By Jonathan Waghorn and Will Riley, fund managers at Guinness Global Investors
Electric vehicles (EVs) saw continued adoption in 2023, albeit at a slower pace than seen in recent years.
After growing at over 100% and 50% in 2021 and 2022 respectively, sales of plug-in vehicles are expected to have grown by around 35% in 2023 to 14 million units, representing an 18% penetration rate.
China will retain its crown as the largest market for EVs, representing 60% of global plug-in vehicle sales, with monthly penetration rates approaching 40%. Europe will come in second at 25% of global sales, with the US in third at around 10%, breaching one million units and seeing EVs make up over 10% of monthly sales for the very first time.
These regional differences largely reflect the main driver of adoption – affordability.
China saw the withdrawal of government EV subsidies at the end of 2022, resulting in a slowing of sales at the start of 2023, sparking a year-long price war among manufacturers.
This, combined with a bias for cheaper lithium iron phosphate (LFP) chemistries and smaller average battery sizes, resulted in sales prices for electric vehicles across multiple segments reaching price parity with internal combustion engine vehicles.
Europe, on the other hand, has a more nuanced picture. Here, moderate subsidies and higher gasoline prices led to certain models being cheaper to own than petrol or diesel counterparts.
However, the threat of cheap Chinese imports in 2023 has impelled local manufacturers to cut costs to avoid losing out to imports.
The market for electric vehicles in the US is generally less competitive. Import tariffs and subsidies for local producers have led to higher prices, allowing cost-advantaged Tesla to take a 50% market share.
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A preference for larger vehicles such as SUVs and trucks – which have larger batteries and lower average pump prices – mean that the relative economics of owning an EV are not as attractive as in other regions. Despite record EV sales and penetration rates in 2023, further battery price declines are needed to see continued adoption in the US.
The decline in battery prices (and commensurate improvement in EV affordability) observed over recent years has coincided with climbing expectations of EV sales. Estimates have risen 100% and 50% for 2025 and 2030 in the past five years alone.
We estimate that EV sales should exceed 16 million in 2024, representing around 20% of total passenger vehicle sales and coming in one year earlier than our long-held target for a 20% EV penetration by 2025. Beyond that, we maintain our long-held view that EVs continue to take share, reaching 50% of global light vehicle sales by 2030 and nearly all new vehicle sales by 2040.
At that point, it implies an overall population of one billion EVs – over 35 times greater than the global stock in 2022 of 27 million.
Deflation in lithium prices and other battery raw materials combined with significant new battery manufacturing capacity continues to help deflate the overall cost of batteries.
Historically, we have argued that battery prices should hit $100/kWh in 2027, which is the economic tipping point where EVs reach cost parity with internal combustion engines.
However, following the latest bout of deflation we note that various commentators are now forecasting this to occur in 2025, which would prove very positive for EV volumes and be a strong positive for companies in the EV supply chain.
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