Price Cuts, Choice Improvement Required To Boost EV Sales.

Price Cuts, Choice Improvement Required To Boost EV Sales.

“automakers will either push EVs with lower prices or step away from long-range targets”

The European market for electric cars needs price cuts and an improvement in product choices for sales to regain momentum next year.

But longer term, electric car sales will require more than just a little bit more momentum if they are to match government demands for 2030, when at least 80% of European sedan and SUV sales must be electric.

In Europe, and the U.S., demand for EVs has taken a hit, with the likes of Volkswagen, GM and Ford finding their output of electric cars piling up on dealer lots. The overwhelming view that EVs will win over the longer term remains, but current weakening has to be negotiated first.

HSBC Global Research puts it this way.

“Media, manufacturers and industry data are suggesting a slowing uptake of EVs, with a range of causal factors. EVs are still largely more expensive than their ICE (internal combustion engine) counterparts, and affordability is key for consumers in the current macro environment,” HSBC Global said in a report. HSBC said automakers will either push EVs with lower prices, or step away from long-range targets.  

Mass market please
These targets mean a mass market is required. This will require vehicles which match the utility and price of ICE sedans and SUVs. There’s no hard evidence yet that such vehicles will emerge. If they do, they may well be Chinese, and that would be an existential threat to the European industry. If they don’t, European citizens earning average wages will be forced out of their new cars and on to public transport. That won’t endear citizens to their political leaders, so expect muscular action from governments to achieve these targets.   

According to investment researcher Jefferies, European sales in 2023 still managed impressive growth to over just 2 million battery electric vehicles (BEVs) compared with 2022’s 1.6 million. Jefferies forecasts sales will accelerate to 4.8 million in 2025 and race on to 9.3 million in 2030.

Professor Stefan Bratzel, director of Germany’s Center of Automotive Management, agrees the European market requires entry-level EVs which are price competitive with ICE ones.

“The new Chinese importers will hardly change anything in the short-term. Only from 2025 and subsequent years will we see an increased range of cost-effective and sufficiently competitive e-cars like the Tesla compact model, Renault Twingo (Legend), and VW ID.2, which significantly accelerates the market ram-up,” Bratzel said in a report. 

More segments less prices
“More customer segments with smaller budgets need to be addressed. For the automobile manufacturers, reducing the costs of electric vehicles will be a central success factor. Global market leaders like Tesla and BYD already operate on a significantly better cost basis” Bratzel said. 

China has already developed a huge market for limited-ability but exceptionally cheap little city cars. Prices start there at about $5,000 but if European safety measures were included would probably more than double the price. Other experts expect an early bid by Chinese manufacturers to open up this new market in Europe with vehicles like the BYD Seagull and Wuling Bingo.   

Meanwhile European governments have decided that battery electric vehicles will comprise about 22% of the market in 2024, up from about 18% now, and increase in roughly equal instalments to 80% by 2030. 

Is this a bridge too far for the European automotive industry after 2023’s slowdown?

Investment researcher Evercore ISI reckons everything will work out fine, probably.

“Is this the “great EV expectations reset” Definitely. Is EV growth going to zero? Absolutely not. Is EV growth approaching closer to the 20-25% CAGR (Compound Annual Growth Rate) we have discussed for some time? Probably,” Evercore ISI said in a report.

EV growth decelerating
Evercore ISI said global EV growth in 2024 will decelerate, but it will be between 5 and 10% from 30% to between 20% and 25%. EU growth will be between 10 and 12%.

“The Chinese domestics, especially BYD, are beginning to enter the EU which will aid penetration but poses a significant threat to the low-end market, Renault most notably. VW and its MEB platform continues to struggle with product and affordability as the ID series has shown the most notable weakness,” the report said.

Fitch Ratings hinted that if these targets become too onerous for manufacturers, governments might step in and mitigate. Fitch said range anxiety and a lack of investment in the charging infrastructure had slowed EV sales growth.

“Regulators, particularly in Europe, also appear to be reconsidering longer-term EV policies,” Fitch said, without elaborating.

“Although we expect the global EV transition to continue, the process is likely to take longer in North America and, perhaps, Europe, while EV demand will remain strong in China.” 

The EU has started an investigation into Chinese electric car subsidies, but Fitch said any EU action might well prompt a harsher reaction from China. 

“We view a potential retaliation from Chinese regulators to be a higher risk for European (manufacturers’ credit profiles) versus the current change in the competitive landscape driven by EV imports from China. Fitch estimates currently one-third of German (manufacturers’) cash flows are dependent on China, which is funding electric transition investments that are essential for competitiveness and ensure stability of long-term market share,” Fitch said.  

“the electric vehicle logical fallacy”
Evercore ISI, in its report, said the current slowdown in demand reflects what it calls “the electric vehicle logical fallacy”.

“Both (manufacturers) and consumers have operated under a seemingly incorrect assumption the past number of years. They group EVs into their own category, simultaneously assuming consumers would pay a premium for an electric vehicle. Instead, we believe EV consumers are now looking for attractive vehicles that happen to be EVs,” the report said.

Evercore ISI said the top two barriers are price and product. In China, the world’s biggest market for EVs, prices start at around $5,000. In Europe and the U.S. there is much less product choice, and prices start closer to $30,000.

“Consumers are looking for EV cost parity with ICE. As seen with the Ford 1-150 Lightning, consumers will not pay a $10,000 to £15,000 premium for an EV,” the report said.