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The Economics of E-Mobility for Passenger Transport

What are the economics of E-Mobility for passenger transportation.
A young girl driving an electric scooter in China.
© Freepik

The electrification of transport is one of the most talked about tools to put the world on a net-zero carbon trajectory. Most of the world’s 10 million EV sales in 2022 were concentrated in major global markets such as China, Europe, and the United States. However, they remain a rarity in many emerging economies due to their high initial costs. Here we look at how E-Mobility can still be implemented in low- and middle-income countries.

According to ’The Economics of E-Mobility for Passenger Transportation’ (2022), feasible entry points for an electric mobility transition are emerging in several developing countries. Electric buses, which cover long distances and have high occupancy rates, and electric two- and three-wheelers, which provide last-mile connectivity, can be cost-effective entry points with development benefits. In about half of the countries surveyed in this report, there is already a strong economic case for E-Mobility adoption, which is likely to improve further in the coming years.

The potential benefits of E/Mobility for low- and middle-income countries include the following:

Promoting inclusive mobility:

Electric two- and three-wheelers are already popular in many low-income markets for transporting people and goods. In rural areas, low-cost electric motorbikes combined with solar photovoltaic systems reduce dependence on expensive or hard-to-find gasoline, facilitate access to markets and other opportunities, and help solve the first or last-mile problem of using public transport.  

A bunch of tuk-tuks parked next to each other in India Tuk-tuks in India. Murali Kumar (n.d.)

Improving local air quality:

Deteriorating local air quality is a serious health problem in many large cities in the developing world, contributing to around 7 million deaths worldwide each year. Switching to electric passenger vehicles can reduce emissions of the most harmful particulate matter by up to a factor 10 per passenger-kilometer traveled. This significant reduction underlines the potential of electric vehicles to greatly mitigate the impact of harmful emissions.  

A man with a suitcase walking by in a city full of smog Air pollution. Getty Images (n.d.)

Strengthening energy security:

Many countries rely on imported oil products to power conventional petrol and diesel vehicles. To the extent that countries generate electricity from renewable sources or other indigenous fossil fuels, the adoption of E-Mobility can bring significant benefits in terms of improved energy security and associated macroeconomic resilience. For example, countries such as Ethiopia and Nepal, which import fuels but can generate electricity almost entirely from indigenous hydropower, could significantly reduce their dependence on oil by switching to E-Mobility. 

The side of an electric bus is shown along with some people looking at it. Electric bus. The Nepali Times (2018)

Democratizing manufacturing:

Manufacturing motor vehicles based on internal combustion engine vehicles is relatively complex, and just five countries account for 60 percent of global production. The relative simplicity of electric vehicles and the significant commoditization of many key components opens up the possibility of domestic production —or at least assembly— in many low- and middle-income countries. In an early indication of this, innovative start-ups are emerging in Kenya, Uganda, and Rwanda to provide affordable alternatives for electric two-wheelers, and are already exploring lower-cost options for electric buses and trucks.

E-Bikes parked in a location in Rwanda, Africa. E-Bikes in Rwanda. UNEP (2022)

The higher capital costs of EVs are often offset by a combination of lower lifecycle costs and external benefits. 

Capital cost premiums associated with EVs are significant, but declining. Once purchased, EVs are significantly cheaper to run due to their simpler and more efficient engines. For a more significant number of countries, E-Mobility is attractive on the basis of lower operating costs alone, even without considering external benefits. The number of countries for which E-Mobility is economically attractive increases significantly when external benefits are taken into account.

Because much less can go wrong with an EV than with an ICE (internal combustion engine) car, maintenance is simpler, saving an average of US$5,000 over the life cycle of a typical four-wheel drive vehicle.

In addition, EVs are cheaper to run because they are much more energy efficient than their conventional counterparts, with a typical saving in economic energy costs of around US$10,000 over the life cycle of a four-wheel drive vehicle.

The ongoing external benefits of reduced carbon emissions and various local air pollutants can sometimes be the deciding factor for E-Mobility. These are estimated to have an economic value of around US$5,000 over the lifetime of the vehicle.

Charging point connected to a EV Charging point. ET Auto (2023)

Conclusion:

Once a country decides that accelerating the uptake of electric vehicles makes sense, there are several ways in which governments can support this transition. Accelerating uptake requires cross-sectoral coordination and a combination of strategic transport, energy and financing policies. Non-monetary incentives, such as the promotion of leasing and consumer finance, can also help to speed up the uptake of electric vehicles. Above all, governments need to invest in a robust charging infrastructure, which can be up to six times more effective than subsidies in encouraging EV purchases. 

References:

  • Briceno-Garmendia, Cecilia; Qiao, Wenxin; Foster, Vivien.  (2022)  The Economics of Electric Vehicles for Passenger Transportation Washington, DC: World Bank. Retrieved from: Link
  • IEA (2022) Global EV Outlook 2022 Retrieved from: Link
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