We have a positive outlook for the global electric vehicles industry. Sales of electric vehicles doubled in 2021 to 6.6 million units, and we expect sales to reach 9 million to 10 million units in 2022. It's worth noting that ten years ago, in 2012, roughly 160,000 electric vehicles were sold. In 2021, there were 160,000 EV units sold every week.
Roughly 10% of global car sales are electric, and we expect a compound annual growth rate of 30% to 40% over the next five years. However, we acknowledge the risks for investors in this space and believe that charging infrastructure and batteries are the best risk-adjusted ways to invest in electric vehicles.
Strong Fundamentals for Electric Vehicles
The demand for electric vehicles has been driven by regulatory policies aimed at reducing greenhouse gas emissions. Total government incentives for EVs doubled in 2021 to roughly $30 billion. Further, many countries have pledged to phase out combustion engine vehicles entirely over the coming decades.
Many legacy automakers are transitioning to electric models, and surging gas prices are helping to drive increased customer adoption. For example, BMW aims to have half of its models be fully electric by 2030, while Volvo is targeting a fully electric car company status over the same period.
Global Demand Remains Strong with Opportunities in Emerging Markets
China is driving demand for electric vehicles, and its manufacturing costs are significantly lower than those of traditional gasoline cars in other markets, such as Europe and the United States. To put China's demand in perspective, its 3.3 million EVs sold in 2021 were more than the entire world's EV sales in 2020.
Robust growth in Europe is also driving demand for electric vehicles and the components needed in the manufacturing process. Europe's EV sales grew roughly 60% in 2021, reaching 2.2 million units. Europe has the highest EV penetration when compared to other regions.
We expect global EV sales to grow by 30% to 40% annually over the next five years. We also expect India to become a significant contributor to EV demand, with the country's EV sales expected to double in 2022. In addition to traditional EVs, we expect electric motorbikes and three-wheelers to have strong demand in markets like India, Vietnam, and Africa.
The Demand for Batteries Presents Opportunities for Investors
Charging infrastructure and EV batteries present the best opportunities for investors. We are skeptical of the legacy automakers due to the risks associated with the potentially stranded assets of their legacy models.
We have also seen several EV startups, such as Nikola and Lordstown Motors, turn out to be frauds, resulting in severe losses for investors. Rivian, which had Amazon and Ford as backers, is trading below its IPO price due to stiff competition and Amazon's recent partnership with a competitor.
Lithium-ion battery pack prices were more than $1,200 per kilowatt-hour in 2010 and have fallen 89% in real terms to $132/kWh in 2021. This is positive for the EV industry, which relies on lithium-ion battery technology. We expect prices to continue falling over the next two to three years, between $107/kWh and $112/kWh. However, we acknowledge the impact of rising commodity prices for key materials such as electrolytes, which could support higher battery prices over the next 12 to 18 months.
The Battery Index has outperformed electric vehicles, showing the tight supply and robust demand for battery materials. Companies like BYD, LG Energy Solution, and Contemporary Amperex Technology are leaders in the battery industry. Countries around the world are also scrambling to secure or nationalize lithium supplies.
Charging Infrastructure Presents Opportunities for Investment
The growth rates in EV infrastructure, versus what is needed to support EV sales growth, provide a secular tailwind for investors in EV charging. For example, we have seen growth rates of 50% or more for EV sales, while the CAGR for charging infrastructure has grown by less than 20% over the same timeframe.
In 2021, sales of EVs more than doubled, bringing the total fleet to roughly 16 million, a 200% increase over the last three years. However, the number of publicly available charging points stood at only 1.8 million (and less than half are high-speed chargers). We acknowledge that most charging will be done at home or the office. Still, having widespread infrastructure available will be necessary to support the EV adoption we are forecasting.
Our Outlook is Positive
We expect the strong fundamentals in EV charging and battery technologies to continue, supported by government incentives, high gas prices, and investors' growing focus on sustainability.
Investors can choose to diversify across publicly traded battery companies, such as BYD, or invest in cleantech managers that provide capital at various stages to private companies along the EV value chain. Contact us to learn more about investing in clean technologies.
