This blog post is an excerpt from the Overview of the Advanced Energy Now 2023 Market Report, prepared for Advanced Energy United by Guidehouse Insights. This post is the third in a series of excerpts from the report.

Advanced Transportation became the largest advanced energy segment worldwide in 2022, following explosive 41.8% growth versus 2021. Nearly $650 billion in revenue was generated last year. Driving much of this growth is the recent surge in demand for Plug-in Electric Vehicles (PEVs). From 2011 through 2022, PEV sales have risen at an astounding 65.3% compound rate. Hybrid Electric Vehicles (HEV) also increased their volume over the last two years, reflecting an overall transition for internal-combustion engine (ICE) vehicles to adopt some degree of electrification to comply with increasingly stringent efficiency-related regulations. 

Because electric vehicle batteries are directly correlated with PEV sales, this market also saw large increases in 2021 and 2022. Global supply chain challenges were seen here as well, with the average battery pack price falling from $140/kWh to $132/kWh in 2021 but recovering to $135/kWh in 2022, following large increases in raw material commodity prices. 

The surge in PEV sales was in part a result of coming regulations centered around minimum sales percentages or outright sales bans of ICE vehicles. Twenty countries have pledged to phase out internal combustion, most of them by 2040 or earlier. California and 15 other states in the U.S. also plan to require all new car sales to be Battery Electric Vehicles (BEV) or Plug-in Hybrid Electric Vehicles (PHEV) by 2035. This has led nearly every automaker to announce that their product lineup will be substantially or completely electrified in the future.  

The market dynamics over the past two years reflect the increased model availability and production spawned by this coming transition. Some of the PEV/HEV sales increases can also be attributed to changes in consumer sentiment. In the wake of the conflict in Ukraine as well as more frequent climate-related natural disasters, rising fuel prices in 2022 made electrification a higher priority among new vehicle purchasers.  

Specific to the U.S., PEV sales more than doubled in 2021. 2022 saw a further 50% increase and, notably, PEVs accounted for more than 5% of the total light-duty vehicle (LDV) market share. In other countries, this has proven to be a critical threshold to wider PEV adoption. 

The Inflation Reduction Act (IRA) is expected to provide an additional tailwind to PEV sales, as it provides new clean vehicle credits of up to $7,500 and eliminates the sales cap that was previously in place—although domestic content requirements have reduced the number of eligible vehicles in the near term. Longer term, the IRA is forecast to promote increased domestic manufacturing and PEV adoption. There is also a provision for a $35 credit per kilowatt-hour for battery cell manufacturing along with other battery and mineral production credits. This is expected to expedite the development of a domestic manufacturing supply chain in the U.S. 

Related trends include: 

• Acceleration of Growth in Battery Electric Heavy Commercial Vehicles - Medium and Heavy-Duty Vehicles (MHDs) are rapidly moving away from conventional, diesel-fueled ICEs, although it will likely take years for this transition to be complete. Nevertheless, in the long run, we expect BEVs will be the dominant option for MHD vehicles.

• Prioritization of E-Bikes for Cities - Sales and ridership of e-bikes have demonstrated strong growth over the last decade, driven by their practicality, enjoyability, ease of use, and improving product offerings. E-bikes are most advantageous in cities where they travel substantially faster through congested areas than larger road vehicles due to their ability to filter through traffic and their ease of parking. The rise in e-bike usage has also been supported by effective government policies and regulations. Purchasing incentives for e-bikes have stimulated growth, as has the proliferation of cycle lanes installed in cities around the globe. Furthermore, the increase in cities implementing vehicle access restrictions has helped encourage the transition to electric two-wheeled vehicles (E2WVs). 
  
  
• Increased Smart Parking Helps Cities Manage Traffic Congestion and Air Quality - In many cities parking is the second largest source of revenue behind property taxes. Emerging applications of smart parking include the use of camera-based systems to enable vehicle identification and to determine real-time parking availability, and the development of automated valet parking (AVP) systems to enable vehicles to park themselves within parking structures. The global market for smart parking systems was estimated to be $112 million in 2021, rising to $150 million in 2022 as the market rebounded from the effects of the COVID-19 pandemic. As smart parking technology advances, the market is expected to grow. However, this growth will be dependent on each region’s technological and financial readiness to implement.