Global EV Outlook: Strong Support For Adoption, But Vehicle Supply Remain A Risk

Fitch Solutions / Autos / Global / Fri 02 Sep, 2022

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Key View

  • Global demand for electric vehicles (EVs) will continue to strengthen as the still strong government support, as well as expanding EV charging networks and the increased electrified model range available to consumers, drive EV sales in 2022 and thereafter.
  • The Asia region will remain the largest EV market globally thanks to the significant contribution of China’s EV sales volumes to the total Asian EV market. While Asia will remain a leader in EV adoption, we anticipate a large increase from Europe as aggressive incentives drive sales higher.
  • While we forecast that the Europe and Asia regions' passenger EV penetration rates will be similar in 2022, Europe will take the lead over the longer term likely surpassing the 50% mark towards the end of our 2022-2031 forecast period.
  • EV adoption will remain nascent in the majority of Latin American markets in the short term (2022-2026) as the affordability gap between EV and internal combustion engine (ICE) vehicles remains too large to enable widespread EV adoption.

We believe that the global demand for electric vehicles (EVs) will continue to strengthen as the still strong government support, as well as expanding EV charging networks and the increased electrified model range available to consumers, drive EV sales in 2022 and thereafter. We note that the slow expansion of EV charging networks globally will remain one of the main limiting factors for EV sales over the medium term (2022-2025). We currently forecast that global passenger EV sales will experience a 73.8% y-o-y increase in 2022, and that passenger EV sales volume will surpass the 10mn units market in 2022 with a forecasted passenger EV sales volume of 10.5mn units by the end of the year. Furthermore, we note that global battery electric vehicle (BEV) and plug-in hybrid electric vehicle (PHEV) sales will increase by 76.5% in 2022. However, BEV sales will remain the global leader in terms of sales volumes as we expect BEV sales to reach around 7.7mn units and for PHEV sales to reach around 2.8mn units.

EV Sales Growth Will Remain Strong, But Penetration Will Remain Low

Global - Passenger EV Sales By Segment & EV Penetration Rate (%)

f = Fitch Solutions forecast. Source: National sources, Fitch Solutions

We note that the elevated power supply risks, the continued semiconductor shortage and the risk of a battery shortage will all pose a risk to EV sales globally, along with limited charging networks. This is because there could be a severe shortage of EVs to meet country-specific decarbonisation and internal combustion-engined (ICE) vehicle phase-out targets as EVs require more semiconductors and face a potential battery shortage over the medium to long term (2025-2031). Furthermore, if consumers are not able to charge their EVs reliably due to a limited supply of electricity, it will keep more consumers from adopting EVs. Indeed, recently China's power shortage resulted in 400,000 EV chargers (nearly 30% of China's public EV chargers) being deactivated and the US state of California also advised its citizens not to charge EVs due to the state's strained power grid. We expect this to be just as detrimental to EV demand as the insufficient EV charging networks.

Europe Leads For Planned ICE Bans
Global - Internal Combustion Engine (ICE) Vehicle Bans
Source: Fitch Solutions

Over the long term (2022-2031), we expect global EV sales growth to slow down as the market for EVs in larger, and wealthier economies such as the EU and China become increasingly saturated. We forecast global EV sales to average annual growth of 10.6% y-o-y over 2023-2031 to reach an annual sales volume of just over 24.6mn units in 2031, up from just under 10.5mn units forecasted for 2022. In terms of regional comparison, we expect the Asia region will remain the largest EV market over our 2022-2031 forecast period, while Europe will be the leader in EV adoption rates (passenger EV sales as % total passenger vehicle sales) over this period.

Asia To Maintain Global Dominance

Global - EV Sales By Region

f = forecast. Source: Fitch Solutions

Ramp Up Of Incentives To Boost Asia EV Adoption

We believe EV adoption in the Asia region will be imbalanced given the variable income levels and level of government support in the region. We expect countries with higher incomes, the provision of incentives and domestic EV production bases such as China, South Korea and Thailand to experience rising EV adoption levels. While countries with lower incomes, weak incentives and small public charging infrastructure networks such as India, the Philippines and Pakistan will experience lower adoption levels.

The demand for new EVs in the Asia region is anticipated to continue to expand in 2022, however, the worldwide semiconductor shortage, shipping delays, and the lagging battery production capacity globally will somewhat restrict EV sales. We anticipate some inflationary pressures in the costs of producing EVs as long as the prices of copper, aluminium, and lithium all remain high through 2022 which will limit the adoption of EVs especially in lower to middle-income markets where there is little to no financial support to purchase EVs. We, therefore, forecast EV sales in the Asian region to expand by 103.1% in 2022.

Western Europe To Drive Regional EV Adoption To Outperform

We believe that Europe will continue to strengthen its position as a global leader in EV adoption over the coming decade, on the back of conducive national and inter-governmental policies that lead to elevated demand for low-emission vehicles. We expect EV penetration rate (EV sales as % of total vehicle sales) in Europe to steadily grow from 13.1% in 2021 to 55.7% by 2031 (see chart below), comfortably above the EV adoption rates in Asia, North America and Latin America. In terms of EV sales volumes, Europe will be ahead of North America and Latin America, however, it will lag behind Asia. We forecast EV sales in Europe to grow from 2.3mn units in 2021 to 11.6mn units by 2031, whereas for Asia we expect EV sales to increase from 3.5mn to 13.5mn units, respectively (we forecast China to account for over 90.0% of total EV sales in Asia in the 2022-2031 period).

Europe To Remain As Global Leader In EV Adoption
Global – EV Penetration Rate (%) By Regions (2021-2031)
f = Fitch Solutions forecast. Source: National sources, Fitch Solutions

We believe that four factors will drive EV adoption growth in the European EV market over the next decade. These include the following:

  • Europe’s ambitious and stringent carbon emission targets.
  • The continuity of EV purchase incentives in most European countries in the form of grants, scrappage schemes and tax breaks for consumers.
  • The provision of direct financing for the installation of EV charging stations.
  • The facilitation of private sector investment into the broader regional EV supply chain by de-risking projects through supportive industry policies.

We also believe that these factors will enable most European countries to further enhance their EV charging infrastructures, reducing ‘range anxiety’ which is consistently stated as a barrier for consumers to switch to EVs and therefore boosting EV demand. Moreover, the aforementioned factors will continue to stimulate the development of a localized EV battery supply chain across Europe, allowing automakers to gradually decrease EV manufacturing costs, reduce supply chain risks and allowing automakers to ramp up output locally. This will put downward pressure on retail prices and enable EV prices to continue on their path to parity with traditional ICE vehicles, bolstering demand for low-emission vehicles. Furthermore, a well-developed EV supply chain will also support the overall competitiveness of the EV market and facilitate automakers to introduce new or upgraded EV models into the market with regularity. In terms of our short-term EV sales outlook for the region, we forecast European EV sales to reach 2.7mn units in 2022, representing growth of 19.4% y-o-y, following a strong 66.2% growth rate in 2021. For our 2022-2031 forecast period, we forecast nominal sales growth of 282.7%, with units sold reaching around 10.3mn units in 2031.

Strong Incentives Underpin Positive North America EV Sales Outlook

We expect that EV sales in North America will grow exponentially in 2022, with sales forecast to expand by 108.7%, representing 1.4mn vehicles. This means that EV sales will make up 8.8% of total vehicle sales in 2022, up from 4.1% in 2021. This increase in sales is a result of increased supportive policies, in both the US and Canada. The arrival of new models to the market, including the BMW iX and Ford Lightning pick-up, is also attracting new consumers to the segment. Furthermore, we believe that the US Inflation Reduction Act (IRA) poses a downside risk to EV sales in the short term, and an additional downside risk to EV adoption rates in the long term. This is because we expect that the income, price and domestic content requirements included in the tax incentives will reduce the number of EVs that qualify for the tax credits. We expect that this will also have a long-term impact on EV adoption, as a loss of EV incentives will disincentivise consumers from purchasing an EV, particularly low to middle-income consumers that could otherwise not afford the vehicle.

We believe that the battery components and critical metals requirements within the IRA will limit EV sales, particularly amongst low to middle-income consumers in the short term that relies on credits to purchase an EV. This is due to the stringent critical metal and battery component requirements, which we believe will result in zero EVs qualifying for the federal tax credit. We highlight two particular items that we believe will impact EV sales in the short term. The first is the requirement that 50.0% of the components in EV batteries must be manufactured or assembled in North America, which takes effect in 2023. The second is the critical metals policy that requires 40.0% of metals included in EV batteries to be extracted or processed in North America, or in a country where the US has a free trade agreement (FTA) with. We do not believe that battery component and critical metals production will reach a level sufficient for EV automakers in the US to meet these requirements in the short term which will restrict EV adoption.

Exponential Growth Of US EV Sales

North America - EV Sales Forecast By Market

e/f = Fitch Solutions estimate/forecast. Source: National sources, Fitch Solutions

LatAm EV Uptake Limited By Affordability Gap

We believe that EV adoption will remain nascent in the majority of LatAm markets in the short- to medium-term (2022-2026) as the affordability gap between EV and ICE vehicles remains too large to enable widespread EV adoption. EVs remain widely unaffordable to the majority of consumers in the region; data on average household incomes for the region (USD7,500) from the World Bank compared with the average price of an EV (USD35,000) showcases that the segment is only accessible to high-income earners in the region. We also continue to see EV sales growth in the public transport segment, particularly through the introduction of electric buses to local bus routes. We believe that the expansion of electrified public transport routes will remain the key driver of EV sales across the region until EVs become more affordable. We forecast that EV sales will increase by 37% in Latin America in 2022, reaching around 64,000 units. This means that EV sales will make up 1.3% of total vehicle sales in 2022, up from 0.8% in 2021. We do expect strong low base growth in the region over our 2022-2031 forecast period and that LatAm's EV market will exhibit the second highest average growth rate over our long-term forecast (2022-2031) at 19.2%.

In the LatAm region, we expect Brazil to drive EV adoption in volume terms in the region over our 2022-2031 forecast period due to its large driving age population and well-established automotive industry. We expect that Brazil will make up 78.0% of EV sales in 2022 with sales of around 49,500 units. This is followed by Ecuador (7.9%), Mexico (7.8%), Colombia (5.1%), and Chile (0.7%). We note that these five countries are the only markets that we provide EV forecasts for in the Latin America region.

Brazil And Costa Rica To Dominate LatAm And Central America Respectively
LatAm (LHS) And Central America (RHS) – Electric Vehicle Sales Market Share By Country, % (2022f)
Note: our breakdown for LatAm is based on Fitch Solutions forecasts, while Central America is based on estimations using data gathered from local sources. These breakdowns are based on total volumes for 2022 which are 64,000 and 4,000 units. Source: Local sources, Fitch Solutions

This report from Fitch Solutions Country Risk & Industry Research is a product of Fitch Solutions Group Ltd, UK Company registration number 08789939 ('FSG'). FSG is an affiliate of Fitch Ratings Inc. ('Fitch Ratings'). FSG is solely responsible for the content of this report, without any input from Fitch Ratings. Copyright © 2021 Fitch Solutions Group Limited. © Fitch Solutions Group Limited All rights reserved. 30 North Colonnade, London E14 5GN, UK.

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