale of overcapacity, and there's a lot more capacity coming online in the next few years. Sometimes see this oversimplified as this is all just over capacity and everyone's dumping. If you look at the margins of the battery makers, they're still making money. There has been a bit of margin compression there, but if you sort of break out all these different effects. What you kind of conclude is that, yes, low material prices are playing a role, Yes over capacity and cutthroat competition are playing a role, but there's also still technology and process improvements going on in the manufactur side that are helped driving down price. So it's kind of all of these three factors that are playing a role in China pushing down battery prices. One big sort of open question we have is can anyone else really compete with that? And one of the things that we've were finding is that even when you factor in some of the incentives that are in place in other countries to try and encourage domestic production of batteries, it's not entirely clear that an automaker in those countries wouldn't prefer to just go with a Chinese battery anyway, because it's so much cheaper, and because the manufacturers there are, to put it lightly, they're really really good at it. They're making high quality batteries at low cost in large volumes day and day out, whereas some of the newer groups that are trying to produce them in North America or Europe are a little bit less tested. So that's something we're watching very closely, is do the tariffs and incentives, Do the protectionist measures that you're seeing in some of these other countries offset the fact that China is doing really, really well at hammering costs out of the battery supply chain. So that's still an open question. It's going to play out over the next few years. But certainly we are seeing remarkably low battery prices in China, and it isn't just from overcapacity, it isn't just from ow material price changes. It is also showing that these companies are still pushing hard to make the technology better and to improve the process of manufacturing these I would say, I would just summarize it as we're nowhere near the end of how good battery technology can get. We're still in the early going of this, and you are going to continue to see improvements, not all of them in the same direction. Some of them might be around cycle life, or some of them might be around cost or energy density, but a lot of these things are moving forward and there's still a lot of room to run on how good this technology can get.

Yeah, so battery prices in China are really plummeting. So just to kind of give an idea, when we did our battery price serve last year, globally, the average price of a lithium iron phosphate battery cell was in the nineties. So far January to May, in China, the average cell price is fifty four dollars per kill one hour. We've seen it even dip below fifty in some months. So that's a huge, huge drop. And so what's driving that. One of them is lower raw material prices than in previous years. Another one is over capacity. So we have seen significantly more capacity being built than there is demand for total Chinese battery production last year was more than global demand. So that's just to give an idea of the scale of overcapacity, and there's a lot more capacity coming online in the next few years. Sometimes see this oversimplified as this is all just over capacity and everyone's dumping. If you look at the margins of the battery makers, they're still making money. There has been a bit of margin compression there, but if you sort of break out all these different effects. What you kind of conclude is that, yes, low material prices are playing a role, Yes over capacity and cutthroat competition are playing a role, but there's also still technology and process improvements going on in the manufactur side that are helped driving down price. So it's kind of all of these three factors that are playing a role in China pushing down battery prices. One big sort of open question we have is can anyone else really compete with that? And one of the things that we've were finding is that even when you factor in some of the incentives that are in place in other countries to try and encourage domestic production of batteries, it's not entirely clear that an automaker in those countries wouldn't prefer to just go with a Chinese battery anyway, because it's so much cheaper, and because the manufacturers there are, to put it lightly, they're really really good at it. They're making high quality batteries at low cost in large volumes day and day out, whereas some of the newer groups that are trying to produce them in North America or Europe are a little bit less tested. So that's something we're watching very closely, is do the tariffs and incentives, Do the protectionist measures that you're seeing in some of these other countries offset the fact that China is doing really, really well at hammering costs out of the battery supply chain. So that's still an open question. It's going to play out over the next few years. But certainly we are seeing remarkably low battery prices in China, and it isn't just from overcapacity, it isn't just from ow material price changes. It is also showing that these companies are still pushing hard to make the technology better and to improve the process of manufacturing these I would say, I would just summarize it as we're nowhere near the end of how good battery technology can get. We're still in the early going of this, and you are going to continue to see improvements, not all of them in the same direction. Some of them might be around cycle life, or some of them might be around cost or energy density, but a lot of these things are moving forward and there's still a lot of room to run on how good this technology can get.

Well.

Well.

And as we're talking about some of the policies that actually play into the supply chains that are associated with the batteries and where they're able to sell to. You end up seeing in the US these tariffs that have really restricted Chinese electric vehicle imports, and the EU is making motions to do something similar. So are you expecting to then see Well, you had already mentioned that it's possible that the batteries may become much cheaper in China, and therefore this may end up being a moot point, but you can raise tariffs as far as you want to go. So you then expecting to see more manufacturing of batteries all around the world as a result of policy intervention, And as an additional kind of question alongside that, do we expect to see the same technologies or is technology going to keep moving forward in China? And will countries that have essentially established domestic manufacturing have to keep pace with that level of technology innovation in order to stay competitive the market.

And as we're talking about some of the policies that actually play into the supply chains that are associated with the batteries and where they're able to sell to. You end up seeing in the US these tariffs that have really restricted Chinese electric vehicle imports, and the EU is making motions to do something similar. So are you expecting to then see Well, you had already mentioned that it's possible that the batteries may become much cheaper in China, and therefore this may end up being a moot point, but you can raise tariffs as far as you want to go. So you then expecting to see more manufacturing of batteries all around the world as a result of policy intervention, And as an additional kind of question alongside that, do we expect to see the same technologies or is technology going to keep moving forward in China? And will countries that have essentially established domestic manufacturing have to keep pace with that level of technology innovation in order to stay competitive the market.

The global auto market is becoming more fragmented. Right. It's been a relatively free trade in auto products with some exceptions over the last twenty years. Now you're starting to see more tariffs and more protectionism, particularly around dvs and batteries. Because this is you as the next generation for the auto industry, and groups want to protect jobs and create high value industries locally. That is going to have to lead to more local manufacturing in many cases, because I mean, if the tariffs are high enough, no one can can import vehicles and sell them cost competitively. But I would just say, the tariffs only protect things for so long. So if you take the European example, Europe has just implemented tariffs on Chinese made EV's, not just Chinese EV's from Chinese brands, but Chinese made EV's also from Western brands are hit by this as well. Those brands are going to be pushed in some cases, not in all cases, but to set up local manufacturing. And I think that's what you will see. If the automakers that you're trying to protect domestically don't use that window of opportunity wisely to as Alex has said, launch cost competitive EV models, then the tariffs won't protect them forever. They for one, they don't apply in other markets that those countries that those companies sell to, and they'll face very heavy competitive pressure there. And for another, even in the domestic market where they're being protected, it won't last forever. Because those groups will set up there. And I think what you are seeing right now is a shift towards much more local supply chains. But I still think you have to be competitive if you're going to appeal to consumers, right you can't hide behind tariffs forever.

The global auto market is becoming more fragmented. Right. It's been a relatively free trade in auto products with some exceptions over the last twenty years. Now you're starting to see more tariffs and more protectionism, particularly around dvs and batteries. Because this is you as the next generation for the auto industry, and groups want to protect jobs and create high value industries locally. That is going to have to lead to more local manufacturing in many cases, because I mean, if the tariffs are high enough, no one can can import vehicles and sell them cost competitively. But I would just say, the tariffs only protect things for so long. So if you take the European example, Europe has just implemented tariffs on Chinese made EV's, not just Chinese EV's from Chinese brands, but Chinese made EV's also from Western brands are hit by this as well. Those brands are going to be pushed in some cases, not in all cases, but to set up local manufacturing. And I think that's what you will see. If the automakers that you're trying to protect domestically don't use that window of opportunity wisely to as Alex has said, launch cost competitive EV models, then the tariffs won't protect them forever. They for one, they don't apply in other markets that those countries that those companies sell to, and they'll face very heavy competitive pressure there. And for another, even in the domestic market where they're being protected, it won't last forever. Because those groups will set up there. And I think what you are seeing right now is a shift towards much more local supply chains. But I still think you have to be competitive if you're going to appeal to consumers, right you can't hide behind tariffs forever.

I think it's worth sort of thinking about our long term outlook really, because you know, our long term outlook is is bright. It's driven by those improving economics of electric cars compared to combustion vehicles. And you know, by by twenty thirty, evs rich reached forty five percent of global pascenter vehicle sales in our outlook and seventy three percent by twenty forty in our basic case scenarios. So now China and Europe still continue to lead globally on IV adoption, but in our scenarios by twenty forty, by twenty fifty, Europe never really catches up with China in EV adoption, in absolute in absolute sales. So that I think should be really concerning because it really does look as China is way ahead of Europe in technology development, achieving economies of scale, and that is also such a different picture than it was just a few years ago in twenty twenty IV adoption in new car sales in Europe was actually twice that of China. By twenty twenty one, Europe still head around four percent points advantage over China, but it lost it in twenty twenty two, and really, in our outlook, never gets it back. So I think introducing those punitive import tariffs on electric vehicles manufactured in China could really impact adoption in Europe in the short term by sort of limiting access to afford the bolivies. And also while considering such tariffs, European automakers should also consider that they do risk shielding domestic automakers from competition, right, so they will not have that competitive pressure on them to put to keep getting better.

I think it's worth sort of thinking about our long term outlook really, because you know, our long term outlook is is bright. It's driven by those improving economics of electric cars compared to combustion vehicles. And you know, by by twenty thirty, evs rich reached forty five percent of global pascenter vehicle sales in our outlook and seventy three percent by twenty forty in our basic case scenarios. So now China and Europe still continue to lead globally on IV adoption, but in our scenarios by twenty forty, by twenty fifty, Europe never really catches up with China in EV adoption, in absolute in absolute sales. So that I think should be really concerning because it really does look as China is way ahead of Europe in technology development, achieving economies of scale, and that is also such a different picture than it was just a few years ago in twenty twenty IV adoption in new car sales in Europe was actually twice that of China. By twenty twenty one, Europe still head around four percent points advantage over China, but it lost it in twenty twenty two, and really, in our outlook, never gets it back. So I think introducing those punitive import tariffs on electric vehicles manufactured in China could really impact adoption in Europe in the short term by sort of limiting access to afford the bolivies. And also while considering such tariffs, European automakers should also consider that they do risk shielding domestic automakers from competition, right, so they will not have that competitive pressure on them to put to keep getting better.

So this adoption that we're seeing flattening off, you know, still breaking records year after year, but not as great as the year before, could increase if the companies themselves are not maintaining competitiveness across the batteries, which are the most expensive part of the electric vehicle.

So this adoption that we're seeing flattening off, you know, still breaking records year after year, but not as great as the year before, could increase if the companies themselves are not maintaining competitiveness across the batteries, which are the most expensive part of the electric vehicle.

Yeah, I think so. And then I think, you know, like China really could be two evs to transition to reaching climate goals. What Tesla was to kick starting that EVA transition. So I really think that I would want all the goal romants actually carefully consider how to benefit from what China has to offer today to resual climate goals, to accelerate transition, to stay competitive, rather than focusing on sort of short term panealizing that progress.

Yeah, I think so. And then I think, you know, like China really could be two evs to transition to reaching climate goals. What Tesla was to kick starting that EVA transition. So I really think that I would want all the goal romants actually carefully consider how to benefit from what China has to offer today to resual climate goals, to accelerate transition, to stay competitive, rather than focusing on sort of short term panealizing that progress.

The market that I'm actually a bit more concerned about in the nerd term is probably the US. I think things in Europe will be okay, where we still have tightening fuel economy regulations and a number of other things that Analyx has pointed out. It's the adoption is already at a reasonable level across some markets in Europe. I think the US is a bit more worrying. So you have seen adoptions slowing down, growth rates slowing down. I'm still going to be a record year for sales there this year, but the growth rate really slowing there. And of course there's an election this year in the US, and if you listen to many of Donald Trump's current speeches, often he talks very negatively, speaks very negatively about evs, and he's there's a growing sort of polarization there, and I think you would see a lot of the supportive policies that have come under the Biden administration removed or at least targeted by a Trump administration. Whether they're successful and repealing all of those would probably end up in the courts, but it is something we're watching quite carefully. I think as well, the US market is looking more protectionist as well in this so that the tariffs in Europe that we're introduced are trying to thread this needle between having still some competition from China with not making it too difficult for domestic manufacturers. The tariffs that are in place in the US are just saying we don't want any competition from China in our domestic market's one hundred percent tariff. Nobody can really sell at that rate and make any money. So I think that's actually the market that I'm a little more worried about. The domestic automakers in North America have, particularly Ford and GM, have retreated more and more from the world stage. They're not really competitive with exception of a few segments outside of the North American market, and they are not facing the same competitive pressure on evs that other automakers are facing internationally. So I think that's the one that I'm a little more concerned about. In the near term is the US.

The market that I'm actually a bit more concerned about in the nerd term is probably the US. I think things in Europe will be okay, where we still have tightening fuel economy regulations and a number of other things that Analyx has pointed out. It's the adoption is already at a reasonable level across some markets in Europe. I think the US is a bit more worrying. So you have seen adoptions slowing down, growth rates slowing down. I'm still going to be a record year for sales there this year, but the growth rate really slowing there. And of course there's an election this year in the US, and if you listen to many of Donald Trump's current speeches, often he talks very negatively, speaks very negatively about evs, and he's there's a growing sort of polarization there, and I think you would see a lot of the supportive policies that have come under the Biden administration removed or at least targeted by a Trump administration. Whether they're successful and repealing all of those would probably end up in the courts, but it is something we're watching quite carefully. I think as well, the US market is looking more protectionist as well in this so that the tariffs in Europe that we're introduced are trying to thread this needle between having still some competition from China with not making it too difficult for domestic manufacturers. The tariffs that are in place in the US are just saying we don't want any competition from China in our domestic market's one hundred percent tariff. Nobody can really sell at that rate and make any money. So I think that's actually the market that I'm a little more worried about. The domestic automakers in North America have, particularly Ford and GM, have retreated more and more from the world stage. They're not really competitive with exception of a few segments outside of the North American market, and they are not facing the same competitive pressure on evs that other automakers are facing internationally. So I think that's the one that I'm a little more concerned about. In the near term is the US.

So due to the politicization of this industry and other industries that we actually end up covered in the US, US specifically, the outcome of this next election will have potentially a very meaningful impact on adoption. I want to pivot now though for a second, because we started today's show talking about passenger vehicles, but one of the interesting things in this year's report really had to do with the commercial fleet. So can we talk a little bit about this commercial fleet, which, even if people don't immediately think about it, is actually very much in all of our lives because all of the things that we consume have gotten to us somehow and increasingly are coming to us on vans and trucks straight to our home. So how about this commercial fleet of electric vehicles who we're increasingly seeing on the roads.

So due to the politicization of this industry and other industries that we actually end up covered in the US, US specifically, the outcome of this next election will have potentially a very meaningful impact on adoption. I want to pivot now though for a second, because we started today's show talking about passenger vehicles, but one of the interesting things in this year's report really had to do with the commercial fleet. So can we talk a little bit about this commercial fleet, which, even if people don't immediately think about it, is actually very much in all of our lives because all of the things that we consume have gotten to us somehow and increasingly are coming to us on vans and trucks straight to our home. So how about this commercial fleet of electric vehicles who we're increasingly seeing on the roads.

Yeah, So the commercial vehicle segment is really interesting and it's very varied. So there are some things that we would call commercial vehicles, like buses, municipal buses that are already achieving very high rates of electrification led out of Asia, but happening in other places too. But when we think of vans and trucks and medium and heavy duty it's quite varied there too. What you're seeing is that this is probably going to be a real breakout year for commercial electric vehicle sales, and that's led by a couple of things. Just some contexts. Last year, a little over five hundred thousand commercial electric vehicles were sold. This year, we're forecasting just under a million, or about a million in total. Now. That skews more towards the lighter vehicles, but there's also activity happening in the medium and heavy duty vehicle sales, and if we look out a few years, we think the light vehicles get it to get to about twenty percent of sales by twenty twenty seven, and medium and heavy duty between nine and ten percent. So it's definitely further behind what's going on in the passenger vehicle side, but it's actually one of the fastest growing parts of what we're observing right now, and that's primarily because these groups are driven by economics alone. There isn't a lot of brand considerations or behavioral considerations. It is much more around economics for commercial vehicle drivers, and the economics are starting to get good, particularly again in China, where there's the lowest battery costs you're starting to see things like vans and lights of medium duty trucks already getting cost competitive. The heavy duty long haul ones are going to take a bit longer. That's more the latter half of this decade. But we are still seeing sales in those heavy segments, again lead out of China and a few other markets picking up. So you're starting to see a few percent of sales in a heavy segment being already electric or fuel cell. And what's really interesting there is there's actually a variety of solutions being applied to tackle that probably the most difficult segment to electrify, which is those heavy trucks, and so what you're seeing is a mix of regular battery electric plug in charging, some battery swapping ones, so heavy trucks with swappable batteries, and then some hydrogen fuel cell vehicles. So again lead in China, but happening a little bit elsewhere too. We're starting to see hydrogen fuel cell vehicle sales pick up a little bit in that heaviest vehicle segment. There's still a long way to go there, but there's encouraging signs of progress, not just in China, but places like California where sales are picking up quickly, and in Europe with new trucks CO two regulations that have been finalized now we're seeing more activity there as well. The truck makers are now also starting to benefit from those cheaper batteries we talked about. There's a bit of convergence there. A few years ago, there used to be huge gap between what commercial manufacturers we're paying for batteries and what large volume passenger vehicle manufacturers we're playing for batteries. That gap is starting to close as the battery market gets more and more competitive, as it turns to a buyer's market, and that's going to start to flow into vehicle economics and the trucking segment kind of in the next few years. So that's one we're optimistic about. It's still not on track for our climate targets, if that's something that's important to you, but certainly it's something where we think it's going to be really interesting market to watch in the next few years. And we do have a fairly optimistic or at least what we think of a fairly optimistic view on what can get done this decade.

Yeah, So the commercial vehicle segment is really interesting and it's very varied. So there are some things that we would call commercial vehicles, like buses, municipal buses that are already achieving very high rates of electrification led out of Asia, but happening in other places too. But when we think of vans and trucks and medium and heavy duty it's quite varied there too. What you're seeing is that this is probably going to be a real breakout year for commercial electric vehicle sales, and that's led by a couple of things. Just some contexts. Last year, a little over five hundred thousand commercial electric vehicles were sold. This year, we're forecasting just under a million, or about a million in total. Now. That skews more towards the lighter vehicles, but there's also activity happening in the medium and heavy duty vehicle sales, and if we look out a few years, we think the light vehicles get it to get to about twenty percent of sales by twenty twenty seven, and medium and heavy duty between nine and ten percent. So it's definitely further behind what's going on in the passenger vehicle side, but it's actually one of the fastest growing parts of what we're observing right now, and that's primarily because these groups are driven by economics alone. There isn't a lot of brand considerations or behavioral considerations. It is much more around economics for commercial vehicle drivers, and the economics are starting to get good, particularly again in China, where there's the lowest battery costs you're starting to see things like vans and lights of medium duty trucks already getting cost competitive. The heavy duty long haul ones are going to take a bit longer. That's more the latter half of this decade. But we are still seeing sales in those heavy segments, again lead out of China and a few other markets picking up. So you're starting to see a few percent of sales in a heavy segment being already electric or fuel cell. And what's really interesting there is there's actually a variety of solutions being applied to tackle that probably the most difficult segment to electrify, which is those heavy trucks, and so what you're seeing is a mix of regular battery electric plug in charging, some battery swapping ones, so heavy trucks with swappable batteries, and then some hydrogen fuel cell vehicles. So again lead in China, but happening a little bit elsewhere too. We're starting to see hydrogen fuel cell vehicle sales pick up a little bit in that heaviest vehicle segment. There's still a long way to go there, but there's encouraging signs of progress, not just in China, but places like California where sales are picking up quickly, and in Europe with new trucks CO two regulations that have been finalized now we're seeing more activity there as well. The truck makers are now also starting to benefit from those cheaper batteries we talked about. There's a bit of convergence there. A few years ago, there used to be huge gap between what commercial manufacturers we're paying for batteries and what large volume passenger vehicle manufacturers we're playing for batteries. That gap is starting to close as the battery market gets more and more competitive, as it turns to a buyer's market, and that's going to start to flow into vehicle economics and the trucking segment kind of in the next few years. So that's one we're optimistic about. It's still not on track for our climate targets, if that's something that's important to you, but certainly it's something where we think it's going to be really interesting market to watch in the next few years. And we do have a fairly optimistic or at least what we think of a fairly optimistic view on what can get done this decade.

Well, and since you brought up hydrogen fuel cells and I know, in this circumstance we were talking about the fleets of things that were being delivered in the commercial end of things, where it may have a space. People still keep bringing it up, though, regarding passenger vehicles, and actually the pop culture reference here that I keep thinking about when you bring up hydrogen fuel cell cars as do with the movie Mean Girls came out a long time ago. They did a reboot recently basically the same plot line, except different actors, and in both of them it was stopped trying to make fetch a thing. Is hydrogen a thing? Or should we just stop trying to make it a thing?

Well, and since you brought up hydrogen fuel cells and I know, in this circumstance we were talking about the fleets of things that were being delivered in the commercial end of things, where it may have a space. People still keep bringing it up, though, regarding passenger vehicles, and actually the pop culture reference here that I keep thinking about when you bring up hydrogen fuel cell cars as do with the movie Mean Girls came out a long time ago. They did a reboot recently basically the same plot line, except different actors, and in both of them it was stopped trying to make fetch a thing. Is hydrogen a thing? Or should we just stop trying to make it a thing?

I confessed to not having seen either of the Mean Girls movies, the original or the remake, but I think when it comes to this topic, I do feel like there is an effort to make this a thing, and consumers really do not seem interested. So the just for a point of reference, there were more Ferraris sold than hydrogen fuel cell vehicles globally last year, and it wasn't even close. Ferrari was way way ahead. You'd have to get down into the really niche manufacturers like Lamborghini before you'd find comparable numbers of fuel cell vehicle sales. The proponents of this technology are ever optimistic that it is going to take over the market, or at least be a meaningful part of it, But the reality is sales have fallen the last couple of years. So they peaked in twenty twenty one at around seventeen thousand passenger fuel cell vehicle sales. Last year they were down to around nine thousand, so a very significant drop. Almost all of the sales are now concentrated in South Korea because there's very generous incentive there. If you look at California, sales have dropped pretty dramatically. They were covered a little bit because Toyota is trying to clear out inventory of the maris that they have. If you go to some of the dealers and look at the pages, they're offering incentives of twenty to thirty thousand dollars plus a fuel card worth fifteen thousand dollars, and still they're really struggling to move them. If you look at the reviews of these vehicles, people are generally okay with the vehicle, but the refueling infrastructure, the refueling experience is terrible. It's both expensive, sparse, and it breaks down a lot, and some of those can be fixed. You can probably fix the sparse part if you throw enough money at it. But it will always be expensive. It will always be significantly more expensive than refueling with electricity if we're talking about green hydrogen. So anyway, there's all these different things that we could talk about back and forth. There's lots of debates that have been had about this, but the bottom line is consumers don't seem interested. They're only buying them in places where the incentives are huge. They're buying fewer and fewer of them the last few years, and we're just not seeing any momentum. So last year actually we stop including a passenger fuel cell vehicle forecast in the U Outlook, and we said we will return to it if and when fuel cells reach zero point one percent of global auto sales. So not a high bar, but they are way a way off that you would need to see eighty thousand sales a year, and you're essentially seeing a fraction of that. So we're a long way from where you need to be to have any sort of optimism that hydrogen is going to play a role in passenger vehicle sales.

I confessed to not having seen either of the Mean Girls movies, the original or the remake, but I think when it comes to this topic, I do feel like there is an effort to make this a thing, and consumers really do not seem interested. So the just for a point of reference, there were more Ferraris sold than hydrogen fuel cell vehicles globally last year, and it wasn't even close. Ferrari was way way ahead. You'd have to get down into the really niche manufacturers like Lamborghini before you'd find comparable numbers of fuel cell vehicle sales. The proponents of this technology are ever optimistic that it is going to take over the market, or at least be a meaningful part of it, But the reality is sales have fallen the last couple of years. So they peaked in twenty twenty one at around seventeen thousand passenger fuel cell vehicle sales. Last year they were down to around nine thousand, so a very significant drop. Almost all of the sales are now concentrated in South Korea because there's very generous incentive there. If you look at California, sales have dropped pretty dramatically. They were covered a little bit because Toyota is trying to clear out inventory of the maris that they have. If you go to some of the dealers and look at the pages, they're offering incentives of twenty to thirty thousand dollars plus a fuel card worth fifteen thousand dollars, and still they're really struggling to move them. If you look at the reviews of these vehicles, people are generally okay with the vehicle, but the refueling infrastructure, the refueling experience is terrible. It's both expensive, sparse, and it breaks down a lot, and some of those can be fixed. You can probably fix the sparse part if you throw enough money at it. But it will always be expensive. It will always be significantly more expensive than refueling with electricity if we're talking about green hydrogen. So anyway, there's all these different things that we could talk about back and forth. There's lots of debates that have been had about this, but the bottom line is consumers don't seem interested. They're only buying them in places where the incentives are huge. They're buying fewer and fewer of them the last few years, and we're just not seeing any momentum. So last year actually we stop including a passenger fuel cell vehicle forecast in the U Outlook, and we said we will return to it if and when fuel cells reach zero point one percent of global auto sales. So not a high bar, but they are way a way off that you would need to see eighty thousand sales a year, and you're essentially seeing a fraction of that. So we're a long way from where you need to be to have any sort of optimism that hydrogen is going to play a role in passenger vehicle sales.

So then last question to you, alex are plug in hybrids should we be still trying to make them a thing for those people who are unwilling to commit to a full electric vehicle but are taking a step away from a full internal combustion engine.

So then last question to you, alex are plug in hybrids should we be still trying to make them a thing for those people who are unwilling to commit to a full electric vehicle but are taking a step away from a full internal combustion engine.

Yeah, thanks Lena. That's a good question because we sort of stopped including FCVs, but we kind of pay a little bit more attention this year to plug in hybrids because it does look like they do make a comeback this year. But the biggest change this year on PBS really is coming up of China. This is where we seeing the resurgence of PF sales. So while our forecasts for EV sales in China really hasn't changed that much, if anything, it has increased. P haves now form a larger share of overall EV sales in the country, So you have to keep in mind though that these are not ps that we're used to in Europe. The batteries of plug in hybrids deployed in China sold in China are almost twice the size of those in Europe or in the US. The ranges are quite significant, so those plug in hybrids can go for good over one hundred kilometers on one charge, so while in Europe we've been used to plug in hybrids being used as a really compliance tool with fuel economy targets, in China, it does seem that automakers there are kind of skillfully using plug in hybrids to reach more of those more resistant TV consumers outside of the major cities, those consumers that are still more concerned about range and charging availability. What I can't tell you really in any sort of certainty is really what is it a short term trend or OURP haves here to stay. It's much more difficult to forecast P have adoption than it is for best because in the new term, like plug in hybrids can be quite easily added to automaker's lineup. You don't need much of a fan fire around it, you don't need dedicated platforms, et cetera. So it is just much easier. So it's really difficult to pinpoint that exact number. But I think there's one thing to keep in mind when we there's cussing plug in hybrids and whether they should or should not be a long term trend. So putting too much faith and plug in hybrids really comes with some risk attached. So our analysis shows that the share of kilometers driven in the electric mode by plug in hybrids, it's really quite low, roughly eleven to fifty four percent depending on the country and the ouder type. So if p haves are displacing battery electric vehicle sales and are not utilizing that full electric driving capacity that they do have, they actually do add to oil demand. In our analysis, and you know, we build several scenarios of what like what that oil demand addition could be from not using those phfs. Well, but in that worst case scenario, if you want to know, we can add up up to twenty percent more to oil demand than in our base case scenario. And that warfs case scenario is like, you know, much more pfs on the road and much less electric driving utilization by those pehos.

Yeah, thanks Lena. That's a good question because we sort of stopped including FCVs, but we kind of pay a little bit more attention this year to plug in hybrids because it does look like they do make a comeback this year. But the biggest change this year on PBS really is coming up of China. This is where we seeing the resurgence of PF sales. So while our forecasts for EV sales in China really hasn't changed that much, if anything, it has increased. P haves now form a larger share of overall EV sales in the country, So you have to keep in mind though that these are not ps that we're used to in Europe. The batteries of plug in hybrids deployed in China sold in China are almost twice the size of those in Europe or in the US. The ranges are quite significant, so those plug in hybrids can go for good over one hundred kilometers on one charge, so while in Europe we've been used to plug in hybrids being used as a really compliance tool with fuel economy targets, in China, it does seem that automakers there are kind of skillfully using plug in hybrids to reach more of those more resistant TV consumers outside of the major cities, those consumers that are still more concerned about range and charging availability. What I can't tell you really in any sort of certainty is really what is it a short term trend or OURP haves here to stay. It's much more difficult to forecast P have adoption than it is for best because in the new term, like plug in hybrids can be quite easily added to automaker's lineup. You don't need much of a fan fire around it, you don't need dedicated platforms, et cetera. So it is just much easier. So it's really difficult to pinpoint that exact number. But I think there's one thing to keep in mind when we there's cussing plug in hybrids and whether they should or should not be a long term trend. So putting too much faith and plug in hybrids really comes with some risk attached. So our analysis shows that the share of kilometers driven in the electric mode by plug in hybrids, it's really quite low, roughly eleven to fifty four percent depending on the country and the ouder type. So if p haves are displacing battery electric vehicle sales and are not utilizing that full electric driving capacity that they do have, they actually do add to oil demand. In our analysis, and you know, we build several scenarios of what like what that oil demand addition could be from not using those phfs. Well, but in that worst case scenario, if you want to know, we can add up up to twenty percent more to oil demand than in our base case scenario. And that warfs case scenario is like, you know, much more pfs on the road and much less electric driving utilization by those pehos.

Just to clarify, that's twenty percent more than passenger vehicle oil demand use would be not adding twenty percent to global oil demand use. And I think this is one of these tricky topics for us where we've gone through and looked at all the literature and looked at everything about how these are driven, and you kind of you can look at the different different ways and there's two you can kind of come to two opposite conclusions depending on what you think it is. You could say, look, plug in hybrids are reaching buyers who were never going to go fully electric, and therefore it's always a net positive from a climate point of view, because they are doing some of the kilometers in electric mode and that's better than doing none of your kilometers in electric mode. Or you could conclude the exact opposite that say, these are pulling buyers away from battery electric vias, and less of their kilometers are being done in electric mode, and therefore there's more internal combustion engine kilometers driven in the world. And actually teasing out exactly which way that consumer was going to go is a very difficult task. So I think we're sort of saying, look, this is a thing right now. Plug and hybrids are going faster than better electrics, regular hybrids, and pure internal combustion engine vehicles. But we need a few more years of data to see exactly what that's coming at the expense of Is it coming at the expense of pure combustion vehicles? Is it coming at the expense of better electric vehicles? And the conclusion is kind of opposite depending on which one of those it is, at least from a climate point of view. The one thing is it does seem to be. As Alex pointed out, the newest ones that are launching are less aimed at compliance with fuel economy regulations and more aimed at trying to make a product that consumers actually want, and that is a notable shift from where we were a few years ago.