NextGen batteries could be transformational

High fuel prices are good news for electric vehicle (EV) sales, a theme we’ve been monitoring closely since the start of the Iran war. France, UK, Sweden, Australia, Norway and China are among those reporting record EV penetration in September, while sales in Southeast Asia and Latin America are also surging. 

But the global picture of switching from internal combustion engine (ICE) vehicles to electric is far from uniform. I asked Milan Thakore, Principal Analyst in our Electric Vehicle and Battery Supply Chain team, how he sees things playing out. 

Where have EV sales surged?

The global trend is up, with global EV (including battery electric and plug-in hybrid vehicle) sales increasing 14% year-on-year to end August. EVs now represent nearly one in three new car sales globally. However, at a regional level, the picture is patchy. In Europe and most emerging markets, Chinese EVs have set the benchmark in terms of affordability, and this is reflected in strong sales numbers in those markets. 

The US has still not recovered from the withdrawal of supportive policy and EV penetration is down. Even ‘difficult-to-electrify’ markets like India are now overtaking the US in percentage terms. The surprise is China’s own domestic sales. Despite EV penetration approaching 70%, EV sales are down by nearly 1 million units from last year’s peak of 9 million. 

What’s holding EVs back in China?

The entire vehicle market in China is tanking, with light vehicle sales across all power trains falling by 3.6 million units year-on-year. ICE vehicles account for the biggest share of the drop – more than double the hit to EVs – with the main factors high fuel costs, a shrinking pool of legacy replacement buyers and a weaker macroeconomic outlook. This twist has unexpectedly lifted EVs’ penetration rate almost to the country’s 2030 EV target four years ahead of time. High fuel costs are also changing consumer behaviour – owners with two vehicles are unsurprisingly favouring their EV and leaving the ICE car at home. 

Will Chinese EVs manufacturers ramp up exports?

Big time, as they look to offset slowing growth domestically. More Chinese brands are coming to the market, with ever-improving vehicle designs and performance. Critically, they are priced very competitively to entice customers to often unheard-of brands. One such brand is Leapmotor, which has partnered with Stellantis, the world’s fifth-largest automaker. 

Leapmotor’s B05 model sells at around €30,000 for which the buyer gets up to a 300-mile range and a wide array of features as standard, including ventilated seats, panoramic sunroof and the whole suite of safety features. A comparable German ICE model could cost up to €5,000 more once you’ve added on all the ‘extras’. 

Could ‘NextGen’ batteries be transformational?

Yes. The latest LFP (lithium iron phosphate) batteries will hit international markets at the end of 2026. The largest battery makers, CATL and BYD, are amongst those pushing the technology, and others will follow. These will dramatically speed up charging from up to 30 minutes today to below 10 minutes. Charging infrastructure will have to move from kilowatts to the megawatt-level to achieve ‘flash’ charging. BYD doesn’t see this as a challenge. 

Is Europe about to be swamped by Chinese exports?

Europe has the highest EV penetration outside China, with sales pushing towards 40%. Sustained subsidy support, abundant model availability, and high retail gasoline and diesel prices drove record September sales in most European countries. 

Policymakers need to balance climate goals with defending European manufacturing and employment by supporting a local EV and battery manufacturing value chain. Chinese automative companies are already building manufacturing capacity and battery supply chains in Europe so European-made Chinese EVs will eventually replace imports. European OEMs are also investing heavily but will need to keep advancing to protect market share.   

Where else are EVs flourishing?

Sales in South America and Southeast Asia have all but doubled, driven primarily by a flood of imports from China. As in Europe, these regions want to keep manufacturing local, and Chinese automakers are already building out that capacity. East Asian BEV growth has also doubled as South Korean manufacturer Hyundai-Kia attempts to offset the drop off in US EV demand with sales into its home market. 

Are we at an inflection point for EVs? There’s a good chance we are for two reasons. First, the evolving attractiveness of EVs as a product, particularly the quality of vehicles on offer, longer battery range and speed of charging all of which will continue to improve into the future. Secondly, the soaring cost of gasoline and diesel fuel in 2026 has shifted running costs massively in favour of EVs in all markets. 

Our sense is that the Iran war will be seen as an inflection point, accelerating a trend already well underway, with EVs eating into ICE vehicles’ market share in many markets. The duration of both the conflict and high pump prices will determine how soon it unfolds – and how much road fuel demand is eroded.  

It’s possible that Wood Mackenzie’s base case assumption that global passenger EV penetration hits 50% by 2035 arrives a few years earlier. 

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