As EV sales continue to increase in today’s major markets in China, Europe and the United States, as well as expanding across more countries, demand for EV batteries is also set to grow quickly. In the STEPS, EV battery demand grows four-and-a-half times by 2030, and almost seven times by 2035 compared to 2023. In the APS and the NZE Scenario, demand is significantly higher, multiplied by five and seven times in 2030 and nine and twelve times in 2035, respectively. To put this in context, in the APS in 2035, there could be as much EV battery demand per week as there was in the entire year of 2019.

Cars remain the primary driver of EV battery demand, accounting for about 75% in the APS in 2035, albeit down from 90% in 2023, as battery demand from other EVs grows very quickly. In the STEPS, battery demand for EVs other than cars jumps eightfold by 2030 and fifteen-fold by 2035. In the APS, these numbers reach tenfold by 2030 and more than twenty-fold by 2035. Battery requirements differ across modes, with a 2/3W requiring a battery about 20 times smaller than a BEV, while buses and trucks require batteries that are between 2 and 5 times bigger than for a BEV. This also affects trends in different regions, given that 2/3Ws are significantly more important in emerging economies than in developed economies.

As EVs increasingly reach new markets, battery demand outside of today’s major markets is set to increase. In the STEPS, China, Europe and the United States account for just under 85% of the market in 2030 and just over 80% in 2035, down from 90% today. In the APS, nearly 25% of battery demand is outside today’s major markets in 2030, particularly as a result of greater demand in India, Southeast Asia, South America, Mexico and Japan. In the APS in 2035, this share increases to 30%.

Stationary storage will also increase battery demand, accounting for about 400 GWh in STEPS and 500 GWh in APS in 2030, which is about 12% of EV battery demand in the same year in both the STEPS and the APS.

Battery production has been ramping up quickly in the past few years to keep pace with increasing demand. In 2023, battery manufacturing reached 2.5 TWh, adding 780 GWh of capacity relative to 2022. The capacity added in 2023 was over 25% higher than in 2022.

Looking forward, investors and carmakers have been fleshing out ambitious plans for manufacturing expansion, confident that demand for EV and stationary batteries will continue to grow as a result of increasing electrification and power grid decarbonisation. Global battery manufacturing capacity by 2030, if announcements are completed in full and on time, could exceed 9 TWh by 2030, of which about 70% is already operational or otherwise committed. When assuming a maximum utilisation rate of 85%, this translates to the potential for almost 8 TWh of batteries to be produced in 2030, of which over 5.5 TWh is from plants already operational today and those with committed announcements. This level of production would be sufficient to meet global deployment needs in the APS and over 90% of the deployment needs in the NZE Scenario by 2030.

Most of the announced manufacturing capacity remains concentrated geographically in today’s major EV markets. Of course, as EVs and stationary storage reach global markets and battery demand diversifies, new opportunities will be created around the world to produce batteries near demand centres. However, today’s front-runners, which have thus far dominated the supply of batteries to EV makers in China, the European Union and the United States, are still expected to play a critical role in the coming decade.

In China, the total committed battery manufacturing capacity is over two times greater than domestic demand in the APS by 2030, opening opportunities for export of both batteries and EVs with batteries made in China, but also increasing financial risks and reducing margins of battery producers. Notably, in both the United States and European Union, battery manufacturing capacity that is already operational or otherwise committed is almost or already sufficient to meet projected battery demand in the APS by 2030. Companies operating in these regions will, however, need to scale up production rapidly and demonstrate that they are cost-competitive in order to satisfy all or a large share of their domestic demand.

About 70% of the 2030 projected battery manufacturing capacity worldwide is already operational or committed, that is, projects have reached a final investment decision and are starting or begun construction, though announcements vary across regions. This encouraging signal from the battery industry indicates that it is ready to produce the batteries needed to achieve road transport electrification and stationary storage targets in full. Over 40% of announced manufacturing capacity in China relies on the expansion of current plants, indicating the strengthening of industrial actors that are already part of the Chinese market. Elsewhere, 80% of announced US and EU manufacturing capacity is expected to come from new plants, with a significant number of new actors entering those markets in the coming years.

The announced manufacturing capacity outside of China, the European Union and the United States, of which 85% is already committed, together with today’s capacity, can meet almost half of APS needs in 2030 in these other regions. Almost all the committed manufacturing capacity is divided among other European countries and Canada (about 35% each), India (12%), other Southeast Asian countries (8%), particularly Viet Nam, Malaysia and Singapore, and Japan and Korea (5%). Korea and Japan, however, also account for over 80% of today’s capacity in these regions.

There is significant space for growth in South American countries, which today have no significant announced battery manufacturing capacity by 2030, and in countries with manufacturing capacity that falls short of their pledges, such as India, whose announced capacity would cover only a quarter of its demand in the APS. These gaps have important implications for future battery trade and could increase the risk of these regions failing to meet long-term decarbonisation targets without relying significantly on imports.

As the EV stock ages, effective end-of-life strategies that encompass recycling and reuse must be put in place to make supply chains circular and to help mitigate critical mineral demand. The battery recycling sector, still nascent in 2023, will be core to the future of EV supply chains, and to maximising the environmental benefits of batteries.

Global recycling capacity reached over 300 GWh/year in 2023, of which more than 80% was located in China, far ahead of Europe and the United States with under 2% each. Confident in the transition to electromobility, many technology developers and industry actors are seeking to position themselves in the future market for EV end-of-life management and have announced considerable capacity expansions. If all announced projects are developed in full and on time, global recycling capacity could exceed 1 500 GWh in 2030, of which 70% is in China, and about 10% each in Europe and the United States.

The main sources of supply for battery recycling plants in 2030 will be EV battery production scrap, accounting for half of supply, and retired EV batteries, accounting for about 20%. Of course, scrap materials remain in an almost pristine state, and therefore are much easier and cheaper to recycle and feed back into the manufacturing plant. While the supply of both battery scrap and retired EVs will increase, current expansion plans and outlooks suggest that battery recycling capacity could be in significant overcapacity in 2030: total supply in 2030 could account for only one-third of the announced recycling capacity in the STEPS and APS. In the short term, overcapacity could also have important financial implications for the business models of recycling companies unable to secure stable sources of end-of-life batteries, resulting in significant consolidation of the market. However, the outlook could still change depending on whether announcements translate into final investment decisions (FIDs), and it is important to note that a rapid growth in retired EV batteries is expected starting from the second half of the 2030s. In Europe and the United States, in particular, EV markets are large, but battery recycling businesses are only just emerging and in need of further investment.

Policy also has an important role to play, such as for traceability, quality, safety, and sustainability of recycling practices. In China, for example, a new regulation announced in December 2023 will assign responsibility for EV battery traceability and recycling to EV manufacturers and to battery manufacturers for battery-as-a-service applications, with the view to bring the suppliers and consumers of end-of-life EV batteries closer together. This policy move comes as supply for recyclers in China grows rapidly, and as the number of small, unofficial and unregulated recycling companies increases accordingly. This has raised concerns that they are operating without extensive battery technology expertise, environmental and safety standards, nor reliable traceability systems.

Strong regulation for battery recycling already exists in some regions outside of China, especially in Europe. However, these regulations could still be made more comprehensive to solve existing challenges, notably the transport of end-of-life batteries and black mass,1 and to improve tracking systems and safety and environmental standards. This is even more important given that the future geographical distribution of retired batteries is uncertain, and might differ from their first purchase location as a result of the EV second-hand market or other second-life applications.

The evolution of battery chemistries and technology innovation will also have an impact on the recycling landscape of 2030. Of the two principal battery chemistries of today, nickel manganese cobalt oxide (NMC) and lithium iron phosphate (LFP), the former is particularly well suited for recycling because it contains greater quantities of valuable metals. In contrast, LFP batteries have a lower residual value after recycling, which could put pressure on recycling business models. Nonetheless, regulations can fill this gap by either incentivising or mandating the recycling of end-of-life batteries regardless of their residual value. This is already the case for lead-acid batteries used in ICEVs, which have significantly lower residual values compared to any type of lithium-ion battery but whose recycling rate can be up to almost 100% thanks to regulation.

The lower residual value of LFP makes recycling uneconomical in Europe and the United States today, but LFP recycling is already economical in China, even though this is strongly affected by the market price for lithium. In this regard, the Chinese recycling industry is preparing to build sufficient LFP recycling capacity to meet future demand. If all announced plants are built in full and on time, capacity suited to recycle LFP is expected to be two times greater than potential supply by 2030.

Charging an increasing number of EVs globally will require more electricity, and the share of EVs in total electricity consumption is expected to increase significantly as a result. In 2023, the global EV fleet consumed about 130 TWh of electricity – roughly the same as Norway’s total electricity demand in the same year. Zooming out to the global scale, EVs accounted for about 0.5% of the world’s total final electricity consumption in 2023, and around 1% in China and Europe. The contribution of different EV segments to electricity demand varies by region. For example, in 2023 in China, electric 2/3Ws and buses combined accounted for almost 30% of EV electricity demand, while in the United States, electric cars represented over 95% of EV electricity demand. 

Looking forward to 2035, EV electricity demand could reach nearly 2 200 TWh in the STEPS. In the APS, demand could be higher, standing at about 2 700 TWh in 2035, or over 20% more than in the STEPS, although the stock of EVs would be only around 15% higher. Several factors contribute to the disproportionate increase in EV electricity demand between the STEPS and APS. In the APS, rates of electrification are higher in markets where the average vehicle mileage is high, such as the United States. The APS also sees greater electrification for trucks and buses, which contribute incrementally to vehicle stock while pushing up electricity consumption and mileage, resulting in greater electricity demand per vehicle. In countries with net zero pledges, the APS assumes that a greater share of the distance covered by PHEVs will be driven in full electric mode, thereby requiring more electricity and less gasoline or diesel. This is particularly relevant for cars and vans, which account for more than two-thirds of demand in both the STEPS and the APS.

By 2035, EV electricity demand accounts for less than 10% of global final electricity consumption in both the STEPS and APS. As shown in the World Energy Outlook 2023, the share of electricity for EVs in 2035 remains small in comparison to demand for industrial applications, appliances, or heating and cooling. Further, the electrification of road transport results in overall reductions in energy consumption, given that electric powertrains are more efficient than internal combustion engines. Total road energy demand in the APS decreases by 10% in 2035 compared to 2023, despite road activity (vehicle kilometres travelled) increasing 20%.

China remains the largest consumer of electricity for EVs in the STEPS, despite its share of global EV electricity demand decreasing significantly from about 45% in 2023 to less than 30% in 2035. In the APS, this share falls further, to just over 20% in 2035, as a result of strong EV growth in Europe, the United States and other countries. In 2035, the United States ranks first, ahead of China and Europe in terms of EV electricity demand in the APS.

The size of the EV fleet becomes an important factor for power systems in both the STEPS and APS, with implications for peak power demand, transmission, and distribution capacity. As the fleet grows, careful planning of electricity infrastructure, peak load management and smart charging should be priorities for near-term decision-making. Effective management of fast charging, in particular, will be needed to allow for optimal planning and resilience of power systems and to mitigate peak power demand. In both the STEPS and APS, over 80% of the electricity demand for electric LDVs in 2035 is met with slow chargers.

To support policy-making and help countries prioritise charging strategies according to the size of their EV fleet and power system configuration, the IEA has developed a guiding framework and online tool for EV grid integration.

Growing EV stocks reduce the need for oil. Globally, the projected EV fleet displaces 6 million barrels per day (mb/d) of diesel and gasoline in 2030, a sixfold increase on displacement in 2023. By 2035, even less oil is needed for road transport, with displacement reaching 11 mb/d in the STEPS and 12 mb/d in the APS. In fact, we expect global demand for oil-based road transport fuels to peak around 2025.

Displacement is largely attributed to electric LDVs, followed by trucks, buses and 2/3Ws.2 In particular, it will be important to closely track the uptake of electric 2/3Ws and their role in oil displacement: electric 2/3Ws may displace active modes of travel such as walking or cycling, rather than just fossil-powered transport, which is the assumption underpinning the STEPS and APS. This highlights that while EVs are an important component of transport decarbonisation, they are far from being the only one.

Fossil fuel excise taxes can represent a major source of income for governments, and they are often used to fund road infrastructure. The shift to EVs may significantly reduce revenues under current schemes, as additional revenue from electricity taxes tends to be insufficient to cover the loss. Indeed, the rates of taxation per kilometre driven by EVs are lower than for their fossil fuel equivalents.

In 2023, EVs displaced almost USD 12 billion in gasoline and diesel tax revenues globally. Meanwhile, the use of EVs generated close to USD 2 billion in electricity tax revenue, resulting in a net loss of USD 10 billion. As the stock of EVs (including 2/3Ws) is projected to grow globally to 460 million by 2030 in the STEPS and nearly 500 million in the APS, net tax revenue losses are set to increase by more than 5 times in the STEPS and APS. By 2035, net tax loss reaches USD 105 billion in the STEPS and USD 110 billion in the APS, doubling from 2030 levels as road transport electrification accelerates.

Although China leads global EV stock uptake, 60% of current revenue losses are in Europe, because the taxes for gasoline and diesel are far greater. For example, the gasoline tax rate in France, Germany, and Italy is more than six times that in China. In Europe, fuel tax revenue drops by nearly USD 70 billion by 2035 in the STEPS. In China, tax revenue losses reach USD 17 billion, and they remain under USD 300 million in the United States due to low federal taxation of gasoline and diesel (though greater impacts could be seen at the state level).

However, for oil-importing countries, lost tax revenues could be balanced by reduced fuel import costs. For example, a 2020 study estimated that a total shift from ICE to electric 2Ws in Rwanda could reduce government revenue from fuel taxes by RWF 6.1 billion (Rwandan francs), but would save around RWF 23 billion (around USD 25 million) on fuel imports.

Longer-term measures to stabilise tax revenues will be needed in the transition to electromobility. Policy strategies could involve more wide-ranging tax reforms, such as coupling high taxes on carbon-intensive fuels with distance-based charges. For example, Israel recently approved a new usage tax on kilometres travelled, which will apply to EVs as a way to compensate for lost revenues from excise duty on gasoline and diesel. Road tolls could charge users of road infrastructure. When used in city areas, tolls could also reduce traffic congestion, noise pollution and road infrastructure damage, while encouraging the uptake of alternative modes such as public transport, walking and cycling. 

Further, the EV transition can also bring monetary benefits due to health improvements associated with reductions in air pollution, for example by reducing health expenditures, preventing premature deaths and avoiding workdays lost due to illness. A study of the benefits of electric cars in Shanghai estimated that benefits exceed USD 6 000 per EV when replacing an average Chinese ICEV. About 40% of this monetary benefit is attributed to health benefits, and the remainder to climate benefits.