Transition to EVs Will Lead to ‘Fundamental Transformation’ of Global Auto Industry, IMF Says

As part of its most recent World Economic Outlook, the International Monetary Fund (IMF) has said the transition to electric vehicles will have “far-reaching” effects on production, investment, global trade and employment.

The new analysis was released in tandem with annual meetings of the World Bank and IMF this week, where efforts to finance the transition to green energy, enhance global growth and tackle debt distress were on the agenda, reported Reuters.

“The rising adoption of electric vehicles (EVs) represents a fundamental transformation of the global automotive industry,” the IMF said in the report.

The shift from fossil fuel-powered vehicles to EVs has been accelerating and is an important part of countries’ climate targets around the world.

According to the IMF, transportation was responsible for 36 percent of U.S. greenhouse gas (GHG) emissions in 2022, eight percent in China and 21 percent of those in the European Union.

Subsidies and charging stations for EVs provided by the U.S. government have helped support the rising adoption of EVs in America. The EU aims to cut auto emissions by half by 2035 compared to 2021 levels.

“[T]he shift to electric vehicles for personal transportation is a key part of the reduction of GHG emissions. To foster the adoption of EVs, both supply- and demand-side policies have been implemented across the world,” the IMF said.

In its report, the IMF made note of the global auto industry’s robust profits, large export markets, high wages and use of technology, Reuters reported.

Speeding up the global move toward EVs would change the industry, especially if China remains the export and production leader in front of European and U.S. rivals.

The IMF said that, according to “realistic” market penetration hypotheticals for EVs, Europe’s gross domestic product would go down roughly 0.3 percent over the medium term.

“In these scenarios, employment declines in the automotive sector, and labor reallocates gradually to less capital-intensive sectors (with lower value added per worker),” the report said.

Price has been a barrier for some considering making the switch to EVs.

Thus far, Chinese EV manufacturers have offered less expensive cars than their competitors — an important advantage considering EVs are still more expensive than gas-powered alternatives.

Chinese automaker BYD shocked the industry with its low-cost vehicles at a recent EV seminar in Japan, reported Electrek.

The company’s lowest cost EV, the Seagull, has a starting price of less than $10,000 in China. It is able to offer its vehicles at such a low price because most of its components are produced in-house.

“I was surprised at the small number of parts used by BYD and Tesla,” said event attendee Sho Kato, a department head at Nissin Seiki, as Electrek reported. “Our company also hopes to use the experience gained from our existing business to enter the EV field.”

The EU and U.S. have both imposed tariffs on EVs made in China in order to counteract what they say are inequitable government subsidies being given to Chinese manufacturers, reported Reuters.

President Joe Biden’s administration last month introduced a 100 percent tariff on Chinese EVs. EU member states earlier this month imposed import duties of as much as 45 percent on EVs made in China.

The French government recently said it would lower its assistance to EV buyers, while Germany stopped subsidizing EVs last year.