Sustainable Energy - August Commentary

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Higher fuel prices from the conflict in Iran have strengthened the case for electric vehicle (EV) adoption by improving ownership economics versus internal combustion engines (ICE), driving a near-term jump in sales that should act as a modest tailwind for the rest of the year. Longer-term, we remain confident that EV demand will continue to rise as the three barriers to adoption – cost, choice and charging – are overcome. We review the latest developments in electric vehicles and battery technology and provide an outlook for long-term demand.

Electric vehicle sales

EV sales continued to show strong momentum in 2025, growing nearly 20% year-on-year to reach 21 million units across plug-in hybrids (35%) and battery-electric vehicles (65%). China remained the largest market, representing 63% of global sales, followed by Europe at 19% and the US at just 8%. Global penetration reached 25%, meaning that one in four cars sold came with a plug, up meaningfully from around 5% and 3 million units just five years ago.

The global EV market has seen a volatile start to 2026. The first quarter saw EV sales dip as weak automotive sales in China offset continued penetration gains. Growth rebounded strongly in the second quarter with EV sales increasing 35% compared to the first three months of the year as higher fuel prices as a result of the conflict in Iran boosted consumers’ incentive to switch. With momentum building in Europe and emerging markets, we expect global EV sales to increase around 11% to 23 million units in 2026, with penetration reaching 27%.

In China, EV penetration continues to rise, reaching a record 63% in the month of June, despite a weaker auto market estimated to have fallen by around 20% in the first half of the year. Cuts to scrappage scheme incentives and rising purchase taxes have weighed on sales, yet EVs continue to gain share, driven by the following:

• Cost: On average, EVs have been cheaper than ICE vehicles in China since 2023 thanks to falling battery prices.
• Choice: As of the end of 2025, there were c.60% more EV models available than ICE models in China.
• Charging: Chinese battery makers now offer ultra-fast charging that rivals petrol refuelling times.

While national anti-involution measures have dampened destructive price competition, Chinese manufacturers continue to compete aggressively on technology, speeding up product development and model refresh cycles to ensure they are offering the latest connectivity, infotainment and smart driving features to entice consumers. As growth has slowed and competition intensified, manufacturers have turned to overseas markets for profitable growth, with exports to Southeast Asia, Latin America and Europe increasingly important despite rising trade barriers. EV exports from China reached around 2.4m units in the first half of the year, with June exports hitting a record 523,000 units, up 160% year-on-year.

Europe has been the fastest-growing major EV market this year, with sales increasing around 27% in the first half of 2026 against overall passenger car market growth of roughly 6%. Growth has been underpinned by two main factors:

• Policy support – EU emissions standards require cars sold from 2025-27 to deliver a 15% reduction in fleet-average emissions versus 2021 levels, incentivising OEMs to accelerate EV sales and introduce more affordable models.
• Improving EV economics – based on average April oil prices, the IEA estimates annual EV fuel cost savings in the EU grew 35% versus 2025 (€2,100 per year), reflecting higher pump prices since the conflict began 

Despite a watering down of targets in recent years, the EU's Automotive Package still foresees electric car sales exceeding 90% by 2035, up from around 30% today. We expect Chinese manufacturers to take a material share of that growth thanks to competitively priced products, partnerships with local brands, and expanding local manufacturing.

In the United States, EV sales dropped meaningfully following the passing of the One Big Beautiful Bill Act (OBBBA), which scrapped consumer tax credits and eased the fuel economy regulations that had pushed automakers to electrify. EV sales fell over 20% year-on-year in the first half of 2026, and adoption forecasts have been marked down, prompting more than $50bn of EV investment write-offs and a pivot toward hybrids.

As for the rest of the world, sales continue to grow strongly here as well, rising 89% in the first five months of the year compared with the same period in 2025, led by emerging markets. May EV sales rose over 150% year-on-year in South America and Indian registrations increased 125%, largely thanks to Chinese manufacturers exporting competitively priced vehicles into markets with supportive policy and rising investment in charging infrastructure.

EV sales monthly market share

Source: BloombergNEF, Marklines, JATO Dynamics; Guinness Global Investors, July 2026

Beyond passenger vehicles, commercial vehicles are also increasingly electrifying, with global electric truck penetration doubling in 2025 to a record 9%. As with passenger EVs, growth has been led by China, where penetration has accelerated to 25%. Although these vehicles are still twice or three times the purchase price of a comparable diesel truck, improving battery economics mean they are now competitive on a total cost of ownership (TCO) basis, with Europe expected to reach the same milestone in 2030.

Batteries

Global battery demand reached almost 1.6 TWh in 2025 according to Bloomberg New Energy Finance, a 34% increase year-on-year. While passenger EVs continue to dominate, accounting for 64% of sales, Energy Storage Systems (ESS) and commercial vehicle batteries collectively are just under a third of overall volumes but are growing even faster at 67% and 108% year-on-year respectively.

The average battery electric vehicle (BEV) battery price fell to $99/kWh in 2025, below the $100/kWh threshold often thought to mark price parity with internal combustion engines. However, these global trends mask significant regional differences. China has the lowest battery costs globally at $77/kWh, around 30-35% cheaper than North America or Europe, both above $100/kWh. This is reflected in 2025 electric SUV prices, which reached parity with ICE models in China compared to a 10% premium in Europe and a 20% premium in the US.

Historic and forecast BEV battery prices by region ($/kWh)

Source: BNEF, July 2026

Looking ahead, we expect battery prices to continue to fall towards $70-80/kWh by the end of the decade thanks to continued scale and manufacturing efficiency, the adoption of lower cost chemistries (e.g. lithium iron phosphate, sodium-ion), and continued structural innovations (e.g. cell-to-pack, cell-to-body).

Outlook

We expect falling battery prices to support our long-term forecast for EV penetration of 45% by 2030 and over 80% by 2040. Greater scale and investment in EV and battery manufacturing should also benefit other end markets such as ESS and commercial vehicles, supporting battery demand growth of 15-20% per annum out to 2030, with ESS and commercial vehicle demand continuing to outgrow the broader market.

Global auto, ICE, and EV population to 2050

Source: US DoE (actual), Guinness Global Investors (estimates) as of July 2026

At the end of 2025, we estimate that there were approximately 80 million EVs on the road, making up 5-6% of the total fleet. According to the IEA, this global fleet consumed around 250TWh of electricity, making up just under 1% of global power demand. Over the next 10 years, we expect the global EV fleet to grow by over five times to just under 450 million units, making up over 25% of the global fleet. This drives 10-15% of the growth in global power demand to reach 4-5% of global power demand by 2035.

Fund positioning

As the global economy reckons with its second major energy shock in four years, we believe the economic case for EV ownership is stronger than at any point since the war began, and the investments made across the supply chain over the last five years leave the industry well placed to meet demand. The Guinness Sustainable Energy Fund is well positioned to benefit, with exposure to semiconductors (Infineon, NXP Semi), electrical connectors and sensors (Amphenol, TE Connectivity, Sensata) and batteries (LG Chem). All of these names enjoy a content-per-vehicle uplift when selling onto an electric vehicle compared to internal combustion engine and are expected to experience tailwinds to growth as EVs continue to penetrate into the sales mix.

For our full report, including analysis of fund returns over the month, click below.

The value of this investment can fall as well as rise as a result of market and currency fluctuations. You may not get back the amount you invested.