IEA (2023), Global EV Outlook 2023, IEA, Paris https://www.iea.org/reports/global-ev-outlook-2023, Licence: CC BY 4.0
Electric car sales break new records with momentum expected to continue through 2023
Electric car markets are seeing exponential growth as sales exceeded 10 million in 2022. A total of 14% of all new cars sold were electric in 2022, up from around 9% in 2021 and less than 5% in 2020. Three markets dominated global sales. China was the frontrunner once again, accounting for around 60% of global electric car sales. More than half of the electric cars on roads worldwide are now in China and the country has already exceeded its 2025 target for new energy vehicle sales. In Europe, the second largest market, electric car sales increased by over 15% in 2022, meaning that more than one in every five cars sold was electric. Electric car sales in the United States – the third largest market – increased 55% in 2022, reaching a sales share of 8%.
Electric car sales are expected to continue strongly through 2023. Over 2.3 million electric cars were sold in the first quarter, about 25% more than in the same period last year. We currently expect to see 14 million in sales by the end of 2023, representing a 35% year-on-year increase with new purchases accelerating in the second half of this year. As a result, electric cars could account for 18% of total car sales across the full calendar year. National policies and incentives will help bolster sales, while a return to the exceptionally high oil prices seen last year could further motivate prospective buyers.
There are promising signs for emerging electric vehicle (EV) markets, albeit from a small base. Electric car sales are generally low outside the major markets, but 2022 was a growth year in India, Thailand and Indonesia. Collectively, sales of electric cars in these countries more than tripled compared to 2021, reaching 80 000. For Thailand, the share of electric cars in total sales came in at slightly over 3% in 2022, while both India and Indonesia averaged around 1.5% last year. In India, EV and component manufacturing is ramping up, supported by the government’s USD 3.2 billion incentive programme that has attracted investments totalling USD 8.3 billion. Thailand and Indonesia are also strengthening their policy support schemes, potentially providing valuable experience for other emerging market economies seeking to foster EV adoption.
Landmark EV policies are driving the outlook for EVs closer to climate ambitions
Market trends and policy efforts in major car markets are supporting a bright outlook for EV sales. Under the IEA Stated Policies Scenario (STEPS), the global outlook for the share of electric car sales based on existing policies and firm objectives has increased to 35% in 2030, up from less than 25% in the previous outlook. In the projections, China retains its position as the largest market for electric cars with 40% of total sales by 2030 in the STEPS. The United States doubles its market share to 20% by the end of the decade as recent policy announcements drive demand, while Europe maintains its current 25% share.
Projected demand for electric cars in major car markets will have profound implications on energy markets and climate goals in the current policy environment. Based on existing policies, oil demand from road transport is projected to peak around 2025 in the STEPS, with the amount of oil displaced by electric vehicles exceeding 5 million barrels per day in 2030. In the STEPS, emissions of around 700 Mt CO2-equivalents are avoided by the use of electric cars in 2030.
The European Union and the United States have passed legislation to match their electrification ambitions. The European Union adopted new CO2 standards for cars and vans that are aligned with the 2030 goals set out in the Fit for 55 package. In the United States, the Inflation Reduction Act (IRA), combined with adoption of California’s Advanced Clean Cars II rule by a number of states, could deliver a 50% market share for electric cars in 2030, in line with the national target. The implementation of the recently proposed emissions standards from the US Environmental Protection Agency is set to further increase this share.
Battery manufacturing continues to expand, encouraged by the outlook for EVs. As of March 2023, announcements on battery manufacturing capacity delivered by 2030 are more than sufficient to meet the demand implied by government pledges and would even be able to cover the demand for electric vehicles in the Net Zero Emissions by 2050 Scenario. It is therefore well possible that higher shares of sales are achievable for electric cars than those anticipated on the basis of current government policy and national targets.
As spending and competition increase, a growing number of more affordable models come to market
Global spending on electric cars exceeded USD 425 billion in 2022, up 50% relative to 2021. Only 10% of the spending can be attributed to government support, the remainder was from consumers. Investors have also maintained confidence in EVs, with the stocks of EV-related companies consistently outperforming traditional carmakers since 2019. Venture capital investments in start-up firms developing EV and battery technologies have also boomed, reaching nearly USD 2.1 billion in 2022, up 30% relative to 2021, with investments increasing in batteries and critical minerals.
SUVs and large cars dominate available electric car options in 2022. They account for 60% of available BEV options in China and Europe and an even greater share in the United States, similar to the trend towards SUVs seen in internal combustion engine (ICE) car markets. In 2022, ICE SUVs emitted over 1 Gt CO2, far greater than the 80 Mt net emissions reductions from the electric vehicle fleet that year. Battery electric SUVs often have batteries that are two- to three-times larger than small cars, requiring more critical minerals. However, last year electric SUVs resulted in the displacement of over 150 000 barrels of oil consumption per day and avoided the associated tailpipe emissions that would have been generated through burning the fuel in combustion engines.
The electric car market is increasingly competitive. A growing number of new entrants, primarily from China but also from other emerging markets, are offering more affordable models. Major incumbent carmakers are increasing ambition as well, especially in Europe, and 2022-2023 saw another series of important EV announcements: fully electric fleets, cheaper cars, greater investment, and vertical integration with battery-making and critical minerals.
Consumers can choose from an increasing number of options for electric cars. The number of available electric car models reached 500 in 2022, more than double the options available in 2018. However, outside of China, there is a need for original equipment manufacturers (OEMs) to offer affordable, competitively priced options in order to enable mass adoption of EVs. Today’s level of available electric car models is still significantly lower than the number of ICE options on the market, but the number of ICE models available has been steadily decreasing since its peak in the mid-2010s.
Focus expands to electrification of more vehicle segments as electric cars surge ahead
Electrification of road transport goes beyond cars. Two or three-wheelers are the most electrified market segment today; in emerging markets and developing economies, they outnumber cars. Over half of India’s three-wheeler registrations in 2022 were electric, demonstrating their growing popularity due to government incentives and lower lifecycle costs compared with conventional models, especially in the context of higher fuel prices. In many developing economies, two/three-wheelers offer an affordable way to get access to mobility, meaning their electrification is important to support sustainable development.
The commercial vehicle stock is also seeing increasing electrification. Electric light commercial vehicle (LCV) sales worldwide increased by more than 90% in 2022 to more than 310 000 vehicles, even as overall LCV sales declined by nearly 15%. In 2022, nearly 66 000 electric buses and 60 000 medium- and heavy-duty trucks were sold worldwide, representing about 4.5% of all bus sales and 1.2% of truck sales. Where governments have committed to reduce emissions from public transport, such as in dense urban areas, electric bus sales reached even higher shares; in Finland, for example, electric bus sales accounted for over 65% in 2022.
Ambition with respect to electrifying heavy-duty vehicles is growing. In 2022, around 220 electric heavy-duty vehicle models entered the market, bringing the total to over 800 models offered by well over 100 OEMs. A total of 27 governments have pledged to achieve 100% ZEV bus and truck sales by 2040 and both the United States and European Union have also proposed stronger emissions standards for heavy-duty vehicles.
EV supply chains and batteries gain greater prominence in policy-making
The increase in demand for electric vehicles is driving demand for batteries and related critical minerals. Automotive lithium-ion (Li-ion) battery demand increased by about 65% to 550 GWh in 2022, from about 330 GWh in 2021, primarily as a result of growth in electric passenger car sales. In 2022, about 60% of lithium, 30% of cobalt and 10% of nickel demand was for EV batteries. Only five years prior, these shares were around 15%, 10% and 2%, respectively. Reducing the need for critical materials will be important for supply chain sustainability, resilience and security, especially given recent price developments for battery material.
New alternatives to conventional lithium-ion are on the rise. The share of lithium-iron-phosphate (LFP) chemistries reached its highest point ever, driven primarily by China: around 95% of the LFP batteries for electric LDVs went into vehicles produced in China. Supply chains for (lithium-free) sodium-ion batteries are also being established, with over 100 GWh of manufacturing capacity either currently operating or announced, almost all in China.
The EV supply chain is expanding, but manufacturing remains highly concentrated in certain regions, with China being the main player in battery and EV component trade. In 2022, 35% of exported electric cars came from China, compared with 25% in 2021. Europe is China’s largest trade partner for both electric cars and their batteries. In 2022, the share of electric cars manufactured in China and sold in the European market increased to 16%, up from about 11% in 2021.
EV supply chains are increasingly at the forefront of EV-related policy-making to build resilience through diversification. The Net Zero Industry Act, proposed by the European Union in March 2023, aims for nearly 90% of the European Union’s annual battery demand to be met by EU battery manufacturers, with a manufacturing capacity of at least 550 GWh in 2030. Similarly, India aims to boost domestic manufacturing of electric vehicles and batteries through Production Linked Incentive (PLI) schemes. In the United States, the Inflation Reduction Act emphasises the strengthening of domestic supply chains for EVs, EV batteries and battery minerals, laid out in the criteria to qualify for clean vehicle tax credits. As a result, between August 2022 and March 2023, major EV and battery makers announced cumulative post-IRA investments of at least USD 52 billion in North American EV supply chains – of which 50% is for battery manufacturing, and about 20% each for battery components and EV manufacturing.