Is the Global EV market going to take over the industry standard combustion engine?

EV momentum and sales breaking new ground, but policy will have to rewrite the auto industry which will likely see some Autos gone, and some more consolidation

The electric car market has experienced exponential growth with sales exceeding 10 million in 2022, representing 14% of all new cars sold worldwide. China dominates the market with around 60% of global sales, followed by Europe and the United States. Electric car sales are expected to continue strongly through 2023, with an estimated 14 million in sales by the end of the year, representing a 35% year-on-year increase. National policies and incentives, as well as high oil prices, could further bolster sales. Emerging markets such as India, Thailand, and Indonesia are showing promising signs of growth, with electric car sales tripling in 2022 compared to the previous year. These markets are strengthening their policy support schemes to encourage electric vehicle adoption.

Both the European Union and the United States have adopted legislation to support their ambitions for electrification. The EU has introduced new CO2 standards for cars and vans that align with their 2030 goals, while the US has passed the Inflation Reduction Act (IRA) and the Advanced Clean Cars II rule. These policies could lead to a 50% market share for electric cars by 2030, and the recently proposed emissions standards from the US Environmental Protection Agency may increase this share further. Battery manufacturing is expanding to meet the demand for electric vehicles, and current announcements on battery manufacturing capacity are sufficient to cover the demand implied by government pledges and even exceed it, making higher shares of sales for electric cars achievable.

The supply/demand dynamics for EV batteries

The demand for electric vehicles is driving the demand for batteries and critical minerals. Automotive lithium-ion battery demand increased by about 65% in 2022, with 60% of lithium, 30% of cobalt, and 10% of nickel demand going towards EV batteries. Alternative chemistries to conventional lithium-ion, such as lithium-iron-phosphate and sodium-ion batteries, are on the rise. The EV supply chain is expanding, but it remains highly concentrated in certain regions, with China being the main player in battery and EV component trade.

Policymakers are focusing on diversifying EV supply chains to improve resilience. The European Union’s proposed Net Zero Industry Act aims for nearly 90% of the EU’s battery demand to be met by EU manufacturers by 2030. India is also implementing Production Linked Incentive schemes to boost domestic manufacturing of EVs and batteries, while the US Inflation Reduction Act emphasizes the strengthening of domestic supply chains for EVs and batteries to qualify for clean vehicle tax credits. Major EV and battery makers have announced post-IRA investments of at least $52 billion in North American EV supply chains, with 50% for battery manufacturing and 20% each for battery components and EV manufacturing.

Battery demand

Global EV battery demand rose by 65% in 2022, reaching about 550 GWh, equivalent to EV battery production. Battery demand is expected to increase significantly by 2030, reaching over 3 TWh in STEPS and about 3.5 TWh in APS, which would require more than 50 and close to 65 new gigafactories, respectively. Announced battery production capacity by private companies for EVs in 2030 is 6.8 TWh, enough to meet demand in both the STEPS and APS. China is predicted to lead in EV battery demand until 2025, but its share is expected to decline to about 35% in 2030 due to significant growth in EV sales in the United States, Europe, and other markets.

Heavy duty vehicles

In 2022, electric buses and medium- to heavy-duty trucks represented 4.5% and 1.2% of all bus and truck sales worldwide, respectively. China dominated production and sales, accounting for 80-85% of global electric bus and truck sales. Electric buses made up a significant portion of sales in Norway, the Netherlands, and Denmark, while electric truck sales remained low across most major markets, with the exception of China. The average range of electric trucks produced in China exceeded 300 km, and that of electric buses was 400 km, with a growing number of electric buses having ranges that enable intercity operations. Despite a progressive reduction in subsidies from 2018 onwards, electric bus and truck sales began increasing in 2021 and grew again in 2022, indicating that they have reached cost and performance metrics that make them increasingly competitive without government support.

Car company survival

According to Brian Gu, the vice-chair of Chinese electric vehicle company Xpeng, the global car industry will shrink to just 10 companies over the next decade due to intense competition in China’s electric vehicle market. To survive and thrive, Chinese car companies need to have annual sales of at least 3 million vehicles supported by global exports. Xpeng, which has invested heavily in autonomous driving and is backed by Alibaba, is targeting growth in Europe but currently has no plans to sell cars in the US. However, the company, like all Chinese electric car producers, depends on US chip designers for advanced semiconductors, which could be a concern as the US government expands restrictions on China’s access to US chip technology. – (Source: – the FT)

BYD Vs Tesla Vs Hyundai

In 2022, BYD Auto overtook Tesla to become the top EV manufacturer with a 211% boost in output. The company is expected to become the first automaker to produce over 2 million EVs in a single year. BYD is now expanding its presence outside of China with plans to build factories in Europe and Thailand. Meanwhile, Tesla increased its output by 40% in 2022 but faces increased competition from Chinese automakers such as Geely. Tesla is targeting an annual production of 20 million cars by 2030 and plans to build a multi-billion dollar factory in Mexico. Hyundai Motor Company, which owns Kia, also posted similar growth rates to Tesla and is currently building a $5.5 billion EV factory in Georgia. However, the Biden administration’s Inflation Reduction Act, which withdrew tax credits on EVs not produced within the United States, has caused South Korea to revise its EV subsidy program to favor domestic brands.

The amount of EVs being sold is between 12%-14%. Yes BYD is outselling Tesla, but there are all kinds of trade tarriffs that can prevent Tesla’s total sales. In the West, Tesla is the most well recognised EV brand. Technology moves quickly and car batteries will become more efficient, but the added element of key policy decisions, including the rollout of charging stations, subsidies and green initiatives are important over the next five years to establish supply dynamics and the application of EVs in modern life. Some car companies have held back production, such as Toyota sticking to hybrids, until they can plant a new strategy on purely EVs.