Energy Outlook 2025: Electric Vehicles (EVs)

The electric vehicle (EV) market is on the cusp of a transformative era, driven by ambitious government targets and innovative advancements. Despite current challenges, such as stringent quotas and emissions targets set by the UK's ZEV Mandate and the EU's fleet-wide emissions regulations, the future looks promising.

High prices and range anxiety are being addressed through continuous improvements in battery technology and the expansion of reliable charging infrastructure. Additionally, the growing opportunities in emissions trading and the implementation of stricter sustainability standards are paving the way for a more resilient and eco-friendly automotive industry.

EV market slowdown amidst growing government targets

EV adoption has faced headwinds, with many car manufacturers finding the new quotas imposed by the ZEV Mandate in the UK and the EU fleet-wide emissions targets a challenge to meet.

High prices and range anxiety remain common themes featured in the media, compounded also by the perception that charging infrastructure is not sufficiently reliable or available. This has been exacerbated by a number of other factors including higher energy prices raising the cost of charging on public networks and governments across Europe reducing direct incentives to support drivers looking to make the transition to electric mobility.

It is expected that consumer interest will pick up when the price of new battery electric vehicles reaches parity with petrol and diesel cars. The continued evolution of battery technology is hoped to make a significant impact on production costs. Battery packs currently account for 30-35% of the production cost of an EV, which is expected to reduce to 19% by 2030.

Roll out of EV charging infrastructure set to continue at pace

To support the adoption of electric vehicles, charging networks have been rolled out at ever increasing rates year on year, now with fast and super-fast hubs catering for the demands of users of public networks. In the UK, local authorities are beginning to receive funding under the LEVI scheme to improve the availability of charging for EV drivers who don’t have access to off‑street parking.

Supporting legislation has been passed to give drivers confidence and to help ensure that the integration of EV charging infrastructure is safe, convenient, and fair. These focus on improving the charging experience, reliability, pricing transparency and data security. Charge Point Operators (CPOs) are facing increasing obligations to demonstrate compliance. This is exemplified by the UK’s Public Charge Point Regulations 2023, which require CPOs to show 99% average reliability across their charge points from 24 November 2024. This focus on improving the charging experience is hoped to drive positive EV adoption figures.

Increasing inter-vehicle manufacturer emissions trading opportunities

Inter-vehicle manufacturer emissions trading is expected to become increasingly important for meeting thresholds and avoiding fines. This presents a lucrative opportunity for EV manufacturers solely focused on electric vehicle production, as European car manufacturers retool and upskill their workforce for the transition to electric mobility. European vehicle manufacturers can partner with others to consolidate fleets for emissions compliance and avoid CO2 fines from the European Commission. If you’d like to know further details on EU emissions trading, please read our article here. 

The UK ZEV Mandate includes a credit system allowing manufacturers to bank unused allowances for up to three years, borrow allowances (75% of the ZEV target in 2024, 50% in 2025, and 25% in 2026), and trade excess ZEV allowances with other manufacturers.

The UK Emissions Trading Scheme has seen total allowances fall from 81 million in 2022 to 69 million in 2024. EV manufacturers and other industries which use significant amounts of energy are expected to continue seeking 'green energy buying' opportunities, with options like Energy-as-a-Service (EaaS) helping bridge the gap to net zero goals.

Stricter sustainability and safety standards for EVs and batteries creating supply chain challenges and opportunities

Stricter sustainability and safety standards for electric vehicles and batteries are reshaping the automotive industry's supply chain landscape. The EU Battery Regulation, effective from February 2024, mandates rigorous sustainability and safety requirements for all batteries sold in the EU market. This includes conformity assessments, electronic battery passports, extended producer responsibility (as discussed next), and material recovery rates. These regulations aim to enhance transparency and accountability, but they also pose significant challenges for manufacturers. Companies must now report sensitive data and ensure compliance with stringent standards, which may require substantial investments in new technologies and processes.

The transition to stricter standards is not just a regulatory hurdle but a chance to build a more resilient and sustainable supply chain. It is expected that the UK will align future battery legislation to ensure it maintains trading relations and environmental standards with the EU.

A “second life” for EV batteries

Recycling degrading batteries has, to date, been economically challenging and therefore unattractive. However, we are seeing an increase in technology companies and research groups working on viable alternatives that give new uses to degrading batteries, which is crucial for environmental sustainability and reducing life-cycle costs. Depending on the type of battery (e.g., lithium-ion battery, lead-acid battery, electric vehicle batteries), different “second life” purposes can be considered. For example, electric vehicle batteries can be repurposed for less demanding applications, such a powering temporary installations like traffic lights, whilst lithiumion batteries can be dismantled to recover the valuable critical materials (lithium, cobalt, nickel) and recycled into new batteries.

We are also beginning to see regulators developing policies and strategies for managing end-of-life lithium batteries. Globally, there is a huge variety of approaches and infrastructure to support recycling or repurposing. The EU Battery Regulation sets ambitious yearly growth targets per battery type, requiring suppliers to bear responsibility for end-of-life management of batteries, collecting and recycling them free of charge. By the end of 2030, new batteries in the EU must contain a minimum recycled content of 12% for cobalt, 4% for lithium, 4% for nickel and 85% for lead. The US has yet to adopt regulatory recycling requirements, only subsidies for recycled EV battery materials in the Inflation Reduction Act, but we expect this to be reconsidered as more and more early batteries reach end of life stage.

New technologies reshaping the relationship between vehicles and grid infrastructure

New technologies are significantly reshaping the relationship between vehicles and grid infrastructure, creating a more integrated and efficient energy ecosystem. Smart charging systems help load management by adjusting charging speeds to prevent overloading the grid and respond to factors like power prices, renewable energy availability, or grid congestion. This results in cost reductions, reduced carbon emissions, and grid stabilisation.

Bidirectional charging remains another key topic in the evolution of EV charging infrastructure. It allows electricity to flow from the grid to the vehicle and vice versa. This technology, utilised for both Vehicle to Grid (V2G) and Vehicle to Home (V2H) functions, can help balance energy needs, reduce peak demand on the grid, and potentially provide monetary benefits to consumers. Whilst still in its infancy and not yet widely adopted, collaborations between vehicle manufacturers, battery suppliers and energy providers are hoped to make this technology available in the near future.