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IF Insights: From record-breaking sales to business setbacks, EV sector witnesses a mixed 2023

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Early EV buyers were largely higher-income, willing to try unfamiliar technology, and more likely to be able to charge their electric vehicles at home

Today’s IF Insight copy will revolve around an industry, whose plan of accelerating a climate-friendly all-electric future for the transport sector, saw an upbeat and yet faced roadblocks in 2023. Yes, we are talking about the Electric Vehicles.

“Heading into 2023, automakers were gearing up to invest USD 1.2 trillion by 2030 to move electric vehicles from niche products to mass-market models – many with batteries and software developed in-house,” Reuters reported recently.

However, as 2024 dawns, EV giants like Tesla and Rivian are throttling back investments and reworking product strategies.

Asia Emerges As The Bright Spot

The year 2023 was all about China’s rapid ascent into the global EV scene. The nationwide wholesale deliveries of EV and plug-in hybrids were expected to hit 940,000 units in November, up 29% year-on-year, while total sales in the first 11 months of 2023 are estimated to have reached 7.74 million units, up 35% year-on-year, as per the China Passenger Car Association.

While BYD’s rise as the rival of Tesla highlighted the year, Nio, Xpeng, Leapmotor, Great Wall Motor and Aito registered tremendous business growth in the Chinese market. Tesla, BMW, Mercedes and Volkswagen too want the pie of the ‘China Success Story’.

As of 2023 Q3, China has become the world’s largest EV market with a 58% share, followed by the United States and Germany. Although South Korea is trying to keep pace up with Beijing, China has achieved a clear market edge due to its cost-friendly products. It is now eyeing the European and American markets for its overseas expansion.

As per the Counterpoint Technology Market Research’s latest ‘SE Asia Passenger Electric Vehicle Tracker,’ EV sales also grew by 894% during the 2023 Q2 in Southeast Asia. However, things have been different in other parts of the world.

Entering The Crisis Zone

EV sales are expected to hit a record 9% of all passenger vehicles in the United States in 2023, up from 7.3% in 2022, as per the Atlas Public Policy. It predicts over 1 million EVs are being sold in the world’s largest economy in one calendar year for the first time.

However, the latest Consumer Reports study found EVs losing out big time on the trust front, as almost 80% of such cars were having more issues than the ones with internal combustion engines.

Also, there is a lack of a well-nit charging infrastructure. As per Politico, the United States Congress, which in 2021, decided to spend USD 7.5 billion and build tens of thousands of electric vehicle chargers across the country, has not acted decisively so far.

“Not a single charger funded by the bipartisan infrastructure law has come online and odds are they will not be able to start powering Americans’ vehicles until at least 2024,” the report commented.

One respite in this arena has been Tesla’s supercharger infrastructure, which, apart from being widely available across the USA, is more reliable than rival charging network CCS (Combined Charging System). More automakers are lining up to access Supercharger.

“Early EV buyers were largely higher-income, willing to try unfamiliar technology, and more likely to be able to charge their electric vehicles at home. The auto industry needs to address disparities with these factors as it targets the next wave of EV shoppers,” commented Atlas Public Policy.

Demand Slowdown?

“While electric vehicle sales continue to grow, the pace is not aligning with the expectations of companies that have invested heavily in the EV sector. The anticipation of persistently higher interest rates has led to a revaluation of plans for 2024,” stated a WION report.

While Lee Chang-sil, the CFO at LG Energy Solution, expressed concern that EV demand in 2024 could fall short of expectations due to global economic uncertainty, Tesla CEO Elon Musk backed his industry peer by citing consumer worries like monthly payment and elevated interest rates.

Honda and General Motors (GM) had to cancel their USD 5 billion partnership recently. GM is now emphasising its focus on meeting near-term EV demand rather than specific volume targets.

Volkswagen has lowered its profit margin outlook for the year. China’s CATL, the largest battery maker for EVs, also faced challenges with a weaker market share in September 2023.

Ford in August 2023 added a third work crew at its historic Rouge assembly complex in Dearborn, Michigan, to triple the production rate of its Lightning electric pickup truck. In October, the company had to cancel the third shift, conceding that demand for electric F-150s was not enough to sustain the planned production pace. About 700 workers were laid off.

Finding The Silver Lining

“As EV demand slows, raw material prices have softened. For example, lithium prices have decreased by 67% so far in 2023, and cobalt prices have dropped 20% this year, more than halving since May 2022,” commented the WION.

The Inflation Reduction Act in the United States, which increased tax credits for qualifying new and used EV purchases, also helped bring vehicle costs down for buyers. The Biden government wants the EV sector to account for two-thirds of US new vehicle sales by 2032.

Still, middle-income consumers may not find it enticing to buy an EV, given the fact that high interest rates will make the affair a costly one.

Western vehicle makers face the challenge of covering higher production costs and still yielding a profit. Their Chinese counterparts are now targeting the American market, as they have the edge in the form of ‘affordable pricing’, since they have their own indigenous supply chains of semiconductor and EV batteries.

Even though American consumers may want to buy ‘Made-In-China’ EVs, geopolitics spoils things here. While the US automakers are shielded to some extent from Chinese EV imports due to subsidies outlined in the Inflation Reduction Act, The Biden government has taken the protectionist game further by mandating EV manufacturers to build their cars with materials and components that do not have Chinese links. Only then, the vehicles will get a full USD 7,500 federal tax credit. Some of Tesla’s Model 3 cars are set to lose out from these credits.

While one may point out that the initiative will motivate American EV companies to build their in-house supply chains, they are running against the time, as the United States wants to have 50% of its new passenger vehicles as EVs by 2030.

While the EV sector is set to boom further in the coming days, challenges are also mounting for the sector. The year 2023 on the one hand saw tremendous growth in the EV arena, then it was offset by business setbacks faced by legacy automakers. What will 2024 bring for this sector?

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