The Economics of E-Mobility for Passenger Transportation

Overview

Electrification of transport is one of the most talked about instruments to set the world on a net-zero carbon trajectory. Despite the advantages electric vehicles bring, they remain a relative rarity in developing countries. Most of the world’s 6.6 million EV sales in 2021 were concentrated in major global markets such as China, Europe and the United States. The reason? Electric vehicles come at a cost premium, sometimes more than 70% compared to conventional vehicles, creating a financial hurdle for many consumers in developing countries.

But according to The Economics of E-Mobility for Passenger Transportation, feasible entry points to an electric mobility transition are emerging in several developing countries. Electric buses, which cover long mileage and high occupancy, and electric two- and three-wheeled vehicles, which provide last-mile connectivity, can be cost-effective starting points that also bring development benefits. In about half the countries studied in this report, there is already a strong economic case for e-mobility adoption that is likely to further improve in the next few years.

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Key Findings

The potential benefits of electric mobility for low- and middle-income countries go well beyond decarbonization to include:

• 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, in combination with solar photovoltaic systems, reduce dependence on expensive or hard-to-obtain gasoline, facilitate access to markets and other opportunities, and help solve the first or last mile problem when using public transit.  

• Improving local air quality. Deteriorating local air quality is a serious health issue in many large cities across the developing world, responsible for around 7 million fatalities globally each year. Switching to electric passenger vehicles reduces emissions of the most harmful particulate matter by as much as a factor of 10 per passenger-kilometer traveled.  

• Bolstering energy security. Many countries rely on imported oil products to power traditional petrol and diesel-based vehicles. To the extent that countries generate electricity from renewable sources, or even from other indigenous fossil fuels, introducing electric mobility can bring significant benefits in terms of enhanced 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 reliance on oil by switching to electric mobility. 

• Democratizing manufacturing. The manufacture of motor vehicles based on internal combustion engines is relatively complex, and just five countries account for 60 percent of global production. The relative simplicity of electric vehicles themselves, as well as the considerable commoditization of many key components, leaves scope for domestic production - or at least assembly - in many low- and middle-income countries. An early indication is the innovative start-ups emerging in Kenya, Uganda and Rwanda, providing affordable alternatives for electric two-wheelers and already exploring lower cost options for electric buses and trucks.

The higher capital cost of electric vehicles is often offset by a combination of lower lifecycle costs and externality benefits. Capital cost premiums associated with electric vehicles are substantial, but declining. Once purchased, electric vehicles are significantly cheaper to operate given their simpler and more efficient motors. For a significant number of countries, electric mobility is attractive solely for the lower operating costs, even without taking externality benefits into account. The number of countries for which electric mobility looks economically attractive increases significantly when externality benefits are included.

• Because much less can go wrong with an electric vehicle than with a fuel-based vehicle, maintenance is more straightforward, amounting to average savings of US$5,000 over the life cycle of a typical four-wheel vehicle.
• Electric vehicles are less costly to run because they are much more energy efficient than their conventional counterparts, amounting to a typical saving of around US$10,000 in the economic cost of energy over the life cycle of a four-wheel vehicle.
• The ongoing externality benefits resulting from reduced emissions of carbon and various local air pollutants, can sometimes be the deciding factor for electric mobility. These bring an estimated economic value of approximately US$5,000 over the lifetime of a vehicle.

Once a country decides that accelerating electric mobility uptake makes sense, there are several ways for governments to support this transition. Accelerating adoption requires coordination across sectors and a combination of strategic policies on the transport, energy, and financing sides. Nonmonetary incentives such as promoting leasing and consumer financing can also help jumpstart EV adoption. But, above all else, governments need to invest in robust charging infrastructure, which can be up to six times more effective at encouraging EV purchases than subsidies.