The automotive industry‘s focus on EVs remains unbroken. The e-mobility transformation envisaged as part of the climate transition is continuing worldwide, but the process is likely to take longer than initially expected. In addition to price reductions, many car manufacturers are now focussing on compact models and new types of batteries to boost new sales, while tech companies are also increasingly pushing into this market.
Demand for e-cars recently declining
From 2035, only vehicles with zero CO2 emissions may be brought onto the market in the EU. In 2023, the number of new EVs in the EU increased by 37% to 1.54 million, reaching a market share of 14.6%. Petrol cars accounted for the largest share of 35.3%, followed by hybrid electric vehicles (25.8%), diesel vehicles (13.6%) and rechargeable plug-in hybrids (7.7%).
In some countries, however, demand for EVs has recently stalled somewhat. In Germany, the number of new EV registrations fell by 29% in March, while the total number of new car registrations fell by only 6.2%. The German Association of the Automotive Industry (VDA) attributes the decline to the fact that some of the financial incentives responsible for the run on electric cars in 2022 have been discontinued.
Note: The companies listed here have been selected as examples and do not constitute an investment recommendation.
The faltering demand was also recently reflected in major car manufacturers’ sales. Automotive giant Volkswagen reported record sales and profit for 2023, but also sluggish new business for EVs. „Incoming orders are currently still below our target for 2024,“ said VW CFO Arno Antlitz at the figures’ presentation. This chiefly applies to electric vehicles. He expects a transitional year before the Group can accelerate sales again.
Price war and increased competitive pressure in China
Demand for EVs has also recently declined somewhat in the important Chinese automotive market. Last year, sales only increased by 21 per cent, after a soaring 74 per cent increase in 2022. US electric car pioneer Tesla and its Chinese competitors responded with significant price cuts. Although this discount battle boosted sales for EVs in China overall, it puts a dent in the business figures of individual manufacturers.
Tesla reported its first decline in sales for Q1 of 2024 in four years. The effect of the price reductions initiated by Tesla is likely to slowly fade, while the company is simultaneously facing ever stronger competition from established car manufacturers as well as newcomers to the EV market. Tesla CEO Elon Musk now expects significantly slower growth this year and recently announced job cuts to the tune 10% of the workforce.
Tesla’s US rival Rivian also plans to lay off 10% of employees in the face of faltering demand, citing downtime due to factory upgrades as a reason apart from the declining customer orders. Rivian produced 13,980 vehicles in Q1, short of analysts’ expectations, although this still constitutes a year-on-year increase of 50%.
The Chinese car manufacturer BYD recently lost its position as the world’s largest e-car company. © unsplash
The competition from China is also showing signs of slowing down. Chinese car manufacturer BYD once again lost its position as the world’s largest EV manufacturer to Tesla, which it had achieved in the final quarter of 2023. BYD sold nearly 300,000 EVs in Q1, marking a decrease of 43% compared to the record number sold in Q1 of the previous year. By 2023, BYD had surpassed Tesla thanks to its domestic sales and overtaken Volkswagen as the market leader in the world’s largest car market. This year, the Group increased its net profit by 81% to a record CNY 30.04bn, nearly EUR 4bn.
EV manufacturers and tech companies are now betting on new compact models
Several automotive groups are now focussing their efforts on further price reductions and smaller and cheaper EV models. BYD recently lowered the price of its cheapest model, the Seagull, by 5%. The compact car now costs CNY 69,800 yuan or just under EUR 9,000 in China. Tesla plans to start production of a new compact model in 2025, while Ford, Renault and VW are also planning smaller and cheaper EV models. Czech VW subsidiary Skoda wants to get involved in the affordable entry-level EV segment with a new battery-electric small car. According to industry circles, Chinese electric car manufacturer Leapmotor is planning to produce a small electric car at a Stellantis plant in Poland.
The Chinese smartphone manufacturer Xiaomi recently presented its first e-car model, the SU7. © PAU BARRENA / AFP / picturedesk.com
The established car manufacturers are facing competition from newcomers from the technology sector. Smartphone manufacturers Xiaomi and Huawei as well as Google’s Chinese counterpart Baidu are now building their own electric car models in cooperation with other companies. The launch of Xiaomi’s SU7 electric car recently resulted in strong gains for the company’s shares. According to industry expert Ferdinand Dudenhöffer, there are signs of a paradigm shift in the industry. Traditional car companies could become pure car manufacturers that only assemble vehicles, while the software crucial to the car is delivered by the tech companies, according to the expert.
Note: The companies listed here have been selected as examples and do not constitute an investment recommendation.
Trade barriers under discussion, but industry representatives caution
In this competitive environment, individual politicians and business leaders are now calling for stronger trade barriers. Chinese car manufacturers are so strong that the majority of the industry would not stand a chance against them without trade barriers, warned Tesla boss Musk recently. In the US, an import duty of 25% is currently keeping Chinese car manufacturers out of the market.
EU Commission President Ursula von der Leyen is also critical of the growing import of cheap EVs from China. She told the Redaktionsnetzwerk Deutschland (RND) in April that there is currently „a drastic overproduction of electric vehicles in China, coupled with massive state subsidies.“ The US is closing off its market, as are Brazil, Mexico and Turkey. „The EU cannot be the only market that remains open to Chinese overproduction,“ said von der Leyen. Competition is desired, „but the conditions must be fair.“
Trade barriers for Chinese e-car manufacturers are being called for in the EU – but industry experts are skeptical © unsplash
The German automotive industry, on the other hand, recently cautioned against trade barriers. EU measures currently being considered against subsidies for the sector in China could „not solve the challenges for the German car industry – on the contrary,“ association president Hildegard Müller recently told the German newspaper „Welt am Sonntag“. Countervailing duties could „quickly have a negative impact in the event of a trade conflict.“ Müller called for a „willingness to engage in dialogue on both sides“ with regard to the EU anti-subsidy investigation. After all, the current business with China secures „a large number of jobs in Germany.“
Case in point: industry giant Volkswagen recently increased its investments in China. The joint venture with JAC Motors is receiving the equivalent of almost EUR 1.8bn in additional capital from the two shareholders. VW founded the joint venture with a focus on electric cars in 2017 and increased its stake to 75 per cent in 2020. Volkswagen is also collaborating with Xpeng, SAIC and FAW in China. Going forward, Volkswagen plans to work together with Chinese EV manufacturer Xpeng on the development of electric cars. The two companies recently reached an agreement on the joint development of two B-Class battery-electric vehicles (BEVs).
Solid-state battery remains a future goal
Volkswagen and other companies are also increasingly focussing on the development of new types of batteries as part of the e-mobility transition. The battery-manufacturing VW subsidiary PowerCo is currently developing a new solid-state cell battery with its US partner QuantumScale and is building a battery cell factory in Salzgitter, Germany. The Group is also looking into a possible IPO of the battery subsidiary.
Solid-state cells are regarded in the industry as the next big step in battery development. Unlike with the lithium-ion batteries currently employed in EVs, a solid electrolyte is used instead of a liquid one. Manufacturers are hoping that this will result in a greater range, faster charging and less wear.
Other manufacturers have been working on this new type of battery technology for years as well. BMW wants to build a pilot plant in Parsdorf near Munich together with its partner Solid Power and is planning its first test vehicle with solid-state cells for this year. Nissan has announced a pilot plant in Japan for 2024, while Toyota wants to bring the technology into series production in 2027.
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