This week, the International Energy Agency (IEA) published their annual review on global developments in the electric vehicle (EV) industry.
The report analyses historical data and forecasts, reflecting on the rate of development of EV and charging infrastructure, trends in uptake and government spending, supply chain concerns, investment outlook, and policy developments. The report highlights key factors for EV adoption, roadmaps for achieving international sustainability goals, current headwinds, bottlenecks in development, VC investment patterns, and the importance of EV-adjacent technologies and grid integration.
In this article, we present the report's key findings, and summarise the IEA's outlook as it relates to EV innovators in the key markets of Europe, the US, and China.
EV MARKET GROWTH
In absolute terms, the global EV market continues to grow at an impressive rate. In 2023, global sales of EVs constituted 18% of all vehicle sales, an increase from 14% in 2022. In Q1 of 2024, EV sales grew by 25% from that of Q1 2023, comparable to the equivalent year-on-year increase in 2022.
By the end of 2024, the market share of EVs, spurred by manufacturer competition, falling prices, and continued policy support, is expected to reach up to 45% in China, 25% in Europe and 11% in the United States. These regions currently account for 65% of EV sales worldwide, with widespread and fast adoption in these key markets likely crucial in prompting developments elsewhere. While consumer cost is a limiting factor in most global markets, governments with scarcer resources may view subsidising markets as a luxury which cannot be afforded priority with ostensibly more pressing geopolitical issues at hand. Nonetheless, regional incentives amongst policy-makers as-yet noncommittal on electric mobility will also be vital if investment into, and market share of, EVs is to geographically diversify.
Manufacturing capacity, at least for the time being, appears to be keeping pace with demand, which is expected to increase seven-to-twelve fold, depending on which of policymakers' scenarios is borne out.
There are growing concerns, however, about the falling rate of growth in the EV manufacturing market, owing in part to tight margins, volatile material prices, global inflation rates, and the phase-out of cleantech incentives in certain regions. For now, the hope is that unfavourable politico economic conditions are a storm for EV innovation to weather, rather than a lasting raincloud. Commentators also remain hopeful that increased EV adoption will soon feed into a price-competitive used EV market, allowing more accessible entry to the market for a large demographic.
BOTTLENECKS IN EV UPTAKE AND DEVELOPMENT
In China, more than half of EVs sold last year were cheaper than an equivalent combustion-powered vehicle, explaining in part the rapid consumer uptake of EVs in the Chinese auto market. However, this was not the case in the EU or United States, where the average EV sold in 2023 was 10-50% more expensive than its conventional equivalent. Forecasting suggests that price parity may not be reached until 2030 for many major western markets, putting the brakes on mass adoption. This delay could be particularly pronounced should consumer economy indicators worsen.
Price volatility in critical raw minerals remains a longer-term concern. In 2022, for example, lithium supply chain disruptions saw lithium-ion packs spike in price by 7%. Innovation in battery tech and mineral extraction will help to shield the EV market, and adjacent clean tech fields, from economic and logistical uncertainty.
While current global recycling capacity for batteries is three times greater than the number of EV batteries expected to reach their end of life in 2030, battery retirement demand is projected to grow rapidly in the 2030s. Innovators will increasingly be looking to position themselves as solutions providers in EV end-of-life markets, and to provide EV batteries with longer lives and whose retirement process is cheaper and more sustainable.
To support the levels of EV deployment projected in the IEA's most optimistic scenario, public charging access would need to increase sixfold by 2035. Broad, affordable access, especially to fast chargers, will be needed to move the needle on mass-market adoption. A particular obstacle to EV uptake in the west is its impracticality for longer journeys across rural areas, since the majority of charging stations are currently confined to domestic and workplace settings.
Governments will need to look to ensure that commercial EV infrastructure development keeps pace with domestic EV uptake. As heavy-duty public transport and supply chain markets undergo electrification, large-scale, dedicated charging facilities will need to be developed in depots and along important long-distance routes. Electrical grid expansion must be carried out with this load requirement in mind, with one eye on the overarching need for flexibility and integrability with renewable power systems being developed in tandem. Policy support, careful planning, and coordination of innovation is crucial to ensure an affordable and low-emissions electricity supply for both domestic and commercial vehicles, without excessively straining local grids.
ELECTRIC MOBILITY POLICYMAKING
Strong growth expectations have maintained EV momentum but will only continue to do so if policymakers stay the course on clean tech incentivisation. Emissions standards, such as the US IRA, the EU's Net Zero Industry Act, the Chinese 14th Five-Year Plan, and India's PLI initiative, set targets which, if all met, would see 2/3 of vehicles sold in 2035 being EVs, saving 12 million barrels per day of oil consumption.
Legislation to incentivise electrification has second order effects on public perception and companies' alignment with sustainability goals. For example, over 20 major car manufacturers, responsible for more than 90% of global car sales last year, have now published electrification targets. These targets, if met, would bring about an estimated 40 million EV sales in 2030.
INVESTORS IN EVS AND SUPPLY CHAIN SEGMENTS
Batteries and components
From 2021 to 2023, cumulative investments in battery and component manufacturing more than tripled to $1.4 billion. Notably, lithium chemistry accounted for only 60% of this figure, with the investment share in emerging technologies such as redox-flow, solid state, and metal-hydrogen batteries growing to 25%.
Investors are aware that breakthroughs in battery technology in one sector are likely to have spillover benefits, and accelerate innovation, in adjacent fields. This is likely to continue to attract investment in battery and supply chain technologies, a windfall from which EV markets only stand to gain.
Battery recycling and retirement
Battery recycling technologies enjoyed significant investment in 2023, with multiple US and Chinese companies raising 9-figure sums in funding rounds.
Critical raw materials
North America also saw a glut of investment into critical mineral extraction technologies, including multimillion dollar grants for developments in lithium, cobalt, and nickel extraction.
EV START-UPS
Unsurprisingly, given their large share of global investment, policy prioritisation, and consumer uptake, Europe, the US, and China are home to the vast majority of EV start-ups. 95% of VC investments in heavy-duty commercial and transit EVs were made in the US, while China accounted for 70% of consumer EV development investment. India dominated investment in electric 2/3 wheelers at 70% global share; the relatively untapped Indian EV market is projected to offer significant investment opportunity to start-ups in the coming years.
In 2023, difficult market conditions led to an overall fall in private clean tech investment, including a 20% drop in VC investment into EVs and batteries. Growth-stage investment was hardest hit, falling 35% from its 2022 level. A tightening of investor purse strings is likely a result of a perceived increase in risk, with EV players' established footings raising the barrier to entry for newcomers. This uncertainty has been exacerbated by extrinsic geopolitical and economic concerns, such as supply chain disruption, volatile energy prices, stubborn inflation, and spiking borrowing costs.
Nonetheless, investment in EV start-ups remains far greater than pre-Covid levels. Buoyed by investors' continued interest in 2023 in supply chain segments up- and downstream of EV manufacturing, sustainability target setters will hope that a combination of improved economic outlook and thoughtful policy-setting will reverse the 2023 trend.
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