Nepal’s tiny car market tells a big global story

Electric vehicle sales are booming in some unlikely places.

A bewildering array of gas-guzzling motorcycles, three-wheelers, cars, and buses clog the narrow streets of Kathmandu—but Chinese EVs are suddenly everywhere, too.

I have visited my wife’s family in Kathmandu almost annually since 2011. While there in July, I saw plenty of Tatas, Hyundais, and Kias. But they were far outnumbered by Chinese EV brands like BYD, Deepal, MG, Omoda, and Dongfeng. Some of these cars were new to me; U.S. tariffs and regulatory barriers essentially block car imports from China.

Nepal’s car market is tiny, but it represents a larger story that will play out in other oil-importing countries—one that has implications for global oil demand.

A few factors drove rapid EV adoption in Nepal. Gasoline costs about $4.50 per gallon, in a country with a gross domestic product per capita of $5,737. Given the high cost of imported fuels, it is far cheaper to charge a vehicle battery there than to fill a gas tank. Greatly expanded power generation has improved electricity access and reliability. And the government supports EV sales by charging higher customs duties and excise tax on vehicles running on gasoline or diesel. Not surprisingly, EV sales have skyrocketed. In the fiscal year that ended in July, EVs accounted for three quarters of Nepal’s new passenger vehicle sales—on par with the EV adoption rate in much wealthier Norway.

Many oil-importing countries will follow this trajectory. For their governments, electrifying the transportation sector reduces costly oil imports, and for their consumers, EVs are generally cheaper to operate and maintain.

Chinese companies have reduced vehicle costs with vertically integrated supply chains and a ruthless focus on efficiency. Overcapacity in EV manufacturing has produced a domestic price war within China. Manufacturers are pricing vehicles aggressively as they battle to capture emerging export markets in Latin America, Southeast Asia, and Africa. In Brazil, the world’s sixth-largest automotive market, BYD now sells its least expensive vehicle for about $28,000. In Indonesia, it plans to sell its Atto-1 for just under $12,000.

Consumers are taking notice, especially since Chinese EVs also offer leading in-car technology. Already, Chinese cars dominate total EV sales in countries without a strong automotive industry—that is, most countries. In markets with sizable domestic EV manufacturers, such as Vietnam, incumbent EV manufacturers are having trouble fending off cheaper competition from Chinese producers.

Inside the U.S., this global shift to Chinese EVs is easy to miss. That is in part because the outlook for EVs in the U.S. has gotten so much worse.

BloombergNEF researchers recently slashed their medium-term forecast for U.S. adoption of EVs, due to Congress ending Biden-era tax incentives, as well as federal regulators’ plans to roll back fuel economy standards. Battery-powered EV and plug-in hybrid EV sales have stagnated or declined in the U.S. in recent years.

Perhaps this is unsurprising, since Americans drive longer distances and some have insufficient access to charging stations. The car market is quite different in other countries—especially in more densely populated areas where trips are relatively short and gasoline and diesel more costly.

A precipitous decline in global gasoline or diesel demand seems unlikely, but EV adoption in developing countries will remove at least some sources of growth in oil demand.

China’s largest refiner, state-owned Sinopec, predicts that the country’s oil consumption will peak by 2027. This is significant, because China was the engine of global oil demand growth for the past two decades. The question is whether another country will take its place.

OPEC projects oil demand growth over the next few decades will come nearly completely from India, non-OECD Asia, the Middle East, and Africa. The group estimates demand could reach 123 million barrels a day by 2050, up from about 104 million barrels a day today—at least in part due to consumers in those regions buying more gas-powered cars with their growing disposable income.

And yet it is a mistake to assume that, in the long run, developing countries will follow the same stubborn path of gas-powered car dependency as the U.S. For oil importing countries like Nepal, inexpensive Chinese EVs will prove to be the more compelling option.

That may not lead to global demand destruction, but it could remove a lot of the sources of growth in oil demand. I’ve seen a glimpse of the future on the roads of Kathmandu.

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