The days of electric vehicles being a niche market are numbered. Cheaper batteries are powering this rise and helping to reshape transport – but the way they are made brings its own environmental, social and governance challenges.
Global electric-vehicle sales topped 2.6 million last year, up from 2.3 million in 2018 and EVs now account for 2.9 per cent of total car sales, up from 2.5 per cent in 2018. Sales dropped just 14 per cent year-on-year in the first half of this year because of COVID-19, compared with 30 per cent for internal-combustion engine models. June EV sales were 53 per cent up on January thanks to strong stimulus programmes and subsidy policies, especially in Europe.
The two biggest markets – China and Europe – are now both in good shape. Between January and July European sales surpassed China’s for the first time, hitting 500,000 so far this year. In China, where sales volumes plummeted during the lockdown, they had recovered to normal levels by July, and were up 123 per cent on January, powered by extended government subsidies and the launch of more models.
By 2025 we expect EVs to make up 14.6 percent of the total vehicles market, helped by a continued policy push by governments, aggressive EV model launches, improved vehicle performance and the rise in the number of charging stations.
The falling price of batteries is also crucial. The cost of manufacturing and capacity to enable long-range car journeys were previously major factors in limiting the growth of the EV market. Today, economies of scale are kicking into gear. We expect battery demand to increase from 115GWh last year to 737GWh in 2025, and battery cell prices to fall from roughly USD150 per kilowatt hour to USD77 over the same period.
The battery market is helping to reshape transport, reducing pollution on urban streets and potentially bringing down overall carbon emissions. However, the industry must also be viewed from a holistic environmental, social and governance angle.
The key ingredient in batteries is lithium, much of which is mined in Chile and Argentina. The extraction process puts greater stress on water reserves in the region, and indigenous groups claim it has contaminated the drinking water. Battery production is also extremely energy intensive. According to some studies, the greenhouse-gas emissions of manufacturing a battery electric vehicle during the raw material and production phase can be 1.3 to 2 times higher than that of internal-combustion engine vehicles.
There are concerns over battery recycling, too. Lithium-ion batteries for EVs have a relatively short life span of just 3 to 8 years. If not properly disposed of, lithium-ion batteries can cause soil and groundwater contamination caused by the leaching of electrolyte and metals. The chemicals within the batteries are highly reactive and can release toxic gases such as hydrogen fluoride, and the electrolytes can be flammable.
It’s not surprising that many manufacturers are embedding measures to reduce pollution during extraction and providing better support to local communities in their plans for the future. We think investor scrutiny of these issues will grow as electric vehicles become increasingly mainstream.
First published 20 September 2020.
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The following analyst(s), economist(s), or strategist(s) who is(are) primarily responsible for this report, including any analyst(s) whose name(s) appear(s) as author of an individual section or sections of the report and any analyst(s) named as the covering analyst(s) of a subsidiary company in a sum-of-the-parts valuation certifies(y) that the opinion(s) on the subject security(ies) or issuer(s), any views or forecasts expressed in the section(s) of which such individual(s) is(are) named as author(s), and any other views or forecasts expressed herein, including any views expressed on the back page of the research report, accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Wai-Shin Chan, CFA, Will Cho
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