Economics will drive a massive turn towards electric vehicles in the 2020s, says Bloomberg New Energy Finance.

Plunging battery prices mean the world has already seen peak production of cars powered by internal combustion engines (ICE), says a new electric car report.

The report by the respected Bloomberg New Energy Finance (BNEF) projects electric vehicle sales to ramp up dramatically over the next decade and surpass ICE vehicle sales before 2040.

Most of the electric vehicles will be pure battery electric vehicles (BEV), with a smaller number of plug-in hybrid electric vehicles (PHEV).

The expected decline in ICE car sales could ease the task of meeting global climate goals. BNEF says electric vehicles will displace a combined 13.7 million barrels per day (MMbd) of oil demand by 2040.

BNEF predicts in the report that electric vehicles in most segments will cost no more than ICE vehicles by the mid-2020s. That development is being driven by plummeting battery prices: between 2010 and 2018 the cost of the average lithium-ion battery pack dropped 85%, from US$1160 to US$176.

Bloomberg also believes that ride-hailing and eventually the rise of autonomous cars will cut into vehicle demand, especially in the 2030s. By then, the world’s ICE vehicle fleet will start to decline, it says.

BNEF says that demand for electric vehicles will be led by mobility services providers, such as taxis and ride-hailing providers, who pay the most regard to vehicles’ economics.

The BNEF report comes as car makers announce new moves to dramatically ramp up electric vehicle production.

To date, electric car sales have been a small fraction of global vehicle sales, leaving electric vehicles as less than one per cent of the world’s vehicle fleet. In China, the leading electric car consumer, large manufacturers such as BYD and JAC Motors last year sold four per cent of China’s total car sales. Outside China, sales have been restricted to a small group of cars such as Toyota’s Prius PHEV, Nissan’s Leaf and models from Elon Musk’s Tesla.

But as emissions regulations tighten, more vehicle makers are gearing up to produce far more electric vehicles.

Mercedes said this week it plans to sell more hybrid and all-electric vehicles than ICE vehicles by 2030.

And Volvo just announced that it had signed a multibillion-dollar deal to buy electric car batteries from two leading Asian manufacturers up to 2028. The two battery makers, China’s Contemporary Amperex Technology Co Ltd (CATL) and South Korea’s LG Chem, are among a small group of large-scale battery makers that also includes Panasonic and Samsung. Volvo wants to have half its sales fully electric by 2025, and the deal will help it avoid a shortage of electric car components.

BNEF also warns that charging infrastructure remains a challenge for electric vehicles. Currently the world has around 630,000 public charging points, and says that many more will be needed to serve the growing EV fleet.

Buyers with access to home charging will adopt EVs at a much faster rate than those without, according to BNEF. And many of the most interesting questions over the next 10 and 20 years will be how to address buyers in the latter group.