Pulling the plug
EV sales, manufacturing and handbrake turns
There seems to be a bit of a bump in the road when it comes to EVs (electric vehicles).
While manufacturers had to be dragged and pushed int the fray, largely due to the success of Tesla, but also impending legislation requirements, enthusiasm finally gained traction.
New model release from all manufacturers, old and new, gathered speed despite the hindering effects of Covid lockdowns and parts supply issues from China.
Now, just when it all seemed full speed ahead, confidence appears to be taking a dip.
Shorting the circuit
Legacy brands – established car manufacturers – have started to pull back on EV ambitions. In part it seems that customer demand is not as high as expected.
Bloomberg Intelligence’s (BI’s) new car buyers’ poll suggests demand will stall in Europe with consumers wary due to high BEV prices, range anxiety and a lack of charging points.
This scaling back should support 2024 margins because ICE (internal combustion engine) models are far more lucrative. For manufacturers it means profit faces less dilution from BEVs and the investment costs, battery and parts supply issues. At the same time, margins are likely to retreat at ‘pureplays’ such as Tesla who only produce EVs.
It’s a battle
The effects of the Ukraine war, hangovers from the lockdowns, and with a global stability issue, the cost of living crisis both here and across the west means people are scaling back their buying habits. EVs are expensive and there are still plenty of years to go until legislation bans the sales of new ICE cars.
BI expect EU automakers’ 2024 outlooks to remain cautious. Manufacturers are already increasing new EV discounts in Europe to encourage more public conversion. There is also fierce price competition in China and a whole raft of new lower cost Chinese EVs will be coming to the UK and EU over the next 12 months.
The higher costs of of materials, parts and production and a deteriorating economic backdrop weighs heavily on a macro-driven sector.
What’s more, after the recent delay by five years on the ban of ICE vehicles in the UK from 2030 to 2035 could prompt other governments to follow suit in delays. considering the economic challenges. There are also question marks over BEV’s cradle-to-grave benefits being raised.
Mike Dean, BI Senior Industry Analyst (Autos), comments: “EU automakers scaling back BEV ambitions amid waning consumer enthusiasm”.
EVs are, on average, priced 30% above internal combustion engine vehicles (ICE) in Europe. However, profit margins are much lower, especially as rising consumer concerns slow sales. Competition is increasing, especially from Chinese manufacturers who can often undercut Western manufacturers, partly due to government subsidies and lower import charges.
In China itself, EV competition with prices is often leading to lower prices than comparable ICE models. In turn, this has translated into widespread losses at Tesla and BYD.
VW seem reluctant to compete in such an unsustainable environment. As a result, its China market-share losses will undoubtedly increase, at least until it launches next-generation BEVs in 2026.
Meanwhile, Honda and GM have ditched plans to build cheap BEVs, and Tesla’s annual 50% growth expectation is in tatters despite price cuts. Ford is delaying BEV investments.
Dean, added: “Our BI consumer new-car buying poll in September highlighted European buyers’ concern over the high price of BEVs. Their main issue is a lack of charging infrastructure followed by range anxiety – issues which are unlikely to be addressed in the medium term, and may see more policymakers delay the phasing out of ICE. Charging infrastructure is the biggest challenge, for which there is no quick fix to service a growing BEV fleet. Only 16% of respondents intend to buy a BEV in the next 12 months, which matches the current market share in Europe.”
Across the pond
Tesla’s shares remain volatile and have fallen 25% – still up 78% year to date. The company faces intense competition in 2024, particularly in China. Other EV models have underperformed, with the exception of China’s BYD manufacturer.
US automakers have said in recent years that they’d spend billions on EV production. That seemed like a good bet, especially after the Biden admin introduced financial incentives. These were brought in to aid in its goal that half of all new-vehicle sales should be electric by 2030. But lately they’ve been downshifting: GM, Ford, and even Tesla said they’d delay spending on electric models and factories, citing slower sales and economy jitters. Tens of billions of dollars of investments have already been put on ice.
GM ditched its goal of building 400K EVs by next summer and is delaying the release of some new models as automakers second-guess electric financials.
Ford pushed back its plan to spend $12bn on EV factories, saying customers are reluctant to pay extra for e-whips.
Tesla (which accounts for half of all EV sales) might delay building a $1bn plant in Mexico. Despite steep price cuts, Tesla’s Q3 sales fell from Q2.
Last quarter, US EV sales were up 50% from a year ago, growing faster than any other major car category and accounting for 8% of all new cars sold. Still, the execs expected even stronger growth to validate the major cash investments.
EV sales growth has cooled, despite the price cuts and tax incentives intended to encourage public conversion to EVs.
Money talks loudest
It seems that, in the short-term at least, the economic uncertainty, cost of living crisis, fierce market place competition are worrying company boards and share holders.
For the consumer, demand is still increasing but it is much weaker than originally forecast. The actions of the UK government in pushing back ICE legislation has also reduced the momentum to ditch their existing petrol and diesel cars, and even encouraged the buying of a new ICE vehicle rather than an expensive EV.
The buying public still regard prices (and loan rates) as too high. Range anxiety is easing, thanks to investments in charging networks, but charging networks are still struggling in many areas, and reliability also remains an issue. But it is price that’s the main concerns.
While the environmental concerns were pushing conversion rates, the economic worries including high inflation are putting off public investment. Alongside this, governments have also become sidetracked from pushing for solutions to the growing global environmental crisis. Short-term priority changes for governments and public alike cooled the EV market whilst bolstering the ICE legacy.