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The Electric Vehicles Market In Azerbaijan: Challenges And Recommendations

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By Kamran Valiyev*

Specificity of electric cars

Electric vehicles (EVs) are the vehicles that powered entirely or partially by electricity. Unlike conventional vehicles that use a gasoline or diesel-powered engine, EVs use an electric motor powered by electricity from batteries or a fuel cell. While the concepts of EVs have been around since the mid-nineteenth century, it has generated a significant amount of interest in the past decade amid the growing CO2 emissions associated with the fuel-based economy. In current circumstances, EVs are widely regarded as an effective replacement for the traditional internal-combustion-engine vehicles, in order to help to tackle climate change.

Battery Electric Vehicles (BEVs) are fully electric vehicles with rechargeable batteries and no gasoline engine. Battery electric vehicles store electricity onboard with high-capacity battery packs. Their battery power is used to run the electric motor and all onboard electronics.

Plug-in Hybrid Electric Vehicles (PHEVs) can recharge the battery through both regenerative braking and “plugging in” to an external source of electrical power. While “standard” hybrids (BEVs) can at low speed) go about 1-2 miles before the gasoline engine turns on, PHEV models can go anywhere from 10-40 miles before their gas engines provide assistance.

Hybrid electric vehicles (HEVs) are powered by both gasoline and electricity. The electric energy is generated by the car’s own braking system to recharge the battery. This is called ‘regenerative braking’, a process where the electric motor helps to slow the vehicle and uses some of the energy normally converted to heat by the brakes. HEVs start off using the electric motor, then the gasoline engine cuts in as load or speed rises. The two motors are controlled by an internal computer, which ensures the best economy for the driving conditions.

Irrespective of their type, EVs are regarded as a cleaner alternative to traditional combustion-engine cars. The environmental benefits of electric vehicles come in many forms. The most important aspect of the use of EVs is the low level of CO2 emissions as they do not burn or burn significantly less fossil fuels. However, the deployment of EVs alone is not a panacea against CO2 emissions associated with the use of combustion-engine vehicles. If electricity for electric cars is not generated from green sources, their massive deployment might actually bring more harm to the environment.

While EVs are a cleaner alternative to traditional combustion-engine cars, their massive deployment is limited by a few challenges. First of all, the maximum mileage of an electric car is dramatically lower than that of a conventional car. EVs can now go more than 200 miles on a full charge—much less than the typical 350-400 mile range for gasoline cars. Second, the network of EV charging stations remains quite limited, thus dramatically impeding the penetration of EVs, particularly in developing economies. Finally, there is a cost factor. An electric car costs more than its conventional counterpart as the former involves more sophisticated and expensive technologies and materials, including the battery. Having said that, operational costs are lower for EVs. According to the University of Michigan’s Transportation Research Institute, electric vehicles cost less than half as much to operate as gas-powered cars. The average cost to operate an EV in the United States is $485 per year, while the average for a gasoline-powered vehicle is $1,117.2

Specificity of electric cars

Azerbaijan’s car market is quite sizeable and dynamic. According to the State Statistics Committee of Azerbaijan, there are 53 cars per every 100 families in the country. Most of the cars are concentrated in Baku and the Absheron district, where every 100 families own 98 cars. The growth of the country’s car market has been particularly impressive in the past decade. Thus, the number of vehicles on Azerbaijani roads has more than doubled in the past 10 years.

Figure 1 Car imports to Azerbaijan in 2017-2020. Source: State Customs Committee of the Azerbaijan

Despite the fact that the car market in Azerbaijan is quite large, the country’s EV market remains limited. Due to the lack of proper infrastructure and high prices of EVs, Azerbaijani motorists still prefer traditional cars that run on gasoline. According to statistics provided by State customs Committee of the Azerbaijan, the electric car fleet in Azerbaijan now accounts for only 3% of the total number of vehicles. The EVs are mostly employed in various industries, including tourism. There is a small number of private EVs in the country.

Sales of electric vehicles in Azerbaijan have been in steady growth since 2013. While EVs account for just 3% of the total number of vehicles in Azerbaijan in 2020, their share in the country’s total imports of vehicles has increased to 11.4%, including 11.3% of hybrid cars and 0.1% of fully electric cars. The industry experts predict that the share of electric cars in the Azerbaijani market could reach 15-20% within the next 5 years.

Figure 2 Car imports to Azerbaijan in 2020. Source: State Customs Committee of the Azerbaijan

The large number of conventional vehicles running on a gasoline or diesel-powered engine negatively impacts the ecology of Azerbaijan. According to the Head of the Department of Environmental and Natural Resources Regulation at the Azerbaijani Ministry of Ecology and Natural Resources Mirsalam Ganbarov, more than 70 percent of air pollution in Baku is caused by transport. In light of the above, an increase in the number of EVs would reduce the level of CO2 emissions in the country.

Reasons of low popularity of the electro cars in Azerbaijan

The main obstacle to the mass deployment of electric vehicles in Azerbaijan is the high cost generated by customs taxes and duties. Hybrid cars are subject to the same customs requirements as cars with internal combustion engines. A typical 10,000-AZN-passenger car with a 1.5 litre engine would have import taxes and duties of 4,800 AZN, thus increasing the vehicle’s cost by almost 50%. While fully electric vehicles have been exempt from excise duties and VAT since 1 January 2019, they are still subject to a 15% import duty.2

Figure 3 Location of the 24 stations on the map of Azerbaijan

Another important challenge hindering the spread of battery electric cars in Azerbaijan is the lack of infrastructure. The country has only 24 stations equipped with devices for charging electric vehicles, including three in the capital city – Baku.3 As for hybrid cars, they are can be refueled at a filling station similar to a gasoline vehicle. Having said that, hybrid cars, similar to battery electric vehicles, also possess onboard batteries that require connection to the electricity grid for charging.

Recommendations

In light of the above-mentioned challenges associated with the deployment of EVs in Azerbaijan, the following policy recommendations are made:

The government should dramatically decrease or completely eliminate tax duties and other charges associated with the purchase/imports of electric vehicles. While starting from 1 January 2019, the imports of electric vehicles to Azerbaijan have been exempted from value added tax, they are still subject a 15% customs duty. Furthermore, hybrid vehicles are subject to the same customs requirements as cars with internal combustion engines, and their imports are subject to significant customs taxes and duties. In Iceland, for example, electric vehicles are exempt from all import duties on car purchases, which are customs 0-65%, depending on CO2 emission level, and 24% value-added tax (VAT). In Norway, electric cars are exempt from acquisition tax; furthermore, they are exempt from the 25% value-added tax (VAT) on car purchases. This, coupled with a large number of waivers on fees such as road tolls and ferries, continues to provide a favorable environment for electric car uptake. The United States federal government and a number of states offer financial incentives, including tax credits, for lowering the upfront costs of plug-in electric vehicles. Federal Internal Revenue Service (IRS) tax credit is for $2,500 to $7,500 per new EV purchased for use in the U.S.

The EV infrastructure should be expanded. As it was mentioned above, there are only 24 stations equipped with devices for charging electric vehicles, including three in the capital city – Baku. While hybrid vehicles can operate without those stations, the expansion of battery electric cars in Azerbaijan will be directly linked to the expansion of EV charging points. The development of an infrastructure required for the use of electric-powered cars is encouraged by the Strategic Road Map for development of utilities in the Republic of Azerbaijan.

Along with the expansion of EV infrastructure, electricity generation from renewables should be actively encouraged. If electricity for electric cars is not generated from green sources, their massive deployment might actually bring more harm to the environment.

Finally, the government should launch an educational campaign to raise electric vehicle awareness. Many local motorists are not well aware of the benefits associated with the use of electric cars. Active informational campaigns could eliminate the knowledge gap and promote the popularization of EVs in Azerbaijan.

*About the author: *Kamran Valiyev, Research Assistant (intern), Caspian Center for Energy and Environment at ADA University

Source: This article was published by the Caspian Center for Energy and Environment (CCEE) of the ADA University 

Notes:

1 www.energysage.com/electric-vehicles/costs-and-benefits-evs/evs-vs-fossil-fuel-vehicles

2 https://bakuresearchinstitute.org/azerbaijans-rapidly-aging-automotive-fleet/

3 https://az.sputniknews.ru/infographics/20200910/424888146/azerbaijan-jelektromobili-zarjadnye-ustrojstva- infrastruktura.html

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CCEE

Caspian Center for Energy and Environment (CCEE) of the ADA University is a core institution providing policy relevant and academic research, teaching and training, as well as variety of outreach activities in the sphere of energy and environment in the wider Caspian region. The CCEE is the offspring of the strong belief that there is a need for a forum in energy dialogue in one of the most consequential energy regions of the world – in the wider Caspian Basin. Critical sources of inspiration have been the geographical location and functional specialization of ADA University, two features endowing the institution with a unique capacity to meet the challenge.

One thought on “The Electric Vehicles Market In Azerbaijan: Challenges And Recommendations

  • April 12, 2021 at 3:51 pm
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    Great analysis! Hopefully infrastructure and gov incentives support further growth of popularity for EVs in beautiful Azerbaijan.

    Reply

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