The global transport sector has taken another step towards an electric future this month, following the announcement from Ford that all their vehicles sold in Europe would be electric by 2030. General Motors also announced it will phase out gasoline- and diesel-powered vehicles globally by 2035, which represents a dramatic shift away from fossil-fuel-powered engines for the largest US automaker. Several luxury carmakers, such as Jaguar and Bentley, have made similar promises.
Amid an accelerating shift towards electric vehicles, Australia stands at risk of falling behind in the transition to an electric future. The Future Fuels Study, released by the Federal Government earlier this month, ruled out subsidies to encourage uptake of electric or hybrid vehicles.
‘In the United States, purchasers of electric vehicles can receive a tax subsidy of up to US$7,500, and President Biden has pledged to expand this subsidy. In contrast, electric vehicle sales in Australia are often subject to the luxury vehicle tax, discouraging uptake,’ said IBISWorld Senior Industry Analyst Yin Yeoh.
Failing to keep pace in the EV transition
Electric vehicles accounted for only 0.56% of total new motor vehicles sold in Australia in 2020, well below the global average of 4.2%. The United Kingdom plans to ban fossil fuel vehicle sales by 2030. The Motor Vehicle Dealers industry is anticipated to grow by 0.9% in 2020-21, to $53.3 billion, as the Federal Government has provided temporary tax incentives for businesses to purchase new assets such as vehicles.
‘In the wake of the COVID-19 pandemic, the government wants to kick start the economy by encouraging new investment. If there was ever a time to introduce incentives for investment in electric vehicles, it would be now,’ said Ms Yeoh.
The average age of registered vehicles in Australia has increased at an annualised 1.0% over the five years through 2020-21, to 10.6 years.
State governments currently offer several financial incentives for consumers purchasing an electric vehicle. For example, the Victorian Government offers discounts on electric car registration and stamp duty discounts, while the Australian Capital Territory offers stamp duty exemption, free car registration and zero interest loans of up to $15,000 for electric vehicles.
However, new state taxes may also discourage uptake of electric vehicles. To help raise tax revenue that was previously collected through the fuel excise tax, both South Australia and Victoria are planning to introduce specific taxes on electric vehicles in July 2021.
‘The need to generate tax revenue from road users, particularly after the budget deficits incurred during the COVID-19 pandemic, must be balanced against the need to support uptake of electric vehicles. While these are small taxes today, their importance will rise as more electric vehicles join the road network,’ explained Ms Yeoh.
In 2019, the ACT Government began to transition toward an electric vehicle fleet. The NSW Government is expected to transition its fleet of 8,000 buses to electric drivetrains over the next five years.
Price tags and range issues
Despite a fall in new passenger motor vehicles in 2020, 5,199 electric vehicles were sold in Australia. According to the Electric Vehicle Council, Australians consider purchasing electric vehicles due to an expected reduction in their environmental footprint, and lower running and maintenance costs.
‘Consumer preferences have shifted towards smaller, more fuel-efficient cars and compact SUVs due to environmental concerns and the possibility to reduce vehicle operating costs. However, sluggish growth in retail petrol prices has allowed consumers to continue using less fuel-efficient vehicles,’ said Ms Yeoh.
Apart from pricing, the limited driving range of electric vehicles is another factor that discourages consumers. On average, electric vehicles in Australia travels around 400 kilometres per charge. However, the distance varies from 260 kilometres to 650 kilometres, depending on the model.
‘Concerns about the useful range of electric vehicles and the lack of a widespread charging network continue to hinder sales. Greater investment in the electric vehicle charging network would help to address this factor,’ said Ms Yeoh.
Roadmap to low emissions
The transition to electric vehicles is likely to play a major part in any pathway to achieving net-zero emissions across the economy. The transport sector is a major polluter, accounting for 18.3% of national emissions in 2019-20.
‘Due to technological limitations, it is currently difficult to reduce emissions in the Water Freight Transport and International Airlines industries. To make up for this, car passenger transport needs to take greater steps to reduce emissions,’ said Ms Yeoh.
‘Australia could face significant challenges playing catch-up with other developed nations in phasing out internal combustion engines for passenger vehicles,’ said Ms Yeoh.
IBISWorld reports used to develop this release:
- Motor Vehicle Dealers in Australia
- Motor Vehicle Manufacturing in Australia
- Electricity Distribution in Australia
- Water Freight Transport in Australia
- International Airlines in Australia
For more information, to obtain industry reports, or arrange an interview with an analyst, please contact:
Jason Aravanis
Strategic Media Advisor – IBISWorld Pty Ltd
Tel: 03 9906 3647
Email: mediarelations@ibisworld.com
