By Mario van den Broek, Partner and member of RSM’s Global Automotive Group
Electric vehicles (EVs) sales are predicted to soar to 20.6 million in 2025, this is a considerably higher figure than the 14 million that was forecast just 12 months ago. A new report published on June 1st by Bloomberg highlighted that EV sales will more than triple by 2025, but warned that this growth may not be enough to meet the ambitious net zero targets set out by nations around the world.
At the end of May, we also saw the International Energy Agency (IEA) publish its annual Global EV Outlook report, which discusses recent developments in electric mobility across the globe. The report included historical analysis with projections to 2030. It examines key areas of interest such as electric vehicle and charging infrastructure deployment, energy use, CO2 emissions, battery demand and related policy developments.
Booming market braces for supply chain blow
This year’s report clearly demonstrates that there continues to be tremendous growth and demand for EVs globally, with Europe, China, and the US remaining the fastest growing markets. In fact, the sales of electric cars (including fully electric and plug-in hybrids) doubled in 2021 to a new record of 6.6 million, with more now sold each week than in the whole of 2012, according to the IEA.
From our experience at RSM, European Original Equipment Manufacturers (OEMs) remain the most ambitious in terms of electrification targets with China and the US not far behind – no easy feat given the radical rethink of geography and supply chains they have had to grapple with in recent years to satisfy battery demand.
Onshoring is one way they are achieving this: the sector’s relentless focus on build-to-demand capabilities has seen OEMs move manufacturing closer to the end consumer over the last decade, importing raw materials to that location and bringing their middle market suppliers with them.
Even so, the vulnerability of lithium-ion battery supply chains has been made apparent by the geopolitical and economic crises of the last year. Critical mineral shortages and rising commodity prices are ensnarling manufacturers’ long and complex supply chains, exposing the limits of just-in-time production and leaving customers facing waits of over 12 months for the delivery of new vehicles.
British trade business, Auto Trader, warned recently that car buyers around the world face years of shortages as China enters another period of strict lockdowns, with the impact expected to be felt until at least 2024. This has resulted in a change in consumer behaviour. The company went on to say that the global shortage of semiconductors, which are a crucial component in vehicle manufacturing, had resulted in a lack of new cars being made, resulting in a rush of buyers opting for second hand models instead.
However, it would appear that this did not dampen the growth of EVs. In the UK alone, a record number of pre-owned battery electric vehicles (BEVs) were sold with the appeal of quicker purchases and zero-emission cars growing. According to Schmidt Automotive, BEV sales will reach a market share of 60% in Western Europe by 2030, or 8.4 million vehicles.
The supply chain crisis shocked states across the world into formulating policy frameworks to support and regulate the large-scale transformation of the automotive battery industry.
Stronger policy leads the way
We are likely to see national governments continue to introduce or strengthen policies focused on reshoring the lithium-ion battery supply chain to help ensure continued domestic production of EVs and meet climate goals. This is hardly surprising as the IEA has stated that one of the main reasons for strong electric car sales in many markets is sustained policy support, with overall public spending on subsidies and incentives doubling in 2021 to nearly USD 30 billion.
In addition, we have seen several nations make their own policy ambitions clear in terms of the electrification of vehicles over the next 10 to 20 years.
This approach seems to be paying off. An earlier IEA report showed that the sales of electric cars hit 6.6 million in 2021, more than tripling their market share from two years earlier. This demand has resulted in five times more electric car models being made available globally in 2021 than there were in 2015.
Innovation accelerates EV potential and net zero
The race to net zero has been on for some time. Back in 2000, the EU’s member states jointly committed to a binding target of a net domestic reduction of at least 55% in greenhouse gas (GHG) emissions by 2030, compared to 1990 levels. Both Sweden and Germany have legally binding net zero targets for 2045. The UK, France, Denmark, Spain, Hungary and Luxemburg have set theirs for 2050. At the end of 2022, Finland set what could be argued, the world’s most ambitious climate target into law by aiming to be the first developed country to reach net zero by 2035.
These ambitious net zero targets must be underpinned by green technologies and this can be seen in the rise in demand for them, which includes EVs. Given all of these factors, the demand for EV’s may potentially explode in the upcoming years, with pressure on raw materials used in these technologies persisting in the longer term as well. Besides stabilising supply chains, we anticipate the role of innovation to be of critical importance and since demand is soaring, there are ample business opportunities and arguments for increasing R&D.
Ultimately, there is a need for using and reusing battery materials more effectively and increasing battery performance and durability. As a result, various companies have started developing new clean technologies. For instance, companies such as EnergyX are experimenting with new methods for mining and separation of lithium. Tesla is using cobalt-free iron-phosphate batteries in half of their vehicles. There are also Dutch start-ups such as Leyden Jar Technologies working on increasing battery storage by applying Silicon or Delft IMP who are nanocoating batteries for more durability.
The route ahead
We anticipate that realising the optimistic projections for EV adoption mostly depends on stabilising supply chains and developing new technologies and innovations. Companies are adapting supply chains in order to reduce the impact of future disturbances. However, for some crucial minerals, raw materials shortages will persist.
Companies are already investing huge amounts of resources in R&D in order to increase their production and improve the effective use of key resources. Whether the breakthrough comes from alternative batteries, other ways of mining, improving resource efficiency and performance of batteries or a combination, we expect innovation to be a large factor in addressing raw materials shortages, sustaining the predicted EV adoption.