IEA: What’s Next for EVs, Sustainability & The Car Industry?

The International Energy Agency (IEA) report, What Next for the Global Car Industry, shows that the global car industry is undergoing “profound changes”.

With EV sales expected to rise continuously, the geography of global car sales is expected to shift.

In 2024 global car sales neared 80 million, with growth being driven by the sales of hybrid and electric cars by around 30%.

China wins the race 

IEA reports that global sales of pure internal combustion engines (ICE) cars have fallen by 30% since reaching an all time high in 2017.

The car market geography is also evolving.

China and other emerging economies now account for more than half of global car sales, an increase of 20% since 2000.

While increasing sales, China is also increasing its car manufacturing.

The country more than doubled its car production between 2010 and 2024 and now accounts for 40% of global car manufacturing, compared to Europe and North America’s contribution of 15% each.

In 2024, China overtook the European Union to become the world’s largest car exporter in 2024.

The IEA estimates that roughly 70% of EVs sold are produced in China. 

“The global car industry is a cornerstone of many national economies, directly employing more than 10 million people worldwide and supporting millions of additional jobs,” says Fatih Birol, Executive Director, IEA.

“The market for cars is one of the largest for a single product and cars are the single largest source of global oil demand today.”

Changes in the industry

The structural shifts highlighted by the IEA are already reshaping how and where value is created across the global car industry, reinforcing the absence of a single model for success. 

Automotive manufacturing continues to operate in regional clusters, driven by scale and proximity, with the sector accounting for around 6% of global steel demand and 17% of aluminium demand and even higher shares in major automotive economies. 

These clusters increasingly reflect divergent technology choices and market priorities, from the limited battery manufacturing footprints in Detroit and Nagoya to Shanghai’s 26 battery plants representing more than 5% of global capacity. 

This divergence is mirrored across the US$1.3tn automotive supplier market, where legacy internal combustion engine components remain dominated by Europe, Japan, Korea and North America, while Chinese firms control around 80% of battery-related manufacturing capacity as EV components continue to rapidly scale. 

The report finds that producing cars in China is cheaper than in advanced economies, especially for EVs, largely due to large-scale manufacturing and deep vertical integration.

Lower costs for components account for nearly 40% of the manufacturing cost gap for EVs, driven primarily by battery economics, with average battery cell prices more than 30% lower than in Europe and more than 20% lower than in the US.

“The global car industry is currently undergoing major changes that have significant implications for economies around the world and for the energy sector,” says Fatih.

“Three structural shifts are underway, in terms of the geography of production, in terms of the regions that are driving sales growth and in terms of the technologies that car buyers are choosing. 

“Against this backdrop, this new IEA report provides a strong basis to inform discussions and decision-making by governments and industry, noting that there is no one-size-fits-all model.”

Batteries have emerged as the key differentiator in regional manufacturing costs and domestic value creation, with regions such as the European Union importing a far higher share of battery components than engines, while China and Japan retain integrated supply chains across both technologies. 

As governments and industry navigate these shifts, policy decisions must balance short-term competitiveness with longer-term resilience, recognising that while vehicle design and assembly retain significant value locally, battery manufacturing carries strategic importance well beyond the car industry.

Strategic priorities for manufacturing

Accelerating the transition to EVs requires policies that align industrial growth with long-term environmental and social value. 

"There are no easy responses for incumbent manufacturers to the challenges posed by the major shifts in global car markets," says the report.

"Many are currently working to balance their portfolios in a way that leverages their strengths in producing ICE and hybrid cars, while also improving competitiveness in EVs."

Creating dependable, mass-market demand through measures such as EV sales targets can help countries with large internal combustion engine manufacturing bases achieve economies of scale, encourage learning-by-doing and unlock investment as production shifts. 

Scaling domestic battery manufacturing is equally critical, with partnerships to share early-stage risk, targeted skills development and the creation of local ecosystems to support equipment supply and maintenance strengthening resilience through the start-up phase. 

Sustainability outcomes can be further improved by prioritising the most cost-competitive battery chemistries near vehicle assembly centres, while sustaining research and development to remain at the technological frontier. 

Securing diversified and responsible supply chains for critical minerals is deemed essential to avoid near-term shortages and reduce long-term risk, supported by international co-operation, increased recycling and regulatory frameworks that encourage local supply. 

Finally, minimising energy costs where they matter most, particularly in energy-intensive stages such as materials processing and battery component manufacturing, can be achieved through effective electricity market design and power purchase agreements that lower emissions while improving cost stability.