Few stakeholders will be shielded from the transformation of the automotive ecosystem.
Published: January 13, 2023
By 2030, there will be more electric vehicles sold globally than other types of vehicles, putting batteries firmly at the heart of our automotive future.
Both winners and losers of the transition from internal combustion engine vehicles to EVs are likely to surface within the automotive and energy industries as well as among governments and workforces.
The nascent EV revolution could have unintended consequences, including the potential for automotive sector redundancies, shortages of battery raw materials and challenges to mitigating declines in government liquid fuel tax revenue.
The EV revolution can only successfully unfold in an environmentally and socially sustainable way through greater levels of cooperation and transparency across the automotive and energy value chains.
The strong rise in electric vehicle sales has led consumers and media to take notice of what can be termed the EV revolution. In the third quarter of 2022, EVs accounted for about 1 in 4 new vehicles sold in mainland China and Germany. In the U.S., where EV adoption has lagged, several policies have been enacted that should kick EV sales into a higher gear.
Between 2015 and 2030, S&P Global projects the number of EVs sold globally will rise from fewer than 1 million to 52 million, while the sale of all other vehicles will fall from 88 million to 45 million, driven by increasingly stringent government regulations. In other words, batteries will be firmly at the heart of our automotive future.
With a market outlook like this, policymakers could be forgiven for believing they can reduce their support for EVs, as the revolution is truly underway. Indeed, during this period of heightened economic and geopolitical challenges, a cutback in government financial support to develop the EV ecosystem is a possibility. Less government support, at a time when automakers have increasingly gone all in on EV investments, could lead to suboptimal outcomes in terms of EV adoption and the health of the automotive sector. In any case, both winners and losers from the EV revolution are likely to surface within the automotive and energy industries as well as among governments and workforces. Few, if any, stakeholders will be shielded from changes to operating models — or, indeed, changes to society — in this transformation of the automotive ecosystem (see interactive story below).
The EV battery will be the defining technological and supply chain battleground for the automotive industry in the coming decades.
A large sector of the global economy for more than a century, the automotive industry is one of the pillars of social stability. Now, the sector is facing the most fundamental change to how it operates in its history. The transition away from the stalwart internal combustion engine (ICE) power train — which typically features, on average, about 2,000 moving parts, compared with about 20 moving parts for an EV power train — highlights the scale of the upstream transformation that will reverberate down the supply chain. This could result in widespread redundancies and weaken societal consensus around governments seeking to phase out the ICE. Meanwhile, stakeholders pushing for an accelerated EV shift could be underestimating the challenge of building what will need to be a massive, secure and sustainable battery supply chain.
New opportunities in the next automotive century will present themselves to automakers able to sustainably access and secure the required volumes of battery raw materials. Yet the scale of the challenge is enormous. S&P Global projects that lithium-ion battery demand from the automotive sector will rise more than 500% from 2022 to 2030. Sizable new investments will be necessary to ensure key minerals are available in sufficient quantities to meet this demand. A shortage of battery raw materials later this decade — a distinct risk — could slow the unfolding EV revolution, though demand-side measures hold the potential to mitigate the extent of any supply deficits.
Which countries and companies are best placed to benefit from an increased dependency on a handful of critical elements is unclear. What is clear is the EV battery will be the defining technological and supply chain battleground for the automotive industry in the coming decades, and access to its constituent raw materials will be critical.
It is becoming apparent that a rapid transition to EVs will cause significant budget upheaval for governments as liquid fuel taxation revenues fall. Norway is at the vanguard of this trend: The country remains on track to reach a 100% EV share of new vehicle sales by 2025, but this progress will come at a price, in the form of lost fuel and vehicle tax revenue. The need to find alternative sources to replace this lost revenue will become an increasingly urgent issue for more and more governments.
Newfound global imperatives such as net-zero, environmental, social and governance criteria, and national zero-emission vehicle mandates are converging to provide strong tailwinds for EVs. The nascent EV revolution can successfully unfold only through greater levels of cooperation and transparency across the automotive and energy value chains. This transition presents stakeholders with an opportunity for reinvention.
The change will be truly challenging. On the automotive side, not all incumbent automakers will make it through the ICE-to-EV transition. On the energy side, declining gasoline demand will put pressure on oil companies, and countries with oil-reliant economies, to find alternative sources of revenue. In any event, the effects of the EV revolution will reverberate throughout the wider stakeholder field far beyond its initial impact. While the pitfalls could delay or derail this revolution, the rewards could be significant for the climate and the economy.
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This article was authored by a cross-section of representatives from S&P Global and in certain circumstances external guest authors. The views expressed are those of the authors and do not necessarily reflect the views or positions of any entities they represent and are not necessarily reflected in the products and services those entities offer. This research is a publication of S&P Global and does not comment on current or future credit ratings or credit rating methodologies.
