Increasing policy support and a tidal wave of new models has underpinned strong growth in electric vehicle sales across the globe this year, but more effort is needed to avoid a slump at a critical point in the sector’s evolution, a major new report says.
The International Energy Agency (IEA) says the growth in EV sales in 2022, following on from what was a record-breaking 2021, is threatened over the short term by soaring prices for some critical minerals essential for battery manufacturing.
This has been made worse by Russia’s unprovoked attack on Ukraine and recent Covid-19 lockdowns in some parts of China, creating a tightening bottleneck on supply.
Lithium prices were over seven times higher in May 2022 than they had been at the start of 2021, while prices for cobalt and nickel also rose, creating significant challenges for lithium-ion battery manufacturing.
If other aspects of the manufacturing process remain unaffected, the cost of battery packs could increase by 15%, if the inflated critical mineral prices remain the same, which would reverse several years of cost declines.
Russia’s invasion of Ukraine has created significant pressure on the supply of nickel, considering that Russia had previous supplied 20% of the global battery-grade nickel and faces sanctions and trade restrictions.
Similarly, more than half of all lithium, cobalt, and graphite processing and refining capacity is located in China, while unsurprisingly producing three-quarters of all lithium-ion batteries and playing host to 70% of the production capacity for cathodes and 85% for anodes.
China’s dominance and its precarious relations with the west has prompted governments in Europe and in the United States to implement policies looking towards developing a domestic supply chain.
This will take time, however, and leave western EV manufacturing at the mercy of international trade, price fluctuations, and geopolitical instability.
Sales of electric cars – which includes both fully electric and plug-in hybrid EVs – doubled in 2021 to a new record of 6.6 million.
They have continued to grow through 2022, with 2 million electric cars sold globally in the first quarter – an impressive 75% growth from the same period in 2021.
According to the IEA, more electric vehicles are being sold each week around the globe than were sold during the whole of 2012.
Meanwhile, the number of electric vehicles on the world’s roads at the end of 2021 had soared to 16.5 million, triple the amount that were driving around in 2018.
Chinese electric car sales nearly tripled in 2021 to 3.3 million, meaning that the country accounted for around half of the global total of EVs sold in 2021, but growth was nevertheless strong in Europe and the United States, which saw 2.3 million and 630,000 sales respectively.
One aspect of China’s dominance as highlighted by the IEA that is worth taking into account is the fact that many Chinese EVs are smaller than in other markets.
This allows for lower manufacturing costs which helps to reduce the price gap with traditional ICE cars – with the median price of an electric car in China only 10% up on that of conventional cars.
Compare that to the 45% to 50% gap found in other major markets, and it is little surprise that China is able to maintain such a dominant position in the EV market.
According to the latest edition of the IEA’s annual Global Electric Vehicle Outlook report, sustained policy support is at the heart of the continued strong EV growth, with overall public spending on subsidies and incentives doubling in 2021 to nearly $US30 billion.
Financial incentives have also been bolstered by strong policy confidence in countries that have set ambitious vehicle electrification targets, helping to assuage the concerns of automakers and ensure a continued supply of new electric vehicles.
However, as the IEA makes very clear, much more needs to be done.
“Few areas of the new global energy economy are as dynamic as electric vehicles,” said Fatih Birol, IEA executive director. “The success of the sector in setting new sales records is extremely encouraging, but there is no room for complacency.”
Keyword: Ukraine, Covid and supply problems threaten to halt tidal wave of EVs