What Next for the Global Car Industry

Pathways to global EV cost-competitiveness

Highlights

  • The gap in competitiveness in electric car manufacturing between new market-entrants located in China and incumbents in other countries has grown in the past 5 years. Battery electric car production costs are over 30% lower in China than in advanced economies, and around a third of the difference can be attributed to the battery. However, a similar production cost gap exists for conventional cars.

Additional direct manufacturing costs compared to costs in China for a small SUV by country and by powertrain, 2024

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BEV = battery electric vehicle; ICEV = internal combustion engine vehicle. In all countries analysed, BEVs are based on a 150-kW electric drivetrain and feature a 75-kWh battery. ICEVs are powered by an 80-kW engine. “Other direct manufacturing costs” include chassis, body-in-white, exterior, interior and electronic equipment.

IEA analysis based on ICCT, UBS, BNEF, S&P Global Mobility and US Bureau of Labor Statistics.

  • Battery cell prices are, on average, over 30% lower in China than in Europe and over 20% lower than in the United States. Reducing the manufacturing cost gap is possible – half is due to efficiency and automation, and 30% to access to low-cost supplies of critical minerals and battery components.

Estimated direct costs of fully domestic lithium-ion battery cell production in the European Union and China, and key drivers to reduce the cost gap

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USD (2024). Production costs refer to the estimated average direct manufacturing cost in the European Union if key battery components (cathode and anode active materials) were produced domestically (left) and the estimated production cost of leading Chinese manufacturers in China (right). Production costs refer to batteries using lithium nickel cobalt manganese oxide (NMC) 811 as cathode active material (CAM) and synthetic graphite as anode active material (AAM). CAM and AAM are inputs of the cell production cost and include indirect manufacturing costs such as administrative, retail, and R&D costs, and profit margins. “Others” include capital and maintenance costs, labour, other materials (such as electrolyte, current collectors, and casing), CO2 cost, and manufacturing inefficiencies. Yield increases and automation refers to production cost in the European Union at the same manufacturing efficiency and labour intensity as in China. Energy prices reflect the energy prices for the overall industrial sector. Imported battery components refer to imports of CAM and AAM, specifically. Please see Annex A for full assumptions and costs used.

IEA analysis based on data from IEA (2024) Energy Technology Perspectives, BNEF and CRU.

  • Energy costs have only a small impact – between 1% and 4% depending on the region and powertrain -- on the direct cost of car manufacturing including parts and assembly. However, they can be twice as high for battery electric as for conventional cars in countries with above-average energy prices. In upstream industries like steel production, energy accounts for 25% of costs, on average.

Estimated energy costs for producing a small SUV by supply chain step and as a share of direct manufacturing costs by powertrain in selected countries, 2024

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The BEV is assumed to have a 75-kWh battery. The energy consumption for battery production refers to the 2024 world average battery chemistry and it assumes the same manufacturing efficiency across regions.

IEA analysis based on GREET.

  • The differences in purchase prices for battery electric and conventional cars in different regions are larger than the differences in direct manufacturing costs between regions, partly due to manufacturers’ pricing strategies, profit margins, and subsidies, and partly due to model variation within a segment. In China, profit margins have been reduced by competition, especially for electric cars.

  • Chinese carmakers are very cost-competitive, but incumbent manufacturers can build on their strengths in the global premium market and in emerging economies, where future growth is concentrated. Nevertheless, boosting competitiveness in electric car production will remain a priority for incumbent carmakers aiming to maintain a share of this market.

New car sales share by region and location of original equipment manufacturer headquarters, 2024

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OEM = original equipment manufacturer. Chinese joint ventures with foreign manufacturers are not considered as Chinese OEMs in this figure. Colours refer to the OEM headquarters location.

IEA analysis based on data from Marklines.

  • Chinese carmakers have a significant technological advantage, but others could catch up by setting the right priorities for their comparatively high R&D budgets. Relying on yet-to-be-developed battery technologies to boost competitiveness is risky, however, and does not replace the need to champion current technologies, such as by collaborating with today’s technology leaders. Innovation in power electronics will also be crucial, especially to support the trend towards higher-voltage models, and to reduce dependency on rare earth elements for electric motors and counter the risk of supply chain bottlenecks.

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