Electric Vehicles and the Economy

An electric vehicle, often called an EV, runs on electricity stored in a battery rather than on petrol or diesel burned in an engine. EVs range from electric scooters and three-wheeled auto-rickshaws to cars, buses and trucks. Their spread is not just a change in technology; it ripples through household budgets, manufacturing jobs, oil markets and even government tax revenue.

Higher price up front, lower cost to run

The single most expensive part of an electric car is its battery pack, the large set of connected battery cells that stores its energy. Because batteries are costly, many EVs still cost more to buy than similar petrol models, although the gap has narrowed as battery prices have fallen. Once on the road, however, EVs are usually cheaper to run. Electricity per kilometre generally costs less than petrol, and an electric motor has far fewer moving parts than an engine, with no oil changes and less brake wear, so maintenance is often cheaper too.

That is why economists compare vehicles using the total cost of ownership, which adds the purchase price to all the fuel, maintenance, insurance and other costs over the years a vehicle is owned, and subtracts what it can be sold for at the end. A vehicle that costs more to buy can still be cheaper overall.

Effects on industry and jobs

Car-making is one of the largest manufacturing industries in the world. EVs change what it needs. Engines, gearboxes and exhaust systems, which employ many workers and suppliers, become less important, while batteries, electric motors, power electronics and software become more important. Some estimates suggest building an EV requires fewer labour hours than a conventional car, mainly because the drivetrain is simpler. Countries and companies that lead in battery manufacturing, especially China, have gained a strong position. India has focused heavily on electric two- and three-wheelers, which make up the majority of its EV sales and suit its crowded cities.

Effects on oil demand and government budgets

Road transport is one of the largest uses of oil worldwide, so a large shift to EVs would slow the growth of oil demand and eventually reduce it. For oil-importing countries such as India, that could mean smaller import bills and less exposure to oil price shocks. It also creates a budget problem. Many governments collect large amounts of fuel tax revenue from petrol and diesel, and use it to fund roads and other spending. As more vehicles run on electricity, that revenue shrinks, and governments will eventually need other ways to pay for roads, such as charges based on distance travelled.

New dependencies

EV batteries depend on critical minerals such as lithium, nickel, cobalt and graphite. Mining and processing these minerals is concentrated in a small number of countries, raising questions about supply security, fair prices and the environmental and labour conditions of mining. Electricity grids also need to grow and adapt to handle charging, especially if many vehicles charge in the busy evening peak.