One of the biggest changes you’re likely to see in your lifetime is the shift from petroleum-powered engines to electric vehicles (EVs). According to research provider Bloomberg New Energy Finance (BNEF), 1.7 million EVs were sold worldwide in 2020, representing just 2.7% of new car sales. By 2030, however, BNEF predicts annual global EV sales will hit 26 million – and by 2040, over half of all vehicles sold will be electric.

There are four major factors driving this change. First, increasing choice: BNEF estimates that there’ll be over 500 different EV models available by 2022, including everything from hatchbacks to big rigs. Second, cost is falling. Even without buyer subsidies, BNEF expects EVs to reach price parity with most gas and diesel vehicle types by the middle of the decade and exceed it shortly thereafter.

That lower cost is primarily down to our third factor: improving battery technology. The power cells which provide EVs with propulsion are getting better all the time, rapidly alleviating previous concerns. Progress has been (and you can bet more will be) made in terms of driving range, charging time, safety, and durability.

The fourth force behind the great EV shift is perhaps the most important of all: government policy. In recognition of their contribution to greenhouse gas emissions, large swaths of the planet are moving to ban sales of new internal combustion vehicles. To date, at least 13 countries and 31 cities or regions have announced plans to phase out sales of petroleum-powered cars and trucks – but expect that list to grow.

Taking all these factors combined, there’s no stopping the megatrend towards EVs – and with such a great shift come significant investment opportunities. But instead of solely focusing on big-name EV manufacturers like Tesla and BYD, astute investors may find more interesting options (and potentially greater gains) on offer further up the supply chain, as well as in related industries.

An overview of the EV ecosystem

The most important part of an electric vehicle is its engine equivalent: the battery. Since virtually all EVs run on lithium batteries, their supply chain begins with lithium miners – as well as extractors and processors of the other key metals used in a lithium battery, such as cobalt and nickel.

Battery manufacturers need these metals in order to build the battery cells which stack together to make a battery pack. Those packs are a key input for EV manufacturers, who then build the rest of the vehicles and sell them, either to auto dealers or directly to consumers and businesses.

But the ecosystem doesn’t end there. More EVs on the road means there’ll have to be more charging stations, as well as the “fuel” to fill ‘em up. The sources of this electricity should, furthermore, be largely renewable: there’s no point in pushing EVs as a green future only to power them with “dirty” electricity ultimately generated by gas or even coal.

Speaking of which, there’s one underappreciated area which closes the loop of EVs’ lifecycle: battery recycling. More on that later – but let’s kick things off with a look at how those batteries get made in the first place.