Despite $50 Billion Losses, Battery Progress Points To EV Gains

Despite $50 Billion Losses, Battery Progress Points To EV Gains.

“EV sales are set to reaccelerate medium-term”

Traditional automakers have taken a massive financial hit because of failed electric vehicle plans, suggesting the EV revolution has stalled. But a report from leading investment bank UBS suggests the reverse in Europe, because of battery technology cost, infrastructure and range breakthroughs. This is the so-called “Triple-Parity”.

Not only that, medium and long-term EV sales forecasts for Europe are being raised. Investment researcher Jefferies increased its forecast for European EV sales in 2030 to 5.6 million for a market share of 42%, compared with its previous estimate of 4.0 million and 30.0%. For 2035, Jefferies raised its forecast to 8.7 million (65%) from 6.0 million (45%). Jefferies had previously been much more cautious with its forecasts. It hasn’t explained its change of heart. 

In 2035, EV sales accounted for 19.4% of the European market or 2.5 million.

UBS raised its forecast to 43.8% in 2030 from its previous 41% and reckoned on 77% for 2035. 

Schmidt Automotive Research https://www.schmidtmatthias.de/ says 41.7% or 5.4 million EV sales in Western Europe (including all the big markets of Germany, France, Britain, Italy and Spain) in 2030, almost doubling to 79.4% or 10.4 million in 2035.

These positive forecasts are based more on government edict than natural demand. For them to become reality there must be a drastic cut in the price of EVs. Currently, prices are too high, and for sales to more than double by 2030 requires a mass market. The European Parliament is currently examining plans to incentivize the production of Japanese Kei car equivalents, and this implies prices of close to €10,000 ($11,800). 

Meanwhile, write-downs for failed EV strategies by Ford, General Motors, Honda, Stellantis, Volvo  and Volkswagen’s Porsche amount to around $50 billion. 

Stellantis revives diesels in Europe
Investors must be wondering exactly what is going on. Multi-brand Stellantis has decided to breathe fresh life into European diesel sales, despite the conventional wisdom saying oil burners are almost dead.

UBS, in its report, said a breakthrough is imminent in battery technology and consequently EV sales in Europe will be on the rise.

“EV sales are set to reaccelerate medium-term, with the evolution of trade barriers playing a key role. Towards the end of the decade, triple-parity should accelerate EV sales growth further, even in markets like Europe that will face higher battery costs due to rising trade barriers,” the report said.  

“Electric vehicles are now closing the gap with traditional cars across cost, range, and charging time; the long-awaited “triple parity”, UBS said.

“CATL’s  Shenxing cell reaches an all-in cost of $55/kWh, almost 50% lower than cells in the Volkswagen ID.3 we analyzed in 2020. With battery manufacturing costs still falling roughly 10% a year, we expect new inflection points not just for cars, but also for trucks and stationary energy storage,” according to the report.

• “Charging parity: With fast-charging capabilities of up to 1,000kW, charging times for an electric car drop to about 10 minutes, just a few minutes more than a refill at the gas station.
• Range parity and in-vehicle power needs: Range has almost doubled; up to 800 km/500 miles (WLTP) are now becoming the norm in high-volume segments, on par with conventional cars or even better. Also, as the tech stacks of modern cars consume more electricity than ever before – ADAS, infotainment, comfort functions – a powerful on-board grid is required; EVs are better suited for this than cars with internal combustion engines,” the report said.

So if prospects are so strong, why are traditional automakers in such disarray?

Losses don’t mean stalling Europe EVs 
Michael Fisher, data scientist at the financial analysts TradingPedia   said corporate red ink does not automatically mean the European EV transition is stalling.

Fisher said stress is most visible on western balance sheets because Chinese manufacturers continue expanding into Europe with lower battery and supply chain costs and are entering price bands where these manufacturers are struggling to defend profitability.

“This increasingly looks like a competitiveness challenge rather than a technology rejection,” Fisher said in an email exchange.

According to UBS, Chinese manufacturers had a 6% market share in Europe last year, and this will rise to 18% by 2030.

The European Union is currently discussing relaxing its Carbon Dioxide emissions regime for the years to 2035. In December, the EU’s executive arm, the European Commission, proposed easing manufacturers’ path to what had been a zero emissions target for 2035. It also conceded some room for ICE power after 2035, but this was so tightly worded it only allows wiggle room for the expensive likes of Ferrari, Lamborghini, Bentley and Rolls Royce.

Germany still seeks technology neutrality
Meanwhile, the European industry, led by Germany, is seeking much more room for manoeuvre, still insisting that an open technology regime is the best way to go.  The European Parliament will consider this in the months ahead, as well as the small car initiative.   

“However, market penetration in several northern European countries is already beyond the point where regulation is the primary driver. Commercial momentum is doing the work,” Fisher said.
“Even if limited hybrid or e-fuel allowances emerge, capital allocation across the industry remains overwhelmingly directed toward electrification. The regulatory discussion may influence pacing – but it is unlikely to reverse direction,” Fisher said.

Schmidt Automotive Research founder Matt Schmidt said U.S. manufacturers have decided to cut their EV losses for now, those operating in Europe – Ford and some Stellantis brands – have different strategies.

“What is significant is that Stellantis is likely to leave its EV strategy to joint venture partner Leapmotor, which offers a faster route to profitable EVs and range extender EVs for Europe in the short term. In the long term, it could be riskier to hand the keys to the Chinese. (former CEO Carlos) Tavares’s investment in Leapmotor, which puzzled many, is now about to play out,” Schmidt said in an email exchange.

Stellantis owns about 20% of Leapmotor, having acquired the stake for $1.6 billion in 2023.  

Ford, Renault, Geely cooperate
“Ford Europe is also increasingly adopting a similar strategy, initially getting into bed with VW on the Explorer/Capri, and is now joining Renault in small-car EVs. That could also potentially translate to (Chinese giant) Geely, given the increasing cooperation between Geely and Renault. U.S. (manufacturers) can no longer justify big-ticket EV investments on low volumes,” Schmidt said. 

Ford is reportedly exploring a deal with Geely to produce vehicles in its underused European factories. Geely and Renault have formed a partnership to develop low-emission hybrid/ICE powertrains, producing vehicles in South Korea and Brazil.

The huge damage done to manufacturers’ balance sheets because they pursued overly optimistic EV polices, at least in Europe, was down to political pressure backed up by laws and potentially crippling fines. The U.S. has ended its plan to force consumers to buy EVs. Manufacturers in Europe had to sell a minimum number of EVs and faced penalties for selling too many ICE vehicles. This often amounted to discounting prices on EVs that wouldn’t sell and sacrificing profits from popular ICE vehicles. These increasing EV sales were also mainly in the corporate sector where buyers’ choices were often limited. Private sales of EVs continue to be soggy.

The forecasts have no chance of being achieved without the emergence of seriously cheaper, €10,000 EVs, which will have smaller batteries, limited, say, 100-mile range and 60 mph top speed. They will be perfect for school runs, shopping and commuting, which probably accounts for 90% of normal motoring. They will have no long-range high-speed pretensions.

Solid state batteries on the horizon
But if UBS is right and battery prices and capabilities improve, this may well induce more natural demand for EVs. If long-promised solid- state batteries halve the price, double the range and halve the weight, then EV demand will reflect popularity, not government persuasion. 

TradingPedia’s Fisher expects solid demand.

“The European EV transition is not fundamentally in jeopardy. Penetration is accelerating, not retreating.
What is in question is Western manufacturer’s margin structure and competitive positioning within that transition.
If battery cost reductions continue and lower-priced models expand into the mass market, forecasts in the 40%+ range by 2030 remain credible. The real determinant will not be whether Europe electrifies – but which manufacturers capture the value,” Fisher said.