Morgan Stanley significantly raised the bar on its prediction for global plug-in electrified car sales through 2025.

The investment banking firm predicts that 10-to-15 percent of global vehicles sales will be made up of PEV sales, including battery electric and plug-in hybrid electric vehicles. That is three-times the rate Morgan Stanley had previously projected.

If correct, it could mean a 15-fold increase over current sales volume. Bloomberg New Energy Finance reported that global PEV sales made up less than one percent of light-duty vehicle sales in 2015.

The U.S. apparently won’t be leading the way. While the incoming Trump administration may soften fuel economy and emissions mandates, along with PEV tax incentives, the Morgan Stanley report sees other countries enforcing rules requiring automakers to dramatically reduce their vehicle emissions in the near future. Improvements in battery technology will also push PEV sales upward.

“Although many questions over EVs remain, we believe it is the sharply rising cost of regulatory compliance on existing internal combustion engines (ICE) that is pushing (manufacturers) to change their strategy towards EVs, as much as improvements in battery technology,” said Morgan Stanley analyst Harald Hendrikse. “As more (manufacturers) commit to launching more EVs, accessing more consumers, we think EV penetration forecasts could rise to potentially 10 to 15% by 2025, more than three times current forecasts.”

This year has seen major automaker announcements opening the doorway to increased sales – if consumers can be won over. Staring with its I.D. electric car, Volkswagen plans for PEVs to bring recovery from its diesel emissions cheating scandal. Mercedes Benz is rolling out the EQ electric car sub-brand to compete.

Other automakers are following suit, with Hyundai, Honda, BMW, and Porsche joining the PEV revolution to compete with Tesla and meet regulatory compliance. Even Toyota, which held out the longest, has now changed its position and will be launching new electric car models.

Hendrikse says there are still significant barriers to mass adoption of electric cars, with battery cost leading the way.

“Battery costs remain very high. Battery range remains too small and batteries are still too heavy,” he said. “Battery charging infrastructure has not been sorted out in many countries. Are EVs actually environmentally friendly given through-life cost and environmental impact?”

Excluding Tesla, consumer demand has been very limited for most PEVs launched so far, Hendriske said.

“Despite this, we now have a situation where some of the largest (manufacturers) in the world are investing heavily in this technology, and setting aggressive targets for their take-up,” Hendrikse wrote in the report.

SEE ALSO:  Europe Is Awakening From Diesel-Induced Sleep to Chase New Electric (Car) Dreams

Another challenge for automakers in ramping up PEV production and marketing will be getting the financial statements to work.

“Our group auto EBIT (earnings before interest and tax) margins turn negative in the mid-2020s as a result of ICE price deflation and costs of EV development. Continued deterioration in the ICE business due to lower volumes from EV cannibalization and lower prices offsets the improving EV profitability after 2025, despite our cost restructuring assumptions,” Hendrikse said.

Europe’s regulatory environment could have an impact on earnings if proposed regulations in Germany and other countries to ban internal combustion engines are adopted by the European Union.

Gas 2.0