We believe that EV adoption will remain nascent in the majority of LatAm markets in the short term (2022-2026) as EVs remain widely unaffordable to the majority of consumers.
While we expect the LatAm region’s EV market will significantly lag behind Asia, Europe and North America in terms of sales volume, we do expect strong low base growth over our 2022-2031 forecast period.
Breaking Latin America down into sub-regions, we expect that EV sales will remain nascent in Central America in 2022 as we believe that EVs are unaffordable to the majority of consumers in the sub-region, despite announcements by three markets in the region (Nicaragua, El Salvador, Panama) this year that they would be introducing new legislation to support EV adoption.
- We expect that Brazil will continue to be the regional leader for EV sales, but we note that the countries' EV charging network remains undeveloped in order to adequately support the growing EV fleet.
We believe that electric vehicle (EV) adoption will remain nascent in the majority of LatAm markets in the short term (2022-2026) as the affordability gap between EV and internal combustion engine (ICE) vehicles remains too large to enable widespread EV adoption. EVs remain widely unaffordable to the majority of consumers in the region; data on average household incomes for the region (USD7,500) from the World Bank compared with the average price of an EV (USD35,000) showcases that the segment is only accessible to high-income earners in the region. We also continue to see EV sales growth in the public transport segment, particularly through the introduction of electric buses to local bus routes. We believe that the expansion of electrified public transport routes will remain the key driver of EV sales across the region until EVs become more affordable.
We forecast that EV sales will increase by 41.0% in Latin America in 2022, reaching around 64,000 units. This means that EV sales will make up 1.2% of total vehicle sales in 2022, up from 0.8% in 2021. We expect the LatAm region’s electric vehicle (EV) market will significantly lag behind Asia, Europe and North America in terms of sales volume (left-hand side graph below). This is because the EV markets in these regions are more developed with a broad, established consumer base, which we expect to produce a high number of EV sales in 2022; North America (1.4mn units), Asia (7.1mn) and Europe (2.7mn) compared with LatAm (64,000 units). Despite this, we do expect strong low base growth in the region over our 2022-2031 forecast period (right-hand side graph below). Indeed, we expect that LatAm's EV market will exhibit the second highest average growth rate over our long-term forecast (2022-2031) at 17.58%. LatAm falls below North America (24.06%) but sits above Europe (17.53%) and Asia (17.30%).
In the LatAm region, we expect Brazil to drive EV adoption in volume terms in the region over our 2022-2031 forecast period due to its large driving age population and well-established automotive industry. We expect that Brazil will make up 78.0% of EV sales in 2022 with sales of around 49,500 units. This is followed by Ecuador (7.9%), Mexico (7.8%), Colombia (5.1%), and Chile (0.7%). We note that these five countries are the only markets that we provide EV forecasts for in the Latin America region.
Breaking Latin America down into sub-regions, we expect that electric vehicle (EV) sales will remain nascent in Central America in 2022 as we believe that EVs are unaffordable to the majority of consumers in the sub-region, despite announcements by three markets in the region (Nicaragua, El Salvador, Panama) this year that they would be introducing new legislation to support EV adoption. In total, we estimate that EV sales in Central America in 2022 will reach around 4,000 units, with 95.2% (3,808 units) sold in Costa Rica (see graph below).
Brazil's EV Market To Remain Largest In Region
In LatAm, we expect Brazil to drive the adoption of EVs in volume terms in the region due to its large driving age population and well-established automotive industry. We forecast EV sales in Brazil to expand by 49.7% to reach a total of 50,878 units in 2022 and achieve an annual growth rate of 16.2% . Our bullish outlook is informed by sales in 2021; according to the latest data from the industry body Associação Nacional dos Fabricantes de Veículos Automotores (ANFAVEA), a total of 33,989 EVs were sold in Brazil in 2021, including battery electric vehicles (BEV) and plug-in hybrid EVs (PHEV). This equates to sales growth of 72.1% y-o-y, though we contend that the movement in EV penetration rate (EVs as % of total domestic vehicle sales) from approximately 0.4% in 2019 to almost 1.61% in 2022 is a stronger justification for our bullish outlook on the Brazilian EV segment. Brazil will take up 78.0%% of the region’s total sales in 2022 and we expect that share to decrease to 60.1% by 2031, when we expect Brazil’s total EV sales to reach over 129,000 units.
Our bullish forecast is also informed by the fact that Brazil is quickly becoming the key hub for EV manufacturing in Latin America. This in part has been driven by EV automakers, including BYD, who have opened a battery manufacturing hub for EV buses in Brazil to produce its lithium-ion phosphate 'blade' batteries. The factory will export around 18 thousand batteries per year to its fleets surrounding Latin America. Additionally, we note that Brazil has seen interest in its lithium reserves from mining companies seeking to capitalise on the high metal prices spurred by the growing global demand for EVs. Notably, Canada-based Sigma Lithium has begun construction at its Grota do Cirilo project where it aims to produce up to 220,000 tonnes per year of high purity 6% battery grade lithium concentrate. Given that Brazil's holds the largest hard-rock reserves of lithium worldwide, we expect further investment announcements like Sigma Lithium's, consolidating Brazil's position as an essential link in Latin America's EV supply chain. We believe that this will draw further interest to Brazil as an EV hub, as we expect EV automakers to localise their supply chains in the long-term of our forecast period (2022-2031).
We highlight Brazil's charging infrastructure as a potential headwind to EV adoption. We estimate that Brazil hosts an EV fleet of approximately 78,253 vehicles. Data from Brazil's Association of Electric Vehicles (ABVE) notes that the fleet is served by just 1250 public charging stations, giving it an EV per charging station ratio of around 67:1 (see graph below). Additionally, a report from ABVE showcases that the network is limited to urban areas, with 47.0% of points being located in Sao Paolo alone, and 10 more rural states being without charging points entirely. For context, we estimate that Mexico hosts a greater amount number of charging stations (1161) to serve its EV fleet of 11,907 vehicles.
Potential Scale Of Mexican Market Hindered By Industry Policy
The Mexican EV segment remains nascent, hindered by relatively low rates of EV charging infrastructure, prohibitively high EV pricing points that keeps consumer appetite for EVs limited and a lack of a coherent policy framework to drive adoption. Consequently, EV penetration rates remain low and we forecast that EV sales will only make up 0.44% of total domestic sales in 2022 with a total of 4,574 units sold (see graph below). Data from the Associación Mexicana de la Industria Automotriz (AMIA) note that in 2021, 3,283 EVs were sold. Breaking this down, only 768 of these sales are BEVs, while the majority (2515 units) PHEVs.
Lack Of Industry Policy Translates Into Weaker Sales Penetration Rates
Mexico - Electric Vehicle Sales, Units, % chg, % Total Domestic Vehicle Sales (2022-2031)
A lack of financial support for personal consumers and businesses, who we expect would be open to electrifying their vehicle fleets due to lower running costs once initial costs for such vehicles are secured, is particularly limiting for the Mexican market, where GDP per capita rates exceed the region but fall short of global averages. Indeed, according to the data from the World Bank, the average household net adjusted disposable income per capita in Mexico is USD6,268. We estimate that the average cost of an EV is around USD35,000, meaning that without additional financial assistance, EVs remain financially inaccessible to the majority of the country.
While Mexican consumers opting for an EV qualify for tax exemptions, there are currently no direct purchase incentives such as subsidies or grants at the national level. It should be noted that there are some indirect incentives at the state level, for example in the State of Mexico EV owners are afforded a 20.0% discount on a local road tax fee. We expect the localised approach to exacerbate variations in levels of adoption between urban and rural areas, translating into higher levels of adoption in the former, where there is a greater density of EV charging points and potential for the imposition of strict vehicle emissions standards, increasing the total ownership costs of an ICE vehicle, thus incentivising EV ownership. We note that the lack of public investment by the current government makes it unlikely that EV incentives will be provided in the near term.
However, we note that there is notable upside risk to our EV sales forecast, as Mexico’s proximity to key North American and Latin American markets, high-tech manufacturing capability and host of bi-lateral and multi-lateral free trade agreements also inform our view that it will continue to assert itself into the EV supply chain over our forecast period. This trend has already played out in Q222 with the announcement from CATL in June 2022 that it has selected Mexico to construct its first Americas-based gigafactory. Indeed, we expect that there will be further battery-related investments into the market in the short term as we believe that the onshoring trend that we are seeing in the North America EV supply chain will drive investments into Mexico, which is quickly becoming a hub for EV parts and components manufacturing. Additionally, Mexico has notable strength upstream with the ninth largest lithium reserves globally, which we believe will draw battery manufacturing firms to the market. However, we note that these investments will take time to come to fruition, meaning that the market will not see these benefits until 2026 onwards.
Chile's EV Segment Bolstered By Election Of Gabriel Boric
The election of Gabriel Boric as president in Chile in December 2021 poses a major upside to Chile's EV segment. An environmentalist, the president introduced an electric national mobility strategy on 8 March 2022. The main objective underpinning the legislation is for all light and medium-sized vehicles (passenger cars), and all forms of public transport (including buses and taxis) will be electric by 2035. The legislation provides incentive packages that will support consumers in purchasing EVs and will invest into the construction of the domestic EV charging infrastructure. On June 8 2022, the government also approved legislation that provides affordable electricity prices at EV charging points in the country. This is noted in the table below.
|>350kWh to 500kWh||0.82 pesos per kWh|
|>500kWh to 1,000kWh||1.8 pesos per kWh|
|>1,000kWh||2.5 pesos per kWh|
|>5,000kWh||2.8 pesos per kWh|
President Gabriel Boric also campaigned during the election cycle in H221 for the creation of a national lithium company. The country's lithium reserves, which are the largest in the world, are currently mined by private companies. Boric hopes to create a nationalised firm in order for the country and its people to directly benefit from these lucrative prices, and furthermore, as an environmentalist, Boric also aims to 'green' Chile's industry and transportation networks. We believe that the policies enacted thus far by Boric's administration, in addition to Boric's support for EV adoption, will result in a strong increase in Chile's EV adoption in the short term (2022-2026). We note that Boric's electric mobility strategy is one of the most robust in Latin America by providing a wide range of benefits to EV-users, most notably the electricity tariff legislation as Chile and Costa Rica are the only countries to provide this incentive.
We also note that EV adoption in Chile will be driven by public transportation in the short term (one-to-three years) with the potential of consumers joining the trend over the medium-to-long term. In 2018, the Chilean government introduced a new quality standard for public transportation that envisages improved air quality in the country by promoting the purchase of either Euro 6 compliant diesel-powered buses or fully electric buses. The government has also set out an ambitious plan to have all public transportation electrified by 2040 while the capital of Santiago plans to reach a fully electric bus fleet by 2035. Chile's charging infrastructure has also received notable investments over the past quarter, and in particular, the announcement from Enel X, a Chilean energy company, and Uber in December 2021 presents a major upside risk to EV adoption in Chile. The two firms have signed an agreement to install new charging points in the Metropolian Region, in addition to more than 1,200 stations along a route from Arica to Punta Arenas. Enel X has also committed to offering 200 EVs for hire by Uber driver partners in the country, which the company aims to increase to 3,000 in the next three years. We also expect that the newly-elected president, who is an ardent environmentalist, will introduce financial incentives to bolster EV adoption in the next three years, which would pose a major upside to EV sales in the country.
Based on these factors, we currently forecast EV sales to reach 492 units in 2022 (see chart below). Over the long term, we expect Chile EV sales to grow by an annual average growth rate of 14.2% and sales to reach 730 units by 2030. Risks to the view are heavily tilted to the upside, though government support is essential to begin to gradually erode several immediate term barriers to EV adoption in Chile, including but not exclusive to its vast and largely rural landscape (adding to range anxiety concerns), inadequate EV charging infrastructure and stagnant household incomes.
EV Adoption To Grow Steadily In 2022
Chile – Electric Vehicle Sales (2022-2031)
Uptake Of EVs in Ecuador Slowed By Poor Infrastructure And Policy
We expect that the country's EV penetration ratio will remain in its infancy in 2022. Segment growth is hindered by a broad lack of affordability (evidenced by the scale of the used vehicle market for internal-combustion engine vehicles), an inadequate national EV charging infrastructure network and a lack of long-term government support (including fiscal resources) for the electrification of the domestic vehicle fleet. While vague in terms of targeted EV policies, Ecuador's electromobility policy tilts our EV forecast to the upside, as the legislation provides tax exemptions for EVs in addition to preferential electricity rates at charging stations. The government has committed to 10,000 EVs being on its roads by 2025 and 100,000 by 2030. However, this figure includes public transport, taxis and commercial vehicles.
While we believe that these policies will support EV adoption, Ecuador is trailing behind its regional peers in the electrification of its public transport and in the development of its EV charging infrastructure. Regional leaders, such as Chile, whose long-standing relationship with BYD and introduction of e-buses back in 2017 has resulted in the country boasting the largest e-bus fleet in Latin America. Similarly, through robust government legislation, Uruguay currently has one of the most rapidly expanding public charging networks, the aim being to drive EV adoption rates by ensuring a high number of charging points per EV. By contrast, Ecuador lacks these private and public sector investments. Moreover, without government subsidies, EVs remain unaffordable to the majority of consumers in the country, as the average price of an EV (USD35,000) eclipses the annual average income of a consumer (USD4,184). Thus, we expect that EV sales will remain nascent in the near-term.
Despite these issues, data shows that EV sales are gaining traction in the country, exhibiting 538.7% y-o-y growth in 2021. Similar to other countries in Latin America that lack the necessary charging infrastructure to support widespread BEV uptakes, Ecuador's EV segment is dominated by PHEV sales. Notably, sales in this segment increased by 267.8% y-o-y in 2021, showcasing that the segment is increasing in popularity in the country. A similar upward trend is observed in the BEV segment, sales of which increased exponentially from 18 units per month in October 2021 to 80 in December. While the number of total units sold remains low, the increase in sales does provide a positive outlook for Ecuador's EV segment. Consequently, in 2022, we expect further EV sales growth of 21.0%, with EVs making up 4.10% of the total domestic vehicle fleet (see graph below).
EV Uptake Limited By Poor Policy
Electric Vehicle Sales, units, % chg y-o-y (2022-2031)
Petro Victory In Colombia Prompts Upward Revision To EV Sales
We expect that the election of Gustavo Petro on Sunday June 19 2022 poses a significant upside risk to EV adoption in the country in the short term (2022-2026). This is largely informed by Petro's commitment to transition Colombia to a 'green economy'. In particular, Petro has made a string of comments supporting EV adoption during his election campaigning, most notably during an interview on Blu Radio in November 2021 where the president-elect argued for a policy that would require the scrapping of ICE vehicles within a period of 12 years in order for consumers to switch to an EV. This would be new to Colombia as there currently is no scrapping policy in the country. Additionally, during his time as Mayor of Bogotá, between 2012 and 2015, Petro introduced 200 hybrid-electric vehicle buses to the city alongside the first pilot scheme of electric taxis in the country, policies that we believe indicate that EV adoption will be central to Petro's 'green economy'. Consequently, we have made an upward revision to our EV forecast. We now expect an EV penetration rate of 3.8% in 2023 and 10.8% over our long-term forecast (2022-2031) (see graph below). By contrast, our previous EV forecast, which was based on the existing policies of the former Duque government, expected an EV penetration rate to grow by 3.5% in 2023 and 5.8% by the end of 2031.
Argentina’s EV Adoption Will Be Gradual, With Notable Upside Risks
We believe that a lack of consumer incentives will keep Argentina’s EV adoption levels at a minimum in the medium term (one-to-four years). Argentina's national legal framework for e-mobility remains in its nascent stages; two bills were introduced to Congress in 2020 and 2021 that aim to incentivise EV manufacturing in the country, including tax and custom duty waivers, in addition to soft credits that will increase EV affordability for consumers. These benefits will remain until 2023, after which point they will be reviewed. The bills also commit to the electrification of 80.0% of the country's public transport system, and states that all public tenders for electrified public transportation must include commitments to construct EV charging stations. However, the bills have yet to be ratified and do not include subsidy programs or fiscal packages to consumers to aid the purchasing of EVs. Data from the World Bank showcases that the average annual household income is USD7,198, while we estimate that the average cost of an EV reaches USD35,000. Consequently, without additional subsidies, we expect that the price of EVs will remain a key barrier to widespread EV adoption in the country in the long-term.
The current lack of a sufficient public charging infrastructure network also presents a key barrier to widespread EV adoption. Developments to introduce public charging stations in the country are accelerating as Carrefour Argentina partnered with ChargeboxNet in late 2020 to install charging stations at Carrefour's retail operations across the country to enable customers to charge their vehicles while shopping. We also highlight upside to sales over the next four-to-five years as we expect EV prices to reach near parity with ICE vehicles. With the price of battery packs on the decline due to increased technology solutions such as cell-to-pack design and improved manufacturing techniques, lower battery prices will lead to lower price points for EVs. This will lead to more consumers and businesses opting for more environmentally friendly options for transportation. However, we note that the aforementioned bills will need to be implemented to ensure that consumers can afford EV models, as currently we estimate that there are around 120 EVs on Argentina's roads and a small number of electric buses meaning the country lags behind neighbours Uruguay and Chile in EV adoption rates.
We believe that the announcement in July 2022 by global battery manufacturer CATL that it would build its first Americas-based gigafactory in Mexico showcases increasing interest by battery manufacturers in the LatAm region, which we believe will pose an upside for Argentina. This is because we believe that Argentina is an attractive location for a gigafactory plant. As shown in the table below, we believe that Argentina, Brazil and Chile are attractive locations for gigafactory investments, mostly due to the countries strength in the upstream segment. Indeed, Argentina currently produces 10.0% of global lithium stocks, and we note that there have been four lithium mining investments in Q122 involving BMW, Volkswagen (VW) and Ford in addition to mining firms that are seeking to provide battery metals to EV manufacturers. The state has also invested into developing lithium production in the country and ratified policies that aim to draw EV battery investments into the country. However, we believe that the construction of a plant in Argentina is less likely as the autos industry is smaller relative to Brazil. This is illustrated by production figures from 2021, which show that 2.1mn vehicles were produced in Brazil, while only 360,000 units were produced in Argentina. Despite this, we believe that the growth of the circular economy model in the EV battery industry (the process whereby batteries are created, used, recycled or re-used in a sustainable, closed-loop economy) will benefit Argentina, as battery manufacturers seek to establish manufacturing plants in countries with strong upstream segments to provide a local, reliable source of battery metals, something that Argentina can offer.
|Country||Upstream Investments By OEMs||Local Metals Supply||EV Production||Battery Recycling||Renewable Energy*||Downside Risks||Policy Support|
|Argentina||Yes - major investments by Tesla, BMW, Ford||Yes (Lithium) - robust upstream investments by OEMs||Yes||No||3.0%||Protests from environmentalists may disrupt lithium mining||Yes|
|Brazil||No||Yes (Lithium, Nickel, Cobalt)||Yes||Yes||83.0%||Presidential election in November will mean that policy support or investments will be delayed until 2023||No**|
|Chile||Yes (BYD) but unlikely that more contracts will be awarded||Yes (Lithium)||No||No||52.0%||Halt of mining contracts by President Boric may restrict lithium output||No|
Government Investment Projects Drive Positive Outlook For Uruguay's EV Market
We believe that Uruguay’s EV market will expand steadily from 2022-2031 due to the planned development of national charging infrastructure and extensive fiscal policies incentivising EV adoption. Alongside investments into charging infrastructure via the ‘Electric Route’ scheme, which aims to connect Uruguay’s main cities via a highway featuring electric charging points every 60km, the government has also introduced a number of tax exemptions and subsidies to incentivise EV adoption in both the pa passenger vehicle (PV) and commercial vehicle (CV) segment. Moreover, Uruguay demonstrated its commitments to fleet electrification at the COP26 climate summit, where it signed the declaration to phase out the sales of new fossil-fueled cars and vans by 2040 or earlier. Uruguay’s EV market remains nascent; there is a lack of official data on EV adoption rates, but we estimate the EV fleet size to currently be at 850 units, 2.09% of Uruguay's total vehicle fleet in 2021. This is relatively low when compared with other countries in the region due to the relative size of Uruguay.
In April 2022 VW announced that, after a year of testing, the OEM would be introducing the electric e-Up! series to Uruguay, the first country in Latin America to receive the models. This comes after announcements in July 2021 where VW selected Uruguay as the location to host the launch event for its electromobility strategy in Latin America, unveiling 10 VW EV models that will be trialled in Uruguay over the next year. At the event, the president of VW Latin America noted that Uruguay was selected as it offers the 'best electric mobility infrastructure in the region'. This successful period of testing highlights that Uruguay is highly suited to fleet electrification, and we expect that this announcement will cause other automakers to look to Uruguay as an attractive location to sell EVs.
The government has also developed its fiscal policy to expand Uruguay’s EV penetration rates in PV's and CV's. Currently, the government has provided EV’s with exemptions from the 21% import duty levied on vehicles alongside subsidies on electrified vans, buses and taxis. The government also recently announced that it will provide preferential charging rates for EV's at night once private EV adoption rates have increased. With charging infrastructure being one of the main barriers to successful EV adoption, we believe that these investments pose a significant upside risk to Uruguay’s EV market. We believe that Uruguay’s EV market and local EV adoption rates will experience steady growth over the next decade due to this wide range of fiscal stimuli and government investments into the national charging infrastructure. Consequently, we expect Uruguay’s EV market will expand steadily from 2021-2030 with risks tilted to the upside.
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