Plenty of opportunities to invest in EV

The share of EVs in the overall car market rose from 1.4% in 2017 to 14% in 2022 


DESPITE another record year for global electric vehicle (EV) sales in 2022, the indexes which track the performance of the companies in the EV supply chain experienced a bad year. 

Taking two indexes as proxies — the Solactive Autonomous and the EV index — which consists mostly of auto car makers and distributors, outperformed the Bloomberg Electric Vehicles index, which represents the entire EV supply chain from raw materials to battery manufacturing and EV makers as of year to date. 

Different from the stock market, electric car sales saw another record year in 2022 despite facing challenges such as disruptions in the supply chain, uncertainty in the macroeconomic and geopolitical landscape, and high prices of commodities and energy. This growth occurred against the backdrop of a contraction in the global car market, with total car sales decreasing by 3% compared to 2021. 

The combined sales of battery EVs (BEVs) and plug-in hybrid EVs (PHEVs) surpassed 10 million units, marking a remarkable 55% increase from the previous year. 

The share of electric cars in the overall car market rose from 1.4% in 2017 to 14% in 2022, demonstrating a more than 10-fold increase from their 2017 market share. According to markets and markets, the global EV market is expected to reach 39.21 million units by 2030, at a compound annual growth rate (CAGR) of 21.7% during the forecast period of 2022-2030. 

Charging Infrastructure for EV Growth

Deployment of public charging infrastructure in anticipation of growth in EV sales is critical for widespread EV adoption. Growth in EV sales can only be sustained if charging demand is met by accessible and affordable infrastructure, either through private charging in homes or at work, or publicly accessible charging stations. From the EV charging station charging site segmentation, more than 80% of the charging stations were public charging stations, which means that public charging stations held most of the EV charging station market share. 

Moving on, the EV charging market is expected to grow at a CAGR of 32.5% to 2028, which would fuel growth in the EV market as well. 

EV Growth Aplenty 

China, Europe and the US — the three major markets for electric cars — accounted for about 95% of global sales in 2022. Emerging markets and developing economies (EMDEs) outside China account for only a fraction of the global electric car market. Demand for electric cars has increased in recent years, but sales remain low due to a lack of access to charging infrastructure and the fact that they are relatively expensive for the majority of the population. 

Moving forward, with an increasing number of charging infrastructures, access to more affordable EVs as a result of the price wars, and supportive policies from local governments, we expect sales of electric cars, both new and used, to increase in EMDEs. 

Thanks to government support, there was a notable boom in electromobility in 2022 in India, Thailand and Indonesia. Collectively, sales of electric cars in these countries more than tripled relative to 2021, reaching nearly 80 000. Sales in 2022 were seven times higher than in 2019, before the Covid-19 pandemic. 

Neutral on Raw Material Sourcing Firms

The upstream of the EV supply chain mainly consists of raw material companies. The increase in battery demand drives the demand for critical materials. In 2022, lithium demand exceeded supply (as in 2021) despite the 180% increase in production since 2017. In 2022, about 60% of lithium, 30% of cobalt and 10% of nickel demand will be for EV batteries. Lithium demand for EV batteries had increased throughout the years. Just five years earlier, in 2017, these shares were around 15%, 10% and 2% respectively. 

Therefore, even though prices of major strategic materials are off their peaks, they have remained above pre-pandemic levels and the increased demand will keep prices of strategic metals elevated, especially since the current supply of lithium is insufficient to meet demand. This would lead to higher revenue for the upstream players. 

Positive for Battery Manufacturers

Despite headwinds in the downstream EV supply chain, the battery supply chain remains attractive as battery demand for EVs continues to rise along with the increased sales of global EVs. 

The demand for automotive lithium-ion (Li-ion) batteries witnessed a substantial surge, rising by approximately 65% to reach 550GWh in 2022 compared to 330GWh in the previous year. This significant increase can be mainly attributed to the growth in electric passenger car sales, which experienced a remarkable 55% rise in new registrations in 2022 compared to 2021. 

The global sales of BEVs and PHEVs are surpassing the sales of HEVs. As BEVs and PHEVs generally have larger battery sizes, the demand for batteries continues to increase accordingly. 

Bloomberg New Energy Finance (BNEF) sees pack manufacturing costs dropping further, by about 20% by 2025, whereas cell production costs decrease by only 10% relative to their historic low in 2021. This warrants further analysis based on future trends in material prices and will result in better profit margins for battery manufacturers. 

Negative on EV Carmakers 

The EV car market is witnessing an increasing number of new players, particularly from China and other emerging markets. These new entrants are introducing more affordable models, which has the potential to drive down overall prices. As a result, established manufacturers, especially in Europe, may be compelled to lower their prices in order to remain competitive in the market. 

Several have begun trimming costs to adapt. Tesla Inc in January 2023 started to cut its prices globally on its electric vehicles by as much as 20%, extending an aggressive discounting effort and challenging rivals, followed by Ford Motor Co, BYD Co Ltd and recently NIO Inc joined the price war with cuts on all models. 

The move by two large EV manufacturers, Tesla and BYD, certainly put pressure on other players in the EV industry to make cars more affordable, driving down their profit margins, as shown in the figure below, where the top EV makers in the market are facing margin compressions due to the price war. 

In short, there are still plenty of opportunities to invest in the EV supply chain. Several of the policies announced in 2022 and early 2023 relate to the development of EV manufacturing in addition to EV deployment, supporting EV manufacturers and companies through direct incentives along the EV supply chain. Despite the phasing out of EV subsidies, there were also notable announcements in other major markets, such as the IRA in the US, and the Green Deal Industry Plan in the European Union. In India, the aims of the national Production Linked Incentive scheme to encourage domestic EV manufacturing have also been supported by the subnational government while a number of EMDEs further demonstrate this trend. 

  • The views expressed are of the research team and do not necessarily reflect the stand of the newspaper’s owners and editorial board. 

  • This article first appeared in The Malaysian Reserve weekly print edition