Capital IdeasTM

Investment insights from Capital Group

Electric vehicles: charging towards a sustainable world
Jason Zhang
Equity investment analyst
Danny Jacobs
Fixed Income Investment Analyst
Piyada Phanaphat
Equity portfolio manager
Julie Dickson
Investment Director
  • 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

Geography of EV penetration

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)

EV webinar source

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.


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Jason Zhang is an equity investment analyst at Capital Group with research responsibility for Asian auto & auto components companies, in addition to brewers and distillers for Asia. He has 17 years of investment experience, all with Capital Group. He holds a bachelor’s degree in biology and economics from Brown University. He also holds the Chartered Financial Analyst® designation. Jason is based in Hong Kong.

Danny Jacobs  has research responsibility for autos and European insurers. He has 14 years of industry experience and has been with Capital Group for eight years. He holds a bachelor’s degree in economics and finance from the University of York. He also holds the Chartered Financial Analyst® designation. Danny is based in London.

Piyada Phanaphat  is an equity analyst who covers Asian energy, cement and small-cap companies. She has 19 years of investment experience and has been with Capital Group for 14 years. Piyada holds an MBA from Harvard Business School and both a master’s degree and a bachelor’s degree in electrical engineering and computer science from Massachusetts Institute of Technology. Piyada is based in Hong Kong.

Julie Dickson is an investment director at Capital Group. She has 29 years of investment industry experience and has been with Capital Group for seven years. Prior to joining Capital, Julie worked as the head of client portfolio management at Ashmore Group. Before that, she was the head of client portfolio management at Aviva Investors. She also held various positions at Axa Rosenberg, Mellon Global Investments, Barclays Global Investors and Merrill Lynch. She holds a bachelor’s degree in business management with concentration in finance from Cornell University. She also holds both the Investment Management Certificate and the Chartered Financial Analyst® designation. Julie is based in London.


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.