Global Transition to Electric Vehicles

(Reuters) – The global transition toward electric vehicles will have far-reaching impacts on investment, production, international trade, and employment, according to the International Monetary Fund (IMF) in its update to global economic growth forecasts.

The analysis was included in the IMF's latest World Economic Outlook, released as policymakers gather at the IMF and World Bank annual meetings this week to discuss efforts to boost global growth, tackle debt distress, and finance the green energy transition.

According to the IMF, "The rising adoption of electric vehicles represents a fundamental transformation of the global automotive industry. It will have far-reaching consequences."

The shift toward EVs has accelerated in recent years as a key means for countries to achieve climate goals. In 2022, transportation accounted for 36% of greenhouse gas emissions in the U.S., 21% in the European Union, and 8% in China, as stated by the IMF.

In support of rising EV adoption, the EU aims to reduce emissions from cars by 50% during the 2030-2035 period from 2021 levels. The U.S. government has also provided subsidies for EVs and charging stations.

The IMF pointed out that the global automotive industry is characterized by high wages, strong profits, large export markets, and a high degree of technology. The acceleration toward EVs could reshape this landscape, especially if China maintains its lead in production and exports against U.S. and European competitors. Under realistic EV market penetration scenarios, Europe's GDP could see a reduction of about 0.3% in the medium term, according to the IMF.

In these scenarios, employment in the automotive sector may decline, with labor gradually reallocating to less capital-intensive sectors, which typically yield lower value added per worker.

Both the U.S. and EU have imposed tariffs on Chinese-made EVs to counter what they allege are unfair subsidies from Beijing to Chinese manufacturers. Last month, the Biden administration introduced a 100% duty on Chinese EVs, while EU member states recently backed import duties on Chinese-made EVs of up to 45%.

Chinese EV makers have priced their vehicles below competitors, a crucial advantage since EVs remain more expensive than gasoline alternatives and global demand for EVs has been weakening.

Earlier this month, the French government announced it would reduce support for EV buyers, following Germany's move to end its subsidy scheme late last year.