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Announcer

Welcome to the EY Advanced Manufacturing and Mobility Business Minute podcast series, where EY professionals explore the critical business issues impacting our industry today.

Moderator

For today's topic, we are going to discuss EY’s Third Annual Electric Vehicle Country Readiness Index report.

Here with us today to discuss the report and its findings are Anju Chandna and Angsuman Sharma, EY Global Advanced Manufacturing & Mobility Analysts.

Anuj, Angsuman, thanks for joining us today to share your insights on the progress and continuing challenges that countries are facing as they look to transition their motor vehicle fleets from internal combustion power to electrically powered vehicles.

Anuj Chandna

Thanks for having us, Ed.

Moderator

Well, let's jump in. Anuj, can you give the listener some background on what the EY EV Readiness Index is about and some of the factors you consider when evaluating the country's EV readiness?

Chandna

Sure. The EV Country Readiness Index, or EVCRI as we call it, features a proprietary analysis of key global auto markets, and as part of this analysis, we assess each market's readiness for transition to an EV future. So, we understand every country might be heading broadly toward the same ultimate destination. However, some commenced their journey earlier, while others are proceeding more quickly or slowly, and interestingly, the routes that they are taking for the electrification goal are varied. So, the EVCRI has been devised as an analysis model to provide insight into and context around this complex global EV picture, and the highlight is that it goes down to a national level. Essentially, we are looking to determine which countries are closest to reaching the tipping point and at which point the EV ecosystem will become self-sustaining and on the other hand, there are some countries which have a long way to go. Further, we analyze each country's approach and we come to a conclusion as to what is working in driving the overall EV ecosystem or in other words, what are the best practices to develop the EV ecosystem. The index analyzes three fundamental areas which include supply, demand and regulatory, and the index has been designed to help stakeholders such as automakers, battery suppliers, utility and grid companies, governments, etc., to better understand the dynamics of the EV transition, both globally as well as across key markets.

Moderator

Anju, you said the model looks at three fundamental areas, supply, demand and regulatory. How are these weighted and what are some of the variables you consider within these?

Chandna

That is an interesting one, Ed. So, the EVCRI looks at 20 key markets that cover more than 90% of the global EV volumes. In fact, collectively they cover 93% of global EV volumes. We assess each country's capabilities and progress relative to the three pillars of supply, demand and regulatory, and within each of these three pillars, we analyze a variety of variables to come up with a weighted numerical score. While each of the three pillars are weighted equally at an overall level, within each pillar, we do assign specific weights, and these weights are assigned to the variables based on our research and understanding of the impacts of these individual variables. Just to simplify this, for supply factors, we include parameters such as battery manufacturing capacity, charging infrastructure and energy supply maturity, each with different weights. Demand factors include affordability, fleet in consumer demand, and also consumer behavior data, which is sourced from EY’s Mobility Consumer Index report. Regulatory factors include parameters such as monitory and usage incentives for EVs, disincentives for internal combustion engine (ICE) vehicles, including ICE phaseout timelines and at the end of this comprehensive assessment process, each country gets a score for each of the pillars. We then assign weightages through these scores to come up with an overall score and provides the country’s rankings from 1 to 20.

Moderator

Angsuman, what are some of the key highlights from this year's report?

Angsuman Sharma

Sure. China has continued to strengthen its top position as leader in electrification of its vehicle market. Norway has also retained the second position, while the US, Sweden, UK round up the leadership band. Now, while China's dominance in supply is evident, accounting for 77% of global battery production, the North American and EU markets are also gaining momentum owing to the favorable government policies, such as tax incentives for EV purchases, penalties on ICE vehicle and establishing dates for ending ICE vehicle production. Now, when you combine this government actions with escalating fuel cost and steady approaching EV cost parity with ICE vehicle, you are essentially creating an environment that is very conducive to the adoption of EVs.

Moderator

So, the top leaders in the index have not changed year over year with China continuing its global EV leadership and Norway retaining his number two position. Angsuman, what are these two countries doing to maintain their leadership positions?

Sharma

Right Ed. Now, China's continued dominance is mainly driven by having substantial control across the battery value chain from raw material processing, 75% of global lithium refining capacity in 2022 to battery manufacturing – 77% share of global battery production. Fast developing charging infrastructure – 1.8 million charging stations as of first half of 2023. Also a well-established EV manufacturing ecosystem – 55% of global EV production. Add to that, a growing consumer appetite for EVs. 58% of consumers are willing to purchase a battery electric vehicle (BEV) or plug-in hybrid electric vehicle (PHEV) as their next vehicle as part of EY Mobility Consumer Index 2023. You have great set of conditions to move the electrification of the fleet forward and also their recent tax incentive package worth US$72.3 billion, which offers exemptions up to US$4,170 per vehicle in 2024-25 and US$2,078 per vehicle in 2026-27, further solidifies China's position as the world's largest EV market.

Now coming to Norway, they were an early adopter of EVs and continued to strongly embrace an electrified future with an astounding EV adoption rate of nearly 80% in the first half of 2023, which is by far the highest in the world. Now, their success can be attributed to favorable EV policies, a mature energy ecosystem, as well as these incentives for ICE vehicles. Add to this generous EV incentives and relatively high GDP per capita have empowered consumers to purchase EVs. As a result, Norway is expected to have the highest percentage of EV models available by 2027 at 83%.

Moderator

Interesting. Anuj, one surprise from the analysis that surfaced was a dramatic move the US made from No. 7 last year to No. 3. Anuj, what are the drivers behind this jump in the rankings?

Chandna

Well, the US indeed is an interesting one. It has seen a dramatic move up rising from seventh to the third position. This is attributed primarily to the favorable regulatory initiatives, specifically the Inflation Reduction Act (IRA) and Infrastructure Investment and Jobs Act (IIJA) that have led to considerable investments in localized battery and even manufacturing and deployment to widespread charging infrastructure. The IRA introduced in 2022 extends a federal tax credit of up to US$7,500 for domestically manufactured EVs. This is expected to drive further EV adoption accompanied by a surge in locally produced electrified models. The regulation in the US is therefore significantly driving both the other pillars of demand and supply. So, there are three pillars, regulatory pillar in this case is significantly driving the other two. The US is projected to contribute 11% of global EV production in 2023 and it would be second only to China's commanding share of 55%.

Moderator

Angsuman, in summary, what do you think are the key takeaways that industry leaders and government officials should take away from this EV readiness analysis that you guys have done?

Sharma

There are several key takeaways that could be considered here. First of all, key markets are doubling down on developing their local EV ecosystem, making substantial investments specially in the current somewhat skewed battery supply chain. Also, there is a continuous surge in consumer acceptance of EV across the globe, mainly driven by rising fuel costs, growing availability of EV models and at the same time penalties on ICE vehicles. However, what we have seen, the availability of charging stations and relatively higher upfront cost of EVs continue to be major concerns. Despite notable improvements, charging infra clearly lacks the EV adoption, underscoring the pressing need for robust public private investment in the space. Also, regulators across key markets have continued to leverage policy tools to foster the EV ecosystem development. And finally, markets where EV penetration has reached a critical mass, like China, Germany and Norway, are witnessing reallocation of uptrend subsidies to develop EV infrastructure.

Moderator

Very interesting. Great. Angsuman, Anju, thanks for joining us today and sharing some really compelling insights from the 2023 EY EV Country Readiness Index. We look forward to having you back soon with more insights into the global transition to EVs.

Sharma

Thank you for having us today.

Announcer

Thanks for listening to today's EY Advanced Manufacturing and Mobility Business podcast. We hope you found it engaging and informative. To listen to other business minute podcasts, you can find them at ey.com/ammpodcasts.

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