Electric Cars: Demand, Supply and Equilibrium Price Research Paper

Abstract

The world’s industrial evolution of vehicles has seen an increase in the manufacture and supply of electric cars worldwide. The UK government aims at shifting from the use of fossil fuels in the automotive industry to electric power. The demand and supply of electric cars have already been witnessed in the United Kingdom (UK) market. The market should maintain an equilibrium point to avoid shortages and surplus in both the quantity demanded and supplied. This resulted in the UK government cutting grants for buyers who demand electric cars. The ceiling price and price floors are essential for controlling the market price. The pricing of electric cars will determine if the UK market demand and supply curves will shift to either the right or the left. These shifts affect the equilibrium point of the UK market.

Introduction

The evolution of vehicles worldwide has witnessed an increase in plans to supply manufactured electric cars. Emerging data reveals how Europe is at the forefront in the transition process of replacing fossil fuel locomotives with electric cars across the total market share. Electric car consumption in Europe stands at 12% of the passenger market share¹. The UK government is committed to shifting the consumption of electric-powered cars away from those using fossil fuel. This has led to the reduction of the subsidy cuts from £50,000 to about £35,000². Furthermore, the maximum value of a grant in the UK was lowered with an immediate effect from £3,000 to £2,500³. The move was intended to aid the less privileged individuals in the society to consume the new brand more.

Discussion

The demand for electric vehicles in Europe is increasing on a daily basis. Data show the continent is leading with its market share standing at around 12% as compared to other regions such as China and North America whose consumption levels are 6% and 2% respectively⁴. This increase in demand has led to companies and governments to outline plans which will aim at boosting the production and supply of electric cars for consumption within the next 5-year period⁵. For instance, Ford; an American car manufacturer, pledged to supply electric vehicles for passengers’ consumptions only by 2030 in Europe⁶. This move will set a foundation for other traditional production car companies to follow suit globally.

The supply for electric vehicles will be achieved from other manufacturing companies. These companies include Tesla, NIO, Toyota, and GM. The quantity demanded by the market share will be met by the supplies from these companies who ensure there exists no shortages in the market⁷. The UK government has cut grants and lowered the price caps to facilitate the quantity demanded among its citizens⁸. This demand has resulted to increase the quantity supplied to the market for consumption.

Cutting grants and lower caps by the UK government aimed at creating a means for the unfortunate to demand the product (electric cars). These moves are viewed as a measure which raises the prices of an electric car limiting the demand among less fortunate and in the long run affect supply⁹. This implies the UK government fails to offer support for electric cars’ demand among the people and supply in the long-run. Therefore, cutting grants will force the sellers to increase prices a move likely to reduce demand among the consumers of electric cars.

The high quantity demanded across Europe has seen major investment done in the vehicle industry to meet the supply expectations of consumers. It is approximated in 2020, $139 billion was invested in the electric transportation sector while $357 billion is predicted to be spent as at 2025¹⁰. This investment in the electric car production anticipates to supply the right quantity of products to meet the demand. This increase is attributed to the rise in electric transport consumption among the taste and preferences of consumers worldwide.

Despite the increase in both the quantity demanded and supplied, care should be taken to avoid unhealthy steps which will results to loss-making by the production companies. The quantity supplied should be enough to meet the quantity. A fall in the supply of electric cars will result in shortages leading to the supply curve shifting to the left (S₀S₀ moves to S₁S₁). Similarly, a rise in the supply of electric cars will result in a surplus which will make the supply curve shift to the right (S₀S₀ moves to S₂S₂)¹¹. On the other hand, a fall in the demand of electric cars will result to the demand curve shift to the left (D₀D₀ moves to D₁D₁). Similarly, a rise in the demand of electric cars will result to the demand curve shift to the right (D₀D₀ moves to D₂D₂).

When both quantities supplied and demanded are equal, they form a point referred to as the equilibrium point (e₀). This point forms the healthy operating position for the electric supply and demand where the price and ceiling price is dependent on to set the minimum and maximum market prices. The price floor lies at the point e₂ (excess) while the price ceiling lies at e₁ (shortage)¹². The curve which the shifts in the demand and supply curves is shown in Figure 1. The arrows on the graph indicate either a shift to the left or to the right.

Conclusion

In conclusion, the demand and supply for electric cars are increasing worldwide. Companies have decided to maintain a steady supply to ensure the quantity supplied meets the consumption level. Furthermore, the UK government’s move to cut grants is a move that will affect the demand and impact the supply of electric cars in the long run. Cutting grants increase electric cars’ prices, making them demand for consumption by the rich. Maintaining the equilibrium point is essential in assisting the companies to supply a quantity that will neither create a surplus nor a shortage. Furthermore, the equilibrium point will aid in determining the ceiling price and price floors which prevents customer exploitation.

References

Jolly, J. (2021). The UK slashes grants for electric car buyers while retaining petrol vehicle support.The Guardian. Web.

Komleh, R. (2021). A comparison between conditions of perfect competition market and pure monopoly in supply, demand and equilibrium. Web.

Moerbach, M. (2021) Europe leads the way as the electric vehicle revolution is underway around the world.Newsweek. Web.

Footnotes

1. Moerbach, M. (2021). Europe leads the way as electric vehicle revolution is underway around the world. Newsweek. Web.
2. Jolly, J. (2021). UK slashes grants for electric car buyers while retaining petrol vehicle support. The Guardian. Web.
3. Jolly, J. (2021). UK slashes grants for electric car buyers while retaining petrol vehicle support. The Guardian.
4. Jolly, J. (2021). UK slashes grants for electric car buyers while retaining petrol vehicle support. The Guardian.
5. Jolly, J. (2021). UK slashes grants for electric car buyers while retaining petrol vehicle support. The Guardian.
6. Jolly, J. (2021). UK slashes grants for electric car buyers while retaining petrol vehicle support. The Guardian.
7. Moerbach, M. (2021). Europe leads the way as electric vehicle revolution is underway around the world. Newsweek.
8. Jolly, J. (2021). UK slashes grants for electric car buyers while retaining petrol vehicle support. The Guardian.
9. Jolly, J. (2021). UK slashes grants for electric car buyers while retaining petrol vehicle support. The Guardian.
10. Moerbach, M. (2021). Europe leads the way as electric vehicle revolution is underway around the world. Newsweek.
11. Komleh, R. (2021). A comparison between conditions of perfect competition market and pure monopoly in supply, demand and equilibrium. Web.
12. Komleh, R. (2021). A comparison between conditions of perfect competition market and pure monopoly in supply, demand and equilibrium