Market Monitor

The EV revolution and MENA

Electric vehicle (EV) uptake will gain momentum in the MENA region over the coming years, particularly in the UAE, Saudi Arabia, Qatar, Jordan and Morocco, as governments continue to push for technology adoption and green energy initiatives. While there is limited potential for the region’s main automotive manufacturing countries to capitalise, increased EV demand will spur investment opportunities in charging infrastructure and vehicle-to-grid (V2G) services. The lower oil price environment and ongoing uncertainty with regard to the COVID-19 pandemic present the largest risk to uptake.

Going digital, going green

The MENA region will see increased uptake of EVs over the coming years due to shifting consumer preferences, falling battery technology costs and government-led clean air initiatives targeting inefficient vehicles and internal combustion engines. The UAE, Saudi Arabia, Qatar, Jordan and Morocco will see the highest demand growth, due to a combination of strong government commitment to technology adoption; the expansion of domestic renewable energy; and a relatively well-developed domestic EV charging network.

Global adoption of EVs has accelerated quickly in recent years amid the growing movement towards the low-carbon economy. EV sales grew by around 60% worldwide in 2014-18 to 2.1m, according to a report by McKinsey.[1]BP’s “Evolving Transition” scenario, published in 2019 as part of its annual Energy Outlook, predicted that EV sales would reach around 350m by 2040, of which around 300m would be passenger cars. This would be equivalent to around 15% of all cars globally.[2]

 

 

GCC Visions: cheerleaders for EVs

While adoption in MENA still lags far behind the market leaders China, the EU and the US, ambitious government targets related to the creation of sustainable, knowledge-based economies, will encourage the market to grow. Within the GCC region, the electrification of transport aligns closely with efforts to use advanced technology to foster economic growth as part of their broader development plans. The increased deployment of autonomous vehicles provides an additional boost to EV uptake, given that autonomous technology integrates more successfully with electric engines. The adoption of EVs and autonomous electric vehicles (AEVs) is already gaining traction in GCC states, as evidenced in the table below:

 

 

Big benefits for charging infrastructure and V2G

The main beneficiaries of the MENA EV demand story will be those companies offering charging-related infrastructure and V2G services. Firstly, developing widespread charging infrastructure is fundamental for the successful uptake of EVs. The IEA estimates that there were approximately 5.2m charging points worldwide to be at the end of 2018, up 44% from the year before. The majority of this increase was in private charging points, which accounted for more than 90% of the 1.6m installations. Companies such as Swiss-Swedish multinational ABB, Saudi Automotive Services Company (SASCO), UAE firm VOLT and Tesla are already offering charging infrastructure in markets across the Gulf region.

Secondly, the expanding GCC EV market has significant potential for utilities to tap into. Besides providing a new avenue of electricity demand for utilities to capitalise on, the growing penetration of EVs enables the facilitation of V2G services. V2G technology allows electricity to be stored in an EV and then fed back into the grid network. It can play an important role in balancing the electricity system, particularly when there is a high proportion of intermittent renewable energy sources feeding into the grid. This function of the EV will be particularly useful in those MENA markets that are aggressively pursuing renewable energy, such as the UAE, Jordan and Morocco.

 

Limited opportunities for autos producers

 Rising demand for EVs in the MENA region is unlikely to translate into a significant uptick in growth for EV production in the region’s main automotive manufacturing countries. The UAE, Morocco, Tunisia and Saudi Arabia were the four largest exporters in 2018.

There is little intra-regional trade for autos parts and finished vehicles to build on in MENA. In 2018 imports of autos parts and vehicles between countries in the region represented just 4% of total imports of autos parts and finished vehicles. The most important auto exporters to MENA are Japan, which accounted for nearly one quarter of imports in 2018, followed by the US (10%) and Germany (9%). Elevated EV demand from the GCC will likely benefit the autos manufacturing sectors in these countries.

 

 

Speed bumps: Oil price and COVID-19 crises

The recent collapse of OPEC+ market management and the ongoing spread of COVID-19 has resulted in a significant fall in oil prices. At the beginning of April Brent crude prices were trading down almost two-thirds from the end-2019 level. The oil price collapse will hit the economies of MENA oil producers hard and this will likely have a negative impact on near-term demand for EVs through two channels.

Firstly, cheap petrol and diesel will undermine the attractiveness to consumers of a switch to EVs, given the limited financial incentive to adopt the technology. Secondly, the macroeconomic weakness caused by lower oil prices and the disruption from the measures taken to try and control the spread of  COVID-19 will weigh on vehicle sales generally. Specifically, ongoing fiscal consolidation efforts by governments across the region amid a backdrop of “lower for longer” oil prices will likely prompt households to curb spending on big-ticket items. The full extent of disruption from the pandemic remains unknown, as does the duration of the outbreak, presenting further downside risks to EV demand over the coming year.

 

Georgina Hayden is an energy consultant and co-founder of research and analysis firm, North Shore Analysis. She has a special interest in the low-carbon economy, and the challenges and opportunities facing stakeholders operating in an increasingly digitalised, decarbonised and decentralised energy system. Before that, she was Head of Power & Renewables Research at Fitch Solutions. She holds a master’s degree in Geopolitics, Territory and Security from King’s College London.


Sources:
[1] McKinsey & Company “Expanding Electric Vehicle Adoption Despite Early Growing Pains” https://www.mckinsey.com/industries/automotive-and-assembly/our-insights/expanding-electric-vehicle-adoption-despite-early-growing-pains
[1] BP Energy Outlook 2019 https://www.bp.com/content/dam/bp/business-sites/en/global/corporate/pdfs/energy-economics/energy-outlook/bp-energy-outlook-2019.pdf

 

 

 

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