As the geography of the global auto industry undergoes major shifts and electric car sales rise, a new IEA report explores the potential implications for incumbent car makers and their home countries, including opportunities for enhancing competitiveness in a fast-changing landscape.
The report - What Next for the Global Car Industry? - includes first-of-its-kind analysis on the sector based on a review of market and cost data, as well as consultations with industry players. It finds that while global car sales approached 80 million in 2024 - having largely bounced back from their pandemic-induced slump - the recent growth has been exclusively driven by sales of electric and hybrid cars, which made up around 45% of total sales in 2024. Notably, new market entrants are capturing an increasingly large share of electric car sales. Meanwhile, global sales of pure internal combustion engine (ICE) cars have fallen by 30% since reaching a high in 2017.
At the same time, the geography of car markets is changing. China and other emerging economies now account for over half of global car sales, up from just 20% in 2000. Additionally, after more than doubling its car production between 2010 and 2024, China now accounts for 40% of global car manufacturing capacity, while Europe and North America each account for 15%. China overtook the European Union to become the world's largest car exporter in 2024, and around 70% of electric cars sold worldwide today 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. 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," said IEA Executive Director Fatih Birol. "The global car industry is currently undergoing major changes that have significant implications for economies around the world and for the energy sector. 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."
These dynamics create both challenges and opportunities for incumbent automakers and the countries where they are based. The report's analysis considers key steps they could take to bolster their competitiveness in the medium and long term. It recognises that some car makers might prefer to pursue strategies encompassing a wider range of technologies. Even as ICE car sales are on a downward trend in China and advanced economies in aggregate, they are likely to rise in some regions, meaning car makers must navigate multiple trends at once.
The report finds that producing cars in China is cheaper than in advanced economies, especially for electric cars. This is primarily due to factors such as large-scale manufacturing operations and vertical integration. Energy prices and labour costs also contribute, but to a lesser degree. Lower costs for powertrain components - those that are used to power the car - explain nearly 40% of the manufacturing cost difference for producing electric cars in China compared with in advanced economies. Much of this is linked to battery costs: average battery cell prices in China are over 30% lower than in Europe and over 20% lower than in the United States.
However, the gap in battery production costs can be bridged with sufficient time and investments, according to the report. While access to low-cost components and critical minerals account for 30% of the cost difference, another 50% is due to manufacturing efficiency and automation. Comparable rates of battery production efficiency can be reached outside China if factories ramp up production and gain experience.
