The electric vehicle (EV) market is set for mild growth in 2022 after a strong performance in 2021 despite ongoing constraints provoked by the global chip shortage and battery raw material costs, which sources say will continue to affect the supply chain.
The global share of EVs in 2022 is estimated to be close to 13%, up from just over 10% in 2021, with Europe and China leading the way from a manufacturing perspective – a trend expected to continue into the new year.
This follows positive sale trends recorded in 2021, estimated by Fastmarkets to have grown by 189% in China in the January to October period, 157% in Europe (Jan-September pro-rata), and by 94% in the US.
Independent energy research agency Rystad Energy says that the global market share of EVs will grow to 12.8% in 2022, from 10.1% in 2021.
UK market share
From a country-specific perspective, the UK, where the government in 2021 banned the sale of new combustion vehicles from 2035, is expected to see its market share of EVs jump to 28.2% in 2022 from 20.4%, Rystad told Fastmarkets EnergyCensus.
In 2022, the government is expected to consult on the ZEV Mandate, which it has committed to implement by 2024 as part of the Net Zero Strategy.
“The outcome of this consultation will provide clarity on EV sales – presumably up to 2035 – which, in turn, will improve both investor and consumer confidence in EVs and EV charging infrastructure,” Jacob Roberts, transport policy manager at the Association for Renewable Energy and Clean Technology (REA) said.
“The outcome of the consultation may not be published in 2022, but the consultation is due to take place in 2022 and we expect that government will include an ambitious-minded proposal within the consultation,” he added.
Meanwhile, in Europe, the market share of EVs is expected to reach 23.5%, up from 18.8% in 2021.
The European Automobile Manufacturers’ Association (ACEA) expects 2022 EU growth to come from clarification on “fundamental legislation that will shape the future of our industry,” which was set out in the ‘Fit for 55' package in 2021.
However, head of road transport at Wood Mackenzie Ram Chandrasekaran warns that European policies will likely have a negative impact in 2022 specifically.
“That is, the expected draw down of emissions super credits for automakers as well as the scaling back of EV subsidies should both lead to smaller jumps in EV share than previous years,” he said.
In the US, EV growth in 2022 will be moderate, to an estimated 9.2% from 4.5%, but significant gains will come in 2023, after the market has had time to benefit from new EV tax credits coming into play next year.
“We will definitely see an uptick in EV demand there,” head of global energy systems at Rystad, Marius Kluge Foss said, adding that the expected tax cut will be “hugely important for the industry in the US, narrowing the price gap between EVs and ICEs.”
Challenges ahead
The EV industry however will continue to face challenges in 2022, not least due to the ongoing global chip shortage and the rising cost of some crucial raw materials used in battery production.
“The largest risk will lie within the chip shortage and the battery supply chains for EVs which is constraining production,” Foss said, adding that the shortage has somewhat favored the EV market “as chip suppliers have actually prioritized EV companies over regular combustion vehicle manufacturers.”
The ACEA said that the shortage, which followed the pandemic, resulted in EU car production falling to 3 million units less than 2019 pre-pandemic volumes in the first nine months of 2021, while October recorded a 30% sales drop compared to 2020 – the fourth consecutive month of decline.
Meanwhile, shortages of battery raw materials, especially lithium, have been an issue, Fastmarkets head of battery raw materials research and base metals William Adams said.
“But so is the extent the growth in battery demand – there have been some large-scale battery recalls that will have required replacement batteries, further adding to demand,” Adams said.
High costs
High upfront cost of EVs will continue to deter those wanting to switch away from combustion vehicles, which will be worsened by high battery costs and supply chain issues.
“While the direction of battery costs needs to be lower in order to make EVs more competitive compared with petrol/diesel vehicles, the significant increases in battery raw material prices will prevent battery prices from falling as fast as would be desirable,” Adams said.
Prices in Europe are increasing in the region of 6-10%, according to independent consultant at JouleVert Colin Matthews, and it can take up to seven years to open new mines or supply routes.
“And as a result, this could constrain the manufacture of EVs in the short term,” he said, adding “who owns the raw materials is a key issue to monitor.”
The guarantee of the supply chain of battery packs, and all elements downstream, such as cell supply, precursor material supply and raw material supply, therefore, “will be the largest challenge in 2022", Chadrasekaran concluded.
In the UK, the Society of Motor Manufacturers and Traders (SMMT) has highlighted the urgency needed in the UK to guarantee electrification.
“We need to move the market even faster – from one in a hundred cars on the road being electric, to potentially one in three in just eight years – which means we should be doubling down on incentives,” SMMT chief executive Mike Hawes told EnergyCensus.
“Other global markets are already doing so whereas we are cutting, expecting the industry to subsidize the transition, and putting up prices for customers,” he said, highlighting the UK government’s December decision to slash grants offered to purchase EVs by 40%.