A Tale of Two Tomorrows in EV Sales: BCG Reports

Sales growth of electric vehicles (EVs) in 2022 and the first half of 2023 have held pace with 2021. And there was more good news related to EVs throughout 2022. Passage of the Inflation Reduction Act in the US—heavily focused on climate change initiatives—prompted a next wave of investment announcements in EV supply chains globally, including over 500 gigawatt hours of new battery cell manufacturing capacity to be built outside of China, which has dominated EV battery manufacturing. The new CEO of Toyota, the world’s No. 1 automaker, stated publicly that “now…the time is right” to accelerate toward an all-electric future. And in some markets, mostly because of continued incentives, EV sticker prices achieved parity with comparable internal combustion engine (ICE) vehicles.

More positive developments have emerged in 2023. In just the past six months, the US Environmental Protection Agency (EPA) upped its 2030 EV market share projections to 62%, from a previous target of 50%, while the European Union (EU) formally adopted legislation that set a goal of zero carbon emissions from all new vehicles by 2035 and reshaped incentives for electric vehicle R&D and subsidies for purchases. Meanwhile, EV price competition has heated up as automakers in virtually every major global auto market jockey to capture the wallets of increasingly enthusiastic EV customers. And the first sodium-ion battery cars—potentially much less expensive to produce than lithium battery EVs—were announced for sale this year.

Arguably the most convincing evidence of the EV’s positive trajectory is that as dealer inventories return to pre-pandemic levels and new manufacturing plants reach higher levels of production, some EV brands still have extended backlogs. For instance, China’s BYD had 700,000 people in line for cars near year-end 2022; the Ford EV Lightning pickup truck had a three-year waiting list of about 200,000 customers as of February 2023; and Volvo sold out all its planned current-year EX90 output by April.

However, all these positive data points may be masking some important signals that should not be ignored. After a decade of dramatic decline, primarily due to scaling and innovation, EV battery costs rose in 2022. Geopolitical uncertainty has inflated electricity prices. And prospective customers are increasingly wary of pure battery electric vehicle (BEV) performance, in particular their range in cold weather and maximum charging speeds. Models that do not qualify for incentives—generally, the more expensive vehicles—are proving harder to turn over now that there are sufficient less-costly alternatives in the market. Also, there has been little improvement in eliminating the grid interconnection obstacles that hinder a faster rollout of charging infrastructure. In part because of these factors, mid-year new demand for EVs appears to be slowing as overall inventories grow and economic growth in China, the major EV sales center, slipped. New and better solutions will be needed to spur the next wave of sales.

The most troubling long-term factor pertains to something we highlighted in our prior year report, Electric Vehicles are Finding a New Gear. Raw material supplies, particularly lithium for batteries, will be insufficient to meet EV demand at current rates of investment. Given the seriousness of this looming challenge, BCG assessed how raw material shortages might impact the trajectory of EV market share. It turns out to be quite a bit—possibly reducing BEV global market share by as much as 6% by 2030, putting at risk some six million new EV sales.

These trends combine to create interesting juxtapositions of an EV future that has never been more certain—and more uncertain—at the same time. These include healthy EV sales, yet wide variances in popularity across models. Improved average total cost of ownership (TCO), but greater volatility in purchase prices and operating expenses. Automakers are more firmly committed to the EV transition, yet increasingly acknowledge they must navigate a chronic set of challenges. Regulations are tightening, but structural underpinnings, such as raw material and infrastructure availability, are not keeping pace. Navigating these near- and long-term countervailing trends successfully will determine the EV leaders and laggards.

A Solid, If Not Spectacular, 18 Months

Plug-in vehicles, which include BEVs and plug-in hybrids (PHEVs), accounted for 13% of global light-vehicle production in 2022, up 5% from the year before, while production of ICE vehicles was down 5%. Full hybrids (HEVs) and mild hybrids (MHEVs), which cannot run solely on electric power, gained only 1% market share. A strong case could be made that more buyers are jumping straight from ICE to plug-in vehicle ownership as opposed to stepping from ICE to HEV to plug-in.

Globally, plug-in sales rose by nearly 3.5 million vehicles to 10 million, equal to the combined totals of 2020 and 2021, which were record-breaking years in their own right. In 2023, after a good, but not great, first half of the year, EV sales are likely to hit 14 million. In short: the pace of EV adoption has on the whole remained robust.

BEVs account for over 75% of total plug-in sales and continue to outpace PHEV sales growth, having gained four percentage points of plug-in share since 2021. Plug-in range-extenders (EREVs)—a subset of PHEVs which have a small onboard gasoline-fueled generator to recharge the battery—have done particularly well among large SUVs. And EV upstarts dominate market share, with incumbent automakers feverishly playing catch up. Technology improvements and heightened competition are benefitting customers, who get access to better products and better prices.

China deserves much of the credit for the results of the last 18 months. Plug-in sales in China, already the largest by volume of any country in 2021, grew by 1.8 times. That amounts to about one in every four light vehicles sold in China and represents more than 50% of the global total.