The Global Electric Vehicle Paradox: Balancing Growth and Challenges

In just a few years, electric vehicles have reshaped the global energy landscape and ushered in a new era of transportation. This shift has not only reduced carbon emissions but also propelled innovations in many connected aspects, such as battery chemistries, automotive designs, and energy storage.

Meteoric Rise of EVs: A Global Phenomenon

The unprecedented growth in the EV market is driven by a myriad of factors, including environmental benefits, government incentives & subsidies, advancements in battery technology, declining battery prices, and rising fuel costs. The latest findings from Global EV Outlook 2024 (IEA) showcase this meteoric rise:

• One in every five cars sold globally in 2023 was an electric car
• Electric car sales experienced a whopping 35% year-on-year increase in 2023
• Total number of electric cars reached ~40 million in 2023 from just ~5 million in 2018
• China remains the largest EV market, holding a ~55% share of global electric car market

Looking at these numbers, it is evident that the EV market will continue its upward trajectory in the coming years. Looking at the vendor landscape, players like Tesla and BYD remain the flagbearers, contributing ~35% share of global electric car sales in 2023. Volkswagen, GM, Stellantis, BMW, and Hyundai are next in line.

The electric vehicle (EV) market is expected to grow from USD 396.4 billion in 2024 to USD 620.3 billion by 2030, at a CAGR of 7.7%.

Investments in Battery Manufacturing to Sustain Growth

Strong EV demand can only be sustained with an adequate supply of batteries. With the continuous pouring of investments from automakers and battery manufacturers, the present battery manufacturing capacity seems enough to satisfy this demand. In just the past year, investment announcements worth USD 500 billion have been made for EV and battery manufacturing.

Asian players such as CATL, BYD, LG Energy Solution, Panasonic, SK On, and Samsung SDI are leading the charge in EV battery manufacturing, leaving Western countries far behind. The top three players, CATL, BYD, and LG Energy Solution, contributed ~65% share of global EV battery production in 2023. However, China is suffering from battery manufacturing overcapacity, whereas markets like Europe and the US face high battery import challenges. For balanced and sustainable growth, battery manufacturers in China must find customers outside China, and Western nations have no choice but to strengthen their local battery manufacturing capacities.

The Geopolitical Twist in the EV Story

While the EV revolution seems unstoppable at first glance, potential challenges could derail its momentum. Rising global competition, tight manufacturer margins, high inflation, and phasing out incentives are a few critical challenges.

Currently, China is an undisputable market leader in the EV supply chain, with strong vertical integration from raw materials to EV manufacturing. Hence, Western nations have started adopting protectionism policies to counter the threat of unfair competition from China. Steep tariffs have been imposed on Chinese EVs by the US, Canada, and the European Union, close to 100% in many cases. Such policies could hurt EV market growth in coming years. Moreover, now EVs are not just a cleaner mode of transportation; they represent a digitalization and connectivity transformation trend in the automotive sector. They collect and process a lot of data to optimize efficiency and performance, and this data can be misused. Hence, apart from steep tariffs, Western countries' concerns regarding data security are expected to have a much greater impact on China’s EV industry in the long term. Establishing a global framework and review boards with international cooperation are vital to tackling these challenges.

Emerging and Developing Markets: Future Growth Pockets

The current EV market is highly concentrated, with more than ~95% of electric car sales coming from just China, Europe, and the US in 2023. Massive domestic EV demand, unmatched cost advantages, and strong vertical integration will keep China far ahead of other markets for a few years. However, the future growth of EV market highly depends on adoption in emerging and developing nations, such as India, Vietnam, Thailand, Malaysia, Brazil, and Indonesia. The market has already gained momentum in these countries owing to favourable policies, such as production-linked incentives and EV subsidies, that are vital for EV adoption in any market. However, companies need to rethink their strategies to tap into these markets. Tailored products, affordability, local sourcing & manufacturing, awareness campaigns, and government support are key strategies to capture new markets.

Food for thought

EVs are making new pathways for an electrified, green, and sustainable world. The future seems bright, with huge EV sales and massive investments in EV & battery supply chains. However, some looming questions need to be answered for a clear picture:  

-          Will China’s dominance continue in the EV supply chain?

-          Will Europe and US investments in battery manufacturing make them self-reliant?

-          How will emerging & developing markets react to EV opportunities?

-          Will protectionism, trade wars, and data security concerns slow EV growth?

Despite challenges, the EV industry has achieved unimaginable heights in the past few years. This growth must continue to achieve the world’s clean energy and sustainability goals. Nevertheless, the EV and battery market story is just starting, and I am excited to see how the next chapters unfold.

About MarketsandMarkets:

MarketsandMarkets has been actively tracking the EV and battery markets with a particular emphasis on publishing research studies on emerging and high-growth sectors.

A few of the recently published studies on the EV and battery ecosystem include:

• Electric Vehicle Market
• EV Battery Market
• Lithium-ion Battery Market
• Solid-state Battery Market
• Battery Production Machine Market

Author: Monika Nehra, E&Sc Team