<a href="https://www.thenationalnews.com/business/energy/2022/03/04/surge-in-global-demand-for-batteries-by-2030-as-number-of-electric-vehicles-grow/" target="_blank">Electric vehicles </a>will make up about half of the new car sales worldwide by 2035 as the push for net-zero carbon emissions accelerates, according to <a href="https://www.thenationalnews.com/business/economy/2023/02/06/chinas-reopening-estimated-to-raise-global-gdp-by-1-this-year-goldman-sachs-says/" target="_blank">Goldman Sachs Research.</a> EV sales will soar to about 73 million units in 2040, up from around 2 million in 2020 with the percentage of EVs in worldwide car sales projected to rise to 61 per cent from 2 per cent during the period, the US-based investment bank said in a report. “We expect the automobile industry to undergo a major transformation between 2020 and 2030, driven by the increasing adoption of vehicle electrification and autonomous driving,” Goldman Sachs equity research strategist Kota Yuzawa wrote in the report. “There will be no let-up in the EV industry’s expansion as environmental rules tighten and electrification technologies become more sophisticated." Governments across the world are pivoting towards electrification and clean energy projects to cut emissions as they adopt net zero targets in the coming decades. The US, the world’s largest economy, Canada, Britain and the 27-member EU plan to become carbon neutral by 2050, while China, the world’s second-largest economy, aims to reach the target by 2060. The UAE and Saudi Arabia, the Arab world’s two largest economies, aim to reach net zero by 2050 and 2060, respectively. Goldman Sachs forecasts sales of EVs to grow by 32 per cent annually this decade. The global car industry’s operating profits are expected to rise to $418 billion in 2030, up from $315 billion in 2020, while the pool of profits for EVs is forecast to increase to $110 billion from $1 billion. The report said the market for EV batteries, which account for as much as 40 per cent of the car’s cost, is becoming concentrated. The top five battery makers had more than 80 per cent of the global market share in 2020, while the top five automakers had about 40 per cent of the worldwide market, according to Goldman Sachs. “Pricing power has shifted to the battery makers, giving them an edge in generating higher earnings,” the report said. “In an attempt to rebalance their pricing power with battery makers, finished-vehicle assemblers are rushing to develop vertically integrated production and joint-venture plants.” However, the government policy is poised to change supply chains with countries such as the US focusing to promote the domestic assembly of EVs as well as the location of battery assembly and material production. Last year, the US passed the <a href="https://www.thenationalnews.com/business/energy/2023/01/14/release-of-us-oil-reserves-addresses-underlying-crisis-and-not-higher-prices-envoy-says/">Inflation Reduction Act</a> (IRA), which offers a series of tax incentives on wind, solar, hydropower and other renewables as well as a push towards electric vehicle ownership. “Under this framework, companies will not be able to use the battery supply chain that has been built up in China to export to the US,” Goldman Sachs said. Currently, battery supply chain is dominated by China, the world’s most populous country. “Our strategists see strong signs that the IRA official announcement in March 2023 will give a relative advantage to manufacturers that are pushing ahead with local production in the US of EVs, battery-related products, and EV components,” the investment bank said. There are also other challenges for the EV sector in the near term. The scramble for energy transformation has sparked “greenflation”, as demand for batteries pushes up prices for key materials involved in making them, according to strategists in Goldman Sachs Research. They expect battery costs to increase 6 per cent in 2023 from the year before. “Given that initial costs for an EV are higher than an internal combustion engine vehicle (ICE), lowering the costs via technological innovation (in areas such as batteries and semiconductors) is a major premise to more widespread uptake of EVs,” they wrote. Electricity costs are also on an uptrend, giving EVs less of an advantage when it comes to costs, the report said. It is also unclear how consumers will be affected by government policies. The US IRA, for example, sets new limits on the purchaser's annual income and the retail price for the vehicle to be eligible for tax incentives, according to the report. “Technological innovations will be essential to overcome this sort of near-term noise,” the report said. The development of new materials and the introduction of new battery designs are expected to boost the EV battery market this decade. “Powertrain units and thermal management” will become more efficient, reducing power consumption, while engineers find ways to reduce the weight of electric cars,” it added.