Consumer Thirst for Electric Vehicles Remains Unquenched

In September 2021, McKinsey & Co. issued a report proclaiming the arrival of the "unstoppable electric car," predicting electric vehicles would account for more than half of all passenger U.S. car sales by 2030.

"That the global EV market has continued to heat up in spite of the COVID-19 pandemic is no less than remarkable," McKinsey wrote.

The year since that report has reinforced McKinsey's bullish assessment. Strong consumer demand for electric vehicles has caused shortages that may last through 2023 for semiconductors used in their production, and global investment in installation and hardware for EV charging stations has tripled in just the past two years.

U.S. auto sales this year signal the scope of consumers' shift to EVs. Through the third quarter, total sales of new cars, SUVs, trucks, and vans fell 12.6%. But EV sales surged 70.7%, accounting for one of every 20 new cars sold—doubling EV's market share of total new car sales in just a year. In the third quarter, EV sales surpassed 200,000 in a single quarter for the first time.

The U.S. data reflect the growing worldwide appetite for EVs. In the first half of 2022, global EV sales rose 62% to 4.3 million. The global EV market share of total new car sales rose to 11.3%, compared with 6.3% in the comparable period last year. Sales for Tesla, the world's largest EV maker, increased 45% in the first three quarters of 2022, with sales for rivals such as Rivian also increasing.

Government Policies Boost Demand

Government policies mandating or promoting EVs promise to underpin ongoing demand growth. The European Union and the state of California both recently banned the sale of new cars with internal combustion engines—the kind that require gasoline—beginning in 2035. The EU and California will require that EVs compose 55% and 68%, respectively, of all new car sales by 2030.

In addition, the federal government has established goals to make zero-emission vehicles half of all new cars sold in the U.S. by 2030 and to build a network of 500,000 EV charging locations, buoyed by $7.5 billion in funding from the 2021 Infrastructure Investment and Jobs Act. Currently, the U.S. has 56,000 EV charging stations (equivalent to a gas pump for a fuel-powered car) and 148,000 charging ports.

BloombergNEF's recently updated Zero-Emission Vehicles Factbook estimates that global investment for charging stations will reach $62 billion this year, up from $33 billion last year and $21 billion in 2020. Projections for next year have that total reaching $100 billion.

Supply Constraints Surface

The burgeoning demand, though, threatens to overwhelm already strained supply chains for EV parts.

U.S. semiconductor chip producer Onsemi says it has sold out of silicon carbide chips, advanced power units primarily used in EVs, through 2023 despite plans to add production capacity next year. Wolfspeed, a producer of materials used in making those chips, foresees a compound annual growth rate of 14% a year through the end of the decade.

Metals used for EV batteries and auto production also face shortages. S&P Global Commodity Insights predicts global demand for lithium, cobalt, and copper will outpace supplies during the next five years as the government mandates creep closer.

Many miners and metals refiners are boosting production capacity to meet the demand, with increased metals recycling also likely. Still, metals prices likely will surge during the next few years, particularly for copper. CRU International, a global commodities forecaster, predicts global copper prices could surge 20% by 2026.

Meanwhile, some analysts warn that the field of firms attempting to take advantage of EV demand, especially with raw material and chip shortages already hampering production, could get too crowded.

Gary Silberg, a partner with consulting firm KPMG, notes that manufacturers have announced plans to build 160 new EV models "in the pipeline" through 2026.

"Politicians keep talking about this beautiful green revolution—and it will happen over time," Silberg told an industry group in October. "Not all these car companies are going to make it. There's no way."