Written by Madalina Preda

As the world electrifies and the broad penetration of EVs grows, regional differences are defining the pace (and success) of adoption globally. However, controversy, major questions, and significant challenges remain. 

The global shift towards electric vehicles (EVs) represents a step towards new personal transport systems that can be better for the environment. However, as EV penetration grows, we are seeing variations in rates and levels of adoption between the West and emerging markets. From infrastructure hurdles to economic differences and insurance challenges, the EV landscape appears to be being shaped by regional differences that are defining the pace and success of EV roll-out across the world.

In this article, we examine three pivotal regions - China, Europe, and the United States, and consider what prospective implications regional differences have for insurers and society more generally. 

China: Growth and Dominance Made Possible Through Investment

In China, the undisputed EV market leader, the streets of major cities hum with the sound of electric vehicles. Former battery manufacturing company turned EV goliath BYD produces many of these cars, from low-cost models like the Seagull to luxury offerings like their chunky Yangwang U8. 

30 years after its inception, BYD has overtaken Tesla to become the largest EV manufacturer in the world (in terms of sales). China’s investment of over $230Bn EV development and supply chains appears to have paid off. This investment, allowing them to refine and master the art of vertical integration and produce competitive batteries, allows them to produce affordable EVs for China’s burgeoning middle class. 

However, China's rise to the top of the global EV league table has not been plain sailing. The country faces intense competition in its domestic market, particularly in the compact and SUV segments. Fierce rivalry has led to frequent price wars, putting pressure on profit margins. Moreover, the rapid pace of innovation in the Chinese EV market creates challenges for residual value management, as older models depreciate more quickly when newer, more advanced vehicles enter the market.

Despite these challenges, China's EV market continues to grow. In 2023 alone, the country saw 8.1 million new EV registrations, representing a 35% increase from the previous year. 

This growth has solidified China's position as the world's largest EV market, accounting for more than half of all EVs sold globally. 

Europe: A Diverse Unity in Electric Dreams Amidst Variable Infrastructure

In Europe, the EV story is different, with sustainability driving the electrification push.  Indeed, the European Union has set an ambitious goal to end sales of new internal combustion engine vehicles by 2035. In Norway, over 80% of new car sales are electric. The Netherlands, Sweden, and Germany are following suit, with EV market shares between 25 and 35%. However, this journey isn't uniform across the continent. Southern European countries like Spain and Italy are still playing catch-up, with adoption rates of 10-15%. This North-South divide is particularly evident in charging infrastructure. The Netherlands leads the pack with over 100 charging points per 100,000 inhabitants, closely followed by Norway with about 80. In contrast, Southern European countries average only 20-30 charging points per 100,000 inhabitants. This disparity in infrastructure is one key factor in the varying adoption rates across the continent. 

Europe's EV market is also shaped by unique leasing trends. In some countries, over 50% of new vehicles hit the road through lease agreements. This preference is influencing how Europeans approach EV ownership and raising important questions about the future value of these vehicles - this residual value question around EVs in Europe presents both opportunities and challenges. Premium EVs retain about 55-60% of their value after three years, slightly lower than the 60-65% for comparable ICE vehicles. For mass-market EVs, the gap is more pronounced, with EVs retaining 45-50% compared to 55-60% for ICE vehicles. These differences in depreciation rates are subsequently shaping investment strategies and consumer choices across the continent. 

United States: Prospect and Uncertainty Amid Political Turbulence

The United States' EV market is a case study in contrasts. In 2024, modest growth of 7.3% resulted in 1.3 million units being sold. While this growth is promising, it's tempered by challenges faced by market leader Tesla, who saw a 5.6% decline in sales, particularly their older models. Policy uncertainty is gripping the American EV landscape as a whole - the future of those all-important EV incentives (including the $7,500 tax credit) hangs in the balance, causing potential buyers to hesitate. This uncertainty is affecting consumers and also causing ripples in the broader automotive industry. 

However, despite these short-term fluctuations, industry experts view the long-term transition towards EVs as somewhat inevitable. One of the most significant challenges in the U.S. market is the higher cost of EVs when compared to traditional vehicles. As of March 2023, the average cost of an EV was roughly 23% higher than that of an equivalent internal combustion engine vehicle. This price premium, coupled with concerns about charging infrastructure and range anxiety, continues to be a barrier to widespread adoption. 

What Might Lie Ahead:

As society electrifies, insurers face a complex landscape of risk and opportunity. For bold insurers, looking to lead on EV products and services, we recommend considering the following strategies:

1. One Size Doesn’t Fit All - Geographic Risk Management: Diversify portfolios across markets with varying levels of maturity to mitigate localized risks. Implement infrastructure-linked pricing models, adjusting residual value predictions based on the density and quality of local charging infrastructure 
2. Build-in Flexibility - Advanced Analytics and Operational Strategies: Utilize AI-driven predictive algorithms to improve accuracy in residual value forecasting and risk assessment. Offer flexible leasing options, such as lease extensions or used-car leasing, to adapt to changing market conditions.
3. Consider Taking Segment-Specific Approaches: Focus on premium EVs in developing markets, as these vehicles tend to retain value better. Increase exposure to mass-market EVs in regions with strong infrastructure and higher adoption rates. 
4. Infrastructure Development: Support the expansion of charging networks, particularly in regions with lower charging density, to reduce "range anxiety" and boost adoption rates. 
5. Policy Adaptation and Monitoring: Stay updated on policy changes, such as EV incentives and regulatory frameworks, to anticipate market shifts. Maintain flexibility in pricing and portfolio strategies to adapt to policy uncertainties, particularly in markets like the U.S.

The proliferation of EVs represents both challenges and opportunities. Risk profiles of EVs are different - factors such as battery life and advanced technology require insurers to adapt and redefine their underwriting processes. The industry is responding with innovations like usage-based insurance (UBI) and specialized EV insurance products that consider factors such as the high cost of battery replacement and the availability of charging infrastructure. 

The road ahead appears charged with potential. For consumers, automakers, and insurers alike, this EV revolution is an undeniable opportunity to reimagine our relationship with mobility and the environment. 

As the electric revolution truly takes root, and the way we live, work and interact with the world around us changes, it's important to stop and ask ourselves, as insurers, ‘Are we truly ready to plug in and join the ride'?