NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Amid mounting climate concerns, public health issues and economic challenges, the case for low- and middle-income countries (LMICs) to transition to electric vehicles (EVs) has never been more compelling. It’s clear that the increasing commercial viability of EVs makes electrifying more vehicles — particularly the two- and three-wheeled vehicles that are common in LMICs — not only more feasible but imperative.

More than 95% of deaths caused by air pollution occur in LMICs, according to World Bank data. Alarmingly, over a quarter of the world’s population lives in LMICs where air pollutants reduce the average lifespan by five to eight years. The transportation sector contributes significantly to global PM2.5 emissions — i.e., particulate matter emitted into the atmosphere from both natural and man-made sources. The sector is responsible for approximately 11.7% of these particles, leading to nearly 3.5 million premature deaths in 2017. In individual LMICs, pollution-related premature mortality and morbidity impose a significant economic burden, equivalent to 5-14% of their GDP. High fuel costs also strain LMICs financially: The steady rise in these prices has hit citizens hard in recent years, leading to protests in countries such as Nigeria, Indonesia, Pakistan, India and the Philippines.

Clearly, change is needed — and electric vehicles present several advantages that a growing number of LMICs are eager to pursue.

The Time is Ripe for a Transition to EVs

Considering the volatility of the fuel industry, EVs are emerging as a commercially sensible choice. Decreases in both initial cost premiums and operating expenditures make them a more affordable option in the long run. And well-established business models and rising investor confidence are driving growth in the EV market, bringing a wider variety of options to consumers. This momentum seems likely to continue, as stocks of EV-related companies have consistently outperformed those of traditional automakers since 2019. Venture capital investment in EV and battery technologies is also booming, having reached nearly $2.1 billion in 2022, a 30% increase from 2021.

Recognizing these trends, many LMIC governments are setting ambitious objectives to make the transition to EVs. The pressing question for these countries is no longer whether to transition, but how to accelerate their transitions to meet these objectives.

At its core, the transition to EVs may appear to be a daunting process, as it requires an overhaul of existing systems and collaboration between multiple stakeholders. To accomplish this transition, governments must develop comprehensive policies spanning sectors that include not only the automobile industry, but also energy, environment, e-commerce and banking.

But the real challenge lies in the implementation of these policy changes, which is likely to face inertia. The process of shifting to a completely new technology — and away from a centuries-old automotive transportation industry optimized for internal combustion engine (ICE) vehicles — in an accelerated timeline can trigger multiple stakeholder concerns and conflicting interests. This inherent complexity can make it challenging to kickstart the transition.

Four Priority Drivers for the EV Transition in LMICs

Reviewing the strategies adopted by numerous countries, including many pioneer LMICs, our analysis reveals four priority drivers that governments should consider to accelerate their EV transition and make it more manageable.

Set early short-term targets and interventions: Setting ambitious long-term goals, while important, can make it challenging to generate immediate action and accountability. We have found that setting short-term targets is an important stepping-stone, as they help incentivize stakeholder ownership and provide a goalpost to rally efforts around. These targets, however, can sometimes be difficult to define. A recent BloombergNEF analysis of 19 countries established that a “tipping point” signaling the start of mass EV adoption occurs when 5% of new vehicle sales are fully electric: This can be visualized as the vertical part of the S-shaped adoption curve followed by many new technologies. Once this point is reached, countries can accelerate their efforts, achieving two to three times the progress in the same time it took to achieve the initial 5%. Does that mean all LMICs should set 5% as a short-term target? Country-specific goals and realities may vary, but what’s needed is to set a realistic initial goal to drive focused stakeholder engagement — and to allocate the necessary resources to achieve it.

Prioritize viable vehicle segments and high-intensity use cases: Understanding each LMIC’s unique “mobility story” is vital in prioritizing suitable avenues for electrification. Determining what to prioritize requires a contextual and nuanced understanding of: popular vehicle segments (e.g., cars, motorcycles, three-wheelers, buses, etc.); high-intensity use cases across these segments (e.g., narrowing in on taxi-cabs, or motorcycle taxis, or last-mile motorcycle delivery riders/taxi-cabs); geographical variations (e.g., density of vehicle ownership, state of road infrastructure in cities, prevailing feeder transport network); and the existing state of energy availability (including considerations about grid capacity, energy distribution, etc.). Two- and three-wheelers display high viability for electrification in LMICs, especially when targeting commercial use cases where they outperform their ICE counterparts, and there’s flexibility for home charging or battery swapping. For instance, Delhi has seen significant growth in the electrification of commercial two- and-three-wheelers, due to the emphasis placed on them under the Delhi Electric Vehicles Policy 2020. Considering these factors carefully will result in faster progress, a higher return on investment and long-term behavioral shifts.

Nurture an EV transition through collective action and accountability: To ensure long-term success, cross-coordination across sectors like transport, energy, environment, manufacturing and finance is essential. Two key coordination dynamics should be addressed early. The first involves clarifying the roles of national and sub-national government entities. While some aspects — such as introducing a set of universal incentives, addressing supplier licensing norms and defining localization strategies for production — are best resolved at a national level, many decisions can benefit from local government ownership and intervention. This includes actions like creating low-emission zones in cities, planning for low-emission public transport, and expanding public charging infrastructure. The second dynamic entails promoting city-oriented partnerships with the private sector to manage the expansive nature of these transitions. City-level adoption has indeed proven effective, with 25 cities worldwide accounting for 40% of global cumulative EV sales from 2010-2019. Once countries establish a “transition formula” in the “sandbox” of a city, they can apply the learnings generated in this limited area and expand to other regions. For instance, private bus operators have played a significant role in introducing e-buses in countries like Chile and Vietnam. If both these stakeholder dynamics are established early, accountability and collective ownership of objectives can be achieved in the longer term. For further insights on how dedicated institutional capacity can support collaboration, Germany provides an example through its National Platform Future of Mobility, which features working groups dedicated to enhancing clean mobility, including e-mobility.

Build consensus on challenging government pivots: Policy changes and interventions are rarely straightforward. Governments need to start building a consensus on the hard pivots and trade-offs the EV transition will inevitably require. Some examples might include a short-term reduction in auto-sector tax revenues (should there be a shift towards EVs that attract less taxation), resistance from vehicle owners (especially those affected by future emissions controls), and the impact on domestic ICE manufacturers. Despite the new opportunities that will be created for innovative entrepreneurs and businesses, some firms will face painful adjustments — and others may exit the sector. A clear vision and political will should help governments navigate these tensions. Cross-party support and depoliticizing decision-making are also critical. As hard policy stances such as strict emission norms can impact vulnerable populations in LMICs disproportionately, it would be prudent to start off with stricter regulation on high-usage commercial customers instead of the average consumer. Governments can collaborate with the private sector, such as by seeking businesses’ insights on promising technology when developing policies, to create a sense of collective ownership and reduce the sting of hard pivots. The Indian government’s exploration of hydrogen cars in tandem with battery-powered electric vehicles to generate private sector interest serves as a good example, as does Taiwan’s partnership with private sector actors in the battery swapping space. Involving the private sector in the roadmap early can create a market advantage for these companies. With growing interest from top-tier and increasingly lower-tier manufacturers in EVs, governments can push for stricter mandates, as these manufacturers are already developing EV technology, but may need incentives to encourage them to adapt this technology to LMIC contexts.

Maximizing the EV Transition’s Positive Impact

There are several ways to make the EV transition both smoother and more impactful, such as through complementary shifts in mobility, gender-focused initiatives and sustainable sourcing. Every transition brings meaningful and incremental benefits, lowering pollution and carbon emissions, improving health outcomes and, in the long term, creating stable jobs at scale.

To maximize these benefits, complementary shifts that will decarbonize mobility systems such as EVs are just part of the sustainable transport puzzle. LMICs can leverage the transition from ICE vehicles to EVs to reassess transportation habits, redirect demand to mass transit, and extend the power grid to enable battery charging in last-mile communities, in order to establish more reliable transportation systems. Part of the process of a truly equitable transition, we believe, is to empower women through mobility solutions that prioritize their unique needs, while enhancing mobility for all. There is a growing precedent for EV manufacturers and other businesses to promote women’s participation in the EV ecosystem, with examples emerging in India, Indonesia and Vietnam. For instance, in India, many e-mobility providers offer opportunities to female drivers and provide women-only dedicated services and bus terminals for enhanced safety and security.

Looking toward the coming years, EVs are rapidly moving from a state of “why” and “how” to “when” — and LMICs will play an increasingly important role in the sector’s ongoing development. Governments can support this momentum through targeted policies that ensure that EV supply chains in these countries are as sustainable as possible — and that both the business sector and the consumers it serves are deriving lasting benefits from the EV transition.

Daphnée Benayoun is an Associate Partner, Kiran Willmot is an Associate Partner and Debashish Roychoudhury is a Consultant at Dalberg.

Photo credit: Biswarup Ganguly