The oil shock caused by the Iran war is giving the electric vehicle market a new boost as higher gasoline and diesel prices encourage consumers to look for alternatives.
The shift is particularly significant in countries exposed to disruptions in oil and gas supplies from the Gulf, where economics is increasingly becoming a factor in EV adoption alongside government incentives and environmental concerns.
A faster transition to electric vehicles, however, could create new pressure elsewhere in the energy system. Rising EV demand means greater consumption of critical metals such as lithium, nickel and copper, potentially exposing already strained supply chains to another shock.
The EV metals story had lost some of its momentum after demand failed to match the industry’s early expectations. Lithium and copper investors have increasingly focused on grid storage and data centers instead.
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But the wars in the Middle East and Ukraine could accelerate the transition to electric transport, bringing those metals back into focus.
A divided EV market
At the global level, EV growth currently appears modest. Global sales of new energy vehicles increased by only 4% year on year between January and August, according to Benchmark Mineral Intelligence.
That figure, however, hides major differences between markets.
The United States has moved sharply in the opposite direction. President Donald Trump’s decision to eliminate his predecessor’s EV subsidy scheme has contributed to a steep decline in domestic sales. August sales fell 33% year on year, while sales for the first eight months of the year were down 21%.
US automakers have responded by shifting investment back toward conventional vehicles, cancelling or delaying planned electric models and battery supply projects.
China has also recorded weaker EV sales. Sales declined 12% year on year during the January to August period. But the fall needs to be viewed against a broader slowdown in China’s vehicle market.
Total passenger vehicle sales fell 24% year on year in August, while new energy vehicles continued to gain market share. Their penetration rate reached a record 65% during the month.
Chinese manufacturers are also increasingly looking overseas for growth.
European EV sales rose 36% year on year in August, with growth for the year so far reaching 29%. Higher fuel prices and government support are helping sustain demand.
The strongest growth, however, is coming from markets outside the world’s three largest EV regions. EV sales in the rest of the world have doubled so far this year, according to Benchmark Mineral Intelligence.
When EVs become an economic choice
The changing economics of transportation could be one of the most important drivers of future EV adoption.
According to Wood Mackenzie, battery electric vehicles have already reached total cost of ownership parity with conventional internal combustion vehicles in China.
Lower priced Chinese EV exports are also narrowing the cost gap in other Asian markets, particularly as gasoline prices rise.
This is changing how consumers view electric vehicles. For some buyers, an EV is increasingly an economic decision rather than primarily an environmental one.
Wood Mackenzie has modeled an “electric shock” scenario in which persistently high oil prices accelerate consumer adoption of battery powered vehicles while encouraging governments to reduce their dependence on fossil fuels.
Improving battery performance and declining EV costs could make such a shift faster than previously expected.
The longer disruptions from the Iran war continue, and the longer attacks on Russian oil infrastructure affect global supply, the stronger the economic incentive for alternatives could become.
The metals problem
A faster EV transition would also increase demand for the materials needed to build electric vehicles and their batteries.
Wood Mackenzie estimates that existing metal supplies could accommodate even stronger EV growth, but only if investment in new production capacity keeps pace with demand.
Under its shock scenario, copper demand would increase by an additional 2% compared with a baseline scenario in which global EV sales grow by around 4% annually.
That seemingly modest increase would still require significant additional mining capacity. Annual new copper production would need to rise from a long term average of around 850,000 metric tons to approximately 960,000 tons between 2025 and 2040.
Lithium demand would increase by an additional 14%, while supply risks would remain complicated by China’s dominant position across much of the global lithium supply chain.
The metals industry has struggled repeatedly over the past decade to align sup
With information from Reuters.
