The electric vehicle (EV) market is on track for a watershed year in 2024 as emissions reduction targets clash with falling consumer spending amid enduring economic uncertainty, Rystad Energy said Wednesday.

Rystad Energy research said in a statement that it forecasts 17.5 million EV sales this year, an 18.5 percent annual increase.

As a result, the share of new car sales that are either battery electric (BEV) or plug-in hybrid electric vehicles (PHEV) will increase from 19.2 percent in 2023 to around 21.8 percent at the end of 2024.

According to Rystad Energy, China will play a significant role in the market’s continued expansion thanks to sizeable growth in its domestic production.

It expects about 11.5 million new EVs will be sold in the country this year, a 44 percent share of all new car sales.

China is dominant in the global EV sector, accounting for 69 percent of all new EV sales in December, and continued growth is on the cards.

Last year, the country saw a 37 percent annual growth in sales, with approximately 9 million new EVs sold and a market share of 34 percent.

It is noted that the country has also advanced its EV penetration targets, aiming for a 45 percent market share by 2027, an increase from the originally planned 40 percent by 2030.

Rystad Energy opined that with local players continuing consolidation, this strategic move opens a critical window for non-Chinese automakers struggling to gain a foothold in its booming EV market.

Closing 2023 with 26.5 million passenger cars sold, China saw a 10.8 percent increase from 2022.

December marked another milestone, with EVs achieving a record-breaking month of sales at 1.13 million units—a 16 percent surge from November and a 50 percent annual increase.

BEVs accounted for 27.6 percent of car sales for the month and 40 percent of all sales.

Outside of China, the EV landscape looks notably different. In Europe, market penetration is expected to grow, albeit slower than observed in prior years, at 3.3 million units this year.

The US EV market suffered a lackluster 2023, with uncertainty surrounding tax credits and interest rates complicating consumer decisions to switch to an electric vehicle.

“Riding last year’s momentum, Chinese automakers are aggressively expanding into emerging markets, overshadowing established players,” said Abhishek Murali, Senior Energy Systems Analyst of Rystad Energy.

According to him, this eastward shift is particularly evident in Europe, where a stagnant EV market finds hope in the arrival of budget-friendly Chinese brands.

However, he noted this influx also presented challenges: local automakers face mounting pressure to adapt, struggling with plant conversions and production delays.

He also said China’s pivotal role in this dynamic becomes even more pronounced as a global supply chain leader.

“Meanwhile, in the West, the US presents a complex landscape. The Inflation Reduction Act’s subsidies offer a potential boon, but strict rules on foreign entities ultimately dampen automotive spending, particularly in the EV segment,” he added.

According to Rystad Energy, the number of passenger cars, or light vehicles, sold in 2023 increased by 10 percent from 2022.

It said that growing economies and typically slower markets, such as Australia, India and Malaysia, drove this unexpected surge.

It also said this overall growth fueled an uptick in EV deliveries in 2023, with about 14.3 million EV sales globally, a 35 percent increase compared to 2022.

It also noted the recent sales figures for BEVs versus PHEVs are an interesting look at the market dynamics – BEV sales are growing consistently, but PHEVs remain resilient.

It said this is especially evident in the US in the second of 2023, where consumer preference has shifted to PHEVs.

It said that the rise in the sales of these battery-hybrid cars could underscore their role as a transitionary technology in phasing out internal combustion engine (ICE) vehicles to meet decarbonization targets.

However, it said the future of the market depends heavily on the same factors impacting the BEV market: technological advancements, infrastructure support and range considerations.

Looking specifically at activity in a manufacturing setting, it said Tesla celebrated a notable fourth quarter, achieving a record 484,500 EV deliveries, marking a solid recovery from a third-quarter slowdown.

The growth was primarily driven by robust performances across all models, though an increase in Model 3 and Y sales has come on the back of price cuts for both models.

The Model S, Model X and Cybertruck deliveries also grew by nearly 50 percent year-on-year.

However, Tesla Chief Executive Officer Elon Musk has voiced concerns about sustaining this growth into 2024.

Musk also emphasized the company’s focus on constructing a factory in Mexico but acknowledged potential delays as the company prioritizes refining the Model 2 development in Austin, Texas, before expanding production south of the border.

BYD, a major Chinese manufacturer, emerged as the largest EV automaker in 2023, surpassing Tesla in BEV deliveries, particularly during the fourth quarter.

The brand sold more than 942,000 EVs in the final quarter of 2023 and a total of 3 million EVs annually.

While BYD fell short of its initial 4-million target, its performance remained within the forecast range of 2.75 million sales.

To meet sales targets, BYD incentivized dealers with up to $93 per car sold, amounting to a significant expenditure of 1.5 billion yuan ($211 million).

Looking ahead, BYD seems set to maintain its growth trajectory and is optimistic about reaching the 4-million target set for the upcoming year.

Battery electric vehicles is clear winner when trying to reduce emissions, says Rystad Energy