Electric vehicles: charging towards a sustainable world
  • EVs are on the threshold of profitability. Battery costs are falling, and innovation is expected to offset higher raw materials costs.
  • Challenges remain. The current shortage of chips could be a sign of future bottlenecks for new supply chains, while strategic investment is required to enable a sustainable charging network.
  • Traditional car companies are starting to ramp up EV production. But they have a long way to go before they can compete with established companies such as Tesla.

What has driven the recent acceleration in electric vehicle (EV) sales?

Jason Zhang: The acceleration has been largely driven by regulations and incentives in Europe and China. In Europe, for example, 2020 was the first year when automakers faced stringent emissions regulations, which incentivised them to increase EV production and sales. Additionally, multiple European governments have introduced larger purchasing subsidies on EVs as part of a broader stimulus package to rescue the economy from the pandemic. EV penetration in Europe has more than quadrupled over the past two years, surging from 4% to 20% in 2021, while in China it has tripled from 5% to 15%. While the US remains a laggard with a penetration level of about 5%, regulations are coming. By 2030, EV penetration levels are expected to be around 60% to 70% in Europe and China, respectively, and roughly 50% in the US

Geography of EV penetration
Global electric vehicle registration and market share

Chart showing Global electric vehicle registration and market share

Source: IEA, Global EV Outlook 2021

Danny Jacobs: In Europe, the premium segment has largely driven sales. Early adopters have been those who can afford the higher upfront cost of an EV and often have access to another car. However, the buyer base is broadening as prices come down, the charging infrastructure improves, and choice expands, particularly in popular segments like SUVs. The key to cracking mass market adoption of EV is for the industry to create an EV that is as cheap and convenient to own and operate as traditional ICE (internal combustion engine) vehicles. While the industry is getting there, it has yet to fully meet this challenge.

Are we nearing the point where EVs are as cheap as traditional vehicles?

Jason Zhang: The cost of batteries is the reason that EVs continue to be more expensive than ICE cars. There has been good progress on reducing battery costs, which have fallen over the last decade, although rising raw material prices have limited progress more recently. Nevertheless, by 2025, we could reach a level where a compact EV will be on a cost parity with a comparative ICE vehicle. Mini EVs with small battery packs are already becoming economical. In China, for example, the best-selling EV is the Wuling Hongguang MINI, which sold around 400,000 units in 20212. While it has a battery pack of only 10 kilowatt hours (kWh) compared to the Tesla Model 3’s 60 kWh, the overall cost of the battery is only about US$1,500. This means the car can retail for about US$5,000 plus subsidies, which is already cheaper than the comparable ICE car.

Piyada Phanaphat: Rising raw material costs have slowed down the pace of reduction in battery costs as lithium, cobalt and nickel prices have surged. However, innovation could help to offset these higher costs. China has diversified from using only NCM (nickel cobalt manganese) batteries, reverting back to LFP (lithium iron phosphate) batteries that now command more than half of the market due to their lower costs. While LFP batteries have inferior range, their cost advantage has allowed for a new entry-level battery.

Reducing battery costs will make EVs more affordable
Lithium-ion battery pack costs (per kilowatt hour, USD)

Chart showing Lithium-ion battery pack costs across different year

Forecasts shown for illustrative purposes only.
Sources: Bloomberg New Energy Finance, Statista. 2023 and 2030 are forecasts as at 31 December 2020.

1. Source: IEA, Global EV Outlook 2021.

2. As at January 2022. Source: Inside EVs.


Risk factors you should consider before investing:

  • This material is not intended to provide investment advice or be considered a personal recommendation.
  • The value of investments and income from them can go down as well as up and you may lose some or all of your initial investment.
  • Past results are not a guide to future results.
  • If the currency in which you invest strengthens against the currency in which the underlying investments of the fund are made, the value of your investment will decrease. Currency hedging seeks to limit this, but there is no guarantee that hedging will be totally successful.
  • Depending on the strategy, risks may be associated with investing in fixed income, emerging markets and/or high-yield securities; emerging markets are volatile and may suffer from liquidity problems.

Learn more about

Past results are not a guarantee of future results. The value of investments and income from them can go down as well as up and you may lose some or all of your initial investment. This information is not intended to provide investment, tax or other advice, or to be a solicitation to buy or sell any securities.

Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. All information is as at the date indicated unless otherwise stated. Some information may have been obtained from third parties, and as such the reliability of that information is not guaranteed.

Capital Group manages equity assets through three investment groups. These groups make investment and proxy voting decisions independently. Fixed income investment professionals provide fixed income research and investment management across the Capital organization; however, for securities with equity characteristics, they act solely on behalf of one of the three equity investment groups.