Global car market contracts in 2022, as electric car fleet rises
The global car market contracted by 3% in 2022 relative to 2021, impacted by supply chain disruptions, geopolitical tensions, high energy and commodity prices, and economic insecurity. Despite a declining overall car market, electric cars logged record numbers last year, exceeding 10 million for the first time and accounting for 14% of all new cars sold. In 2020, just 5% of new car sales were electric. An exponential rise in EVs has expanded the electric car fleet to 26 million. Around 70% are battery electric vehicles (BEVs).
According to Global EV Outlook 2023, an annual publication by the International Energy Agency (IEA), 2022 was another bumper year for electric vehicles. EVs are rapidly displacing the internal combustion engine (ICE) across all segments—cars, two- and three-wheelers, light- and heavy-duty commercial vehicles.
The outlook was published on April 26, 2023. Headline EV numbers paint a strong global picture. The reality is that three key markets dominated electrification efforts. China contributed 60% of global electric car sales and now comprises more than half of the existing electric car fleet at 13.8 million. An extension of purchase incentives that were due to expire in 2020 fuelled strong growth in 2022, according to the report. The outlook also noted China has already surpassed its 2025 target for new energy vehicle sales. China aims to achieve a 40% share by 2030, with 50% in key air pollution control regions.
Europe holds 30% of the overall global stock and delivered 25% of all electric car sales in 2022. Norway (88%) has the highest market share of electric car sales in Europe, followed by Sweden (54%), the Netherlands (35%) and Germany (31%). The United States is the third largest global market, achieving 8% share of new car sales in 2022 and a total of almost 800,000 (+55%).
The IEA analysis cited a key difference in these three markets. China has achieved higher adoption rates through the supply of smaller, more affordable, BEVs— with a sales-weighted average price below USD10,000. Conversely, Europe and the U.S. have focussed on larger or luxury cars and SUVs—in both the EV and ICE markets. A higher price offers greater profit margins to manufacturers; however, it does not facilitate the mass market uptake of EVs.
Affordability is not the only issue. Sustainability concerns have arisen alongside a predilection for bigger vehicles. The outlook stressed that larger SUV batteries require 75% more critical minerals and produce 70% higher carbon dioxide emissions during materials processing, manufacturing and assembly. Although, the IEA did note a rapid increase in the number of electric car models available in 2022, doubling the options available in 2018.
Outside the three major markets, electric car sales are generally low. The IEA highlighted a ramp up in sales in India, Thailand and Indonesia in 2022, with the combined sales of electric cars tripling year-on-year to 80,000. India’s USD3.2 billion incentive programme is encouraging growth in EVs and component manufacturing, with leading local vehicle manufacturer Tata Motors Limited contributing more than 85% of India’s almost 50,000 BEV sales. Model availability remains an issue in emerging markets and developing economies, the IEA says.
South Korea leads the pack in the development and sale of fuel cell electric cars and now accounts for half of the global fleet. Hyundai Motor Company is the top fuel cell automaker. The global fuel cell electric vehicle (FCEVs) fleet increased 40% year-on-year but remains small at 72,000. Approximately 80% of FCEVs are passenger cars.
While electrification of passenger cars is rampant, ambition in electrifying commercial vehicles is also growing. Light commercial vehicle (LCV) sales increased more than 90% in 2022, to 310,000 units, despite the overall LCV market declining by 15%. On current trends, the LCV market is catching up with electric cars, although it currently stands at just 3.6% of sales.
Heavy-duty electrification also surged in 2022 alongside pledges from governments to reduce public transport emissions. Governments from 27 nations have vowed to achieve 100% zero emission vehicle (ZEV) bus and truck sales by 2040. In 2022, 4.5% of bus sales (66,000) and 1.2% (60,000) of truck sales were electric. China is by far and away the leader in the heavy-duty space¸—contributing 80-85% of global sales in electric buses and medium- to heavy-duty trucks.
Two- and three-wheelers offer an affordable mobility option in emerging and developing economies. This market segment is the most electrified and continues to advance. The outlook highlighted China’s sharp decline in electric two-wheeler sales (-25%) in 2022, which it attributed to pandemic-related restrictions and their impact on the supply chain. Despite the fall in volume, China still accounts for almost 85% of worldwide sales.
In India, now the world’s most populous nation, electric three-wheelers contributed more than half of registrations of the vehicle type in 2022. The outlook also noted the emergence of battery leasing business models and growth in manufacturing in India’s three-wheeler segment. Battery swapping is gaining momentum throughout Asia. Discharged battery packs are changed rather than plugged into a charging station, saving drivers time and money. Battery swapping for trucks is also emerging. China has strong policy support for this and is currently piloting the technology in several cities.
Continued acceleration in EVs is expected by the IEA with 14 million electric car sales projected in 2023—18% of total car sales. An increasing number of electric models will hit the market, especially large cars and SUVs. This trend is happening alongside a 2% decline in ICE models from 2016-2022. EV models have grown 30% annually in the same period. The IEA report called for original equipment manufacturers (OEMs) to offer more affordable, competitively priced electric options outside of China.
The IEA has revised upwards its global outlook for electric car sales to 2030. A Stated Policies Scenario (STEPS), which is based on existing policies and firm objectives, projects electric cars will contribute 35% of new car sales in 2030, compared to less than 25% in the 2021 report. China will achieve its targeted 40% share by 2030 in STEPs, whereas the U.S. market share will double to 20%. Europe remains consistent at 25%. The outlook anticipates that the EV fleet will grow by a factor of eight or more by the end of the decade and emphasises that the gap between stated policies and individual country targets is closing.
An increase in the rate of EV adoption has implications for oil demand. Over five million barrels per day will be displaced by EVs by the end of the decade, with 700 Mt CO2-equivalent of avoided emissions. The IEA anticipates peak road transport oil demand will occur around 2025 based on stated policies.
Investment in EV technology continues to grow. 50%-70% of capex and R&D budgets of major carmakers is directed into EVs and digital technologies. Spending on electric cars exceeded USD425 billion in 2022.
Last year, Volkswagen announced it would phase out combustion car manufacturing in Europe by 2033, two years earlier than originally announced. General Motors (GM) declared it would grow annual capacity for EVs in North America to 1 million in 2025, and Ford has plans to sell more than 600,000 EVs annually in Europe by 2026. China’s BYD, who overtook Tesla as the global leader in EV sales in 2022, ceased ICE production completely in March 2022. The automaker achieved an 18% share of electric car sales in 2022.
Battery supply is often a limiting factor for EVs. However, the IEA report suggests that planned battery manufacturing capacity to 2030 is “more than sufficient to meet the demand implied by government pledges.” Projected capacity indicates there is scope for higher shares of EV sales moving forward, including a net-zero by 2050 scenario.
A 65% increase in automotive lithium-ion (Li-ion) battery demand was observed in 2022. Demand for lithium has outstripped supply over the last two years, even considering the 180% increase in production witnessed in the past five years. The Outlook noted the emergence of several alternatives to conventional lithium-ion. Lithium-iron-phosphate (LFP) chemistries achieved a record share in 2022, driven primarily by China. More than 95% of heavy-duty trucks produced in China employed LFP cathode chemistries in 2021, according to the report. Over 100 gigawatt hours (GWh) of manufacturing capacity has also been planned for (lithium-free) sodium-ion batteries.
China is the leader in battery and EV component trade. Nevertheless, government policymaking around the world is focused on building resilience in EV supply chains. In March 2023, the European Union proposed the Net-Zero Industry Act, a key component of the European Green Deal Industrial Plan. The legislation includes a goal of satisfying 90% of EV battery demand through domestic production by 2030.