The Great Game of Electric Vehicles: What’s at stake?

Emissions from light duty vehicle transport (which includes cars and vans) account for 16% of global CO2 emissions from the energy sector and have been continuously increasing at a global level. Electric vehicles offer a cost effective and efficient solution for the decarbonisation of this sector. The IEA’s Tracking Clean Energy Progress categorises electric vehicles as one of the very few technologies that is on track with net zero by 2050 pathway requirements.

Electric car deployment, which includes battery electric vehicles and plug-in hybrid electric vehicles, has been staggering over the past few years. The global market expanded from half a million sales in 2018 to over 6.5 million sales in 2021 reaching a sales share of 9%. Of these vehicles, 70% are pure battery electric and the rest are Plug-in Hybrid vehicles. In the first seven months of 2022, high commodity and energy prices have not stopped the progress, as global electric vehicle sales have continued to increase and more than 10 million electric cars are set to be sold globally in 2022.

The success of EVs is driven by multiple factors. Sustained policy support is the main pillar, as government spending on subsidies and incentives for EVs nearly doubled in 2021 to nearly USD 30 billion. At the same time, several countries have pledged to phase out internal combustion engines or have ambitious vehicle electrification targets for the coming decades. The private sector also plays a key role: many carmakers have plans to electrify their fleets that, in some cases, go further than policy targets and have rapidly expanded their electric offering: five times more EV models were available in 2021 than in 2015, increasing the attractiveness for consumers.

This article highlights some of the results from the IEA’s Global Electric Vehicle Outlook 2022 and focuses on the key trends and drivers for light-duty electrification in the three largest automotive markets – China, the United States, and the European Union (EU).

 

China: the largest electric car market continues to expand

Since early 2021 the global growth in electric vehicles has been driven by China as more EVs were sold there in 2021 (3.3 million) than in the whole world in 2020. In the first seven months of 2022, Chinese electric sales have continued to increase.

Electric vehicles sales have been incentivised nationwide by the Chinese government through the New Energy Vehicle subsidy scheme since 2013. This scheme is set to terminate by the end of the year, while the Chinese government has extended a 10% VAT tax exemption. At a local level, provincial and city governments have other schemes in place that favour electric cars such as preferential treatment of EVs in number plate lotteries.

A peculiarity of the Chinese electric vehicle market is that Chinese companies have invested in all steps of the electric vehicle supply chain since the beginning of the incentive schemes. This means that China is now home to 70% of all battery manufacturing capacity and between 70% and 85% of the production capacity for battery components, cathode and anode respectively. This well-developed supply chain and large sales volume mean that the average EV sold in China is only 10% more expensive than the average internal combustion engine-powered vehicle, and over 200 different electric car models are available. A sign of the maturity of the Chinese electric car market is that one of the most sold electric vehicles, the tiny Wuling Hongguang Mini, was sold in nearly half a million units despite not qualifying for national incentives.

China has a target of reaching 20% electric car sales share by 2025 – this target has already been reached in several monthly sales and is likely to be fully achieved on a yearly basis in 2022.

 

United States: a slow start but a large growth potential

The USA has had a relatively small electric vehicle sales volume, and most of it was concentrated in a single automaker – Tesla, which accounted for around two-thirds of all electric car sales in 2020. In 2021, 0.6 million electric vehicles were sold in the USA (half of which were sold by Tesla) more than a doubling compared to the previous year and accounted for 5% of all sales – less than a third of Europe’s market share. In early 2022, sales in the USA continued to increase at a similar rate.

A significant development for the US EV market is the passing of the Inflation Reduction Act. This legislation will extend tax credits for EV buyers and provides incentives for Original Equipment Manufacturers (OEMs) to manufacture and sell electric vehicles in the United States. Only vehicles assembled in the USA and containing an increasing share of their components made in the United States or in a country which has a free trade agreement with the United States can qualify for these incentives – this is likely going to expand the battery industry supply chain in the USA.

In terms of future ambition, the Biden-Harris administration has set the target of reaching 50% sales of zero-emission vehicles by 2030. American automakers have also made investments and provisions to increase the sales of electric vehicles, we estimate that these add up to over 50% sales share by the end of the decade. More in the short term, we are observing a growing electric car model availability, especially in the high-demand SUV and Pick-up segment, meaning that more consumers are likely to choose an electric model.

 

European Union: gearing up for the phase-out of internal combustion engine sales

The strongest driver for the electrification of light duty vehicles in the EU are the CO₂ emission performance standards for cars and vans. The latest standard entered into force in 2020, setting an average CO2 emission of 95 gCO2/km (fully enacted only in 2021). This regulation includes a “super credit” mechanism that helps automakers meet the targets if they sell zero-emission vehicles. This meant that in 2020 the sales of electric vehicles in the EU more than doubled to over one million units, equivalent to 10.5% market share, and increased by 60% in 2021 reaching 1.75 million sales. In this period, the overall car market in the EU shrunk 20% below pre-pandemic levels on the back of a number of supply-side issues, thus further increasing the overall electric vehicle market share which reached 18% in 2021.

The sales of electric cars were further supported by the introduction or expansion of generous incentive schemes that many EU governments have introduced in the wake of the pandemic to stimulate domestic demand. IEA estimates that the combination of rising sales and increased incentives led the European government’s spending on EVs to increase from USD 8 billion in 2020 to USD 13 billion in 2021.

Several automakers in Europe have developed ambitious and rapid electrification strategies. Volkswagen, the largest automaker in Europe, has outlined a strategy to electrify 70% of their sales in Europe by 2030 and has invested 89 billion Euros to achieve these goals. Stellantis, the second largest automaker in Europe, has pledged to sell 100% electric vehicles in Europe by 2030. Similar strategies were set up by most manufacturers, and it is estimated that all these plans could result in more than 70% electric market share in Europe by 2030. Looking more concretely at what automakers are doing today we see that several new electric models have been introduced in Europe over the past few years, bringing the total to over 100 different models available spread across most segments – by contrast the USA only had roughly half the model availability.

 

With the support of the European Commission's Representation in Italy.