Navigating the EV market: Opportunities amidst challenges

There’s a major shift about to occur in the global consumer’s adoption of electric vehicles (EVs), but critics are so focused on demand slowdowns and infrastructural hurdles that they’re failing to see the potentially transformative phase for the industry coming just around the corner.

Falling battery prices, a strategic focus on expanding the EV model range, enhancing the charging infrastructure, and the implementation of technological innovations could all significantly accelerate the transition toward electric mobility, making EVs more competitive with traditional vehicles and leading to a more sustainable and carbon-neutral future.

As mandates from regulators to reduce carbon become stringent, it is not in line with the expectation of end users around the world, who may prefer an internal combustion engine (ICE) car given the higher prices of the EVs (combined with inflation, recession) and other factors like the still-to-be-developed charging infrastructure. New-car sales in Europe fell 2.8 percent in March (2024) showing a weaker demand, particularly for electric vehicles.[1] For example, sales of electric cars in Germany fell by almost 5 percent in the first quarter of 2024, mainly because of a 20 percent year-on-year decrease in March.

However, the sector is heavily investing in the EV space, with projections indicating that it will take another decade for these investments to significantly impact EV sales. As EVs are transitioning into a new stage, the availability of raw materials and components becomes a significant focus in policy development, playing a crucial role in the shift towards clean energy, as suggested by the Global EV Outlook 2024 published by the IEA. For the first time, issues related to the supply of these materials and components are emerging as substantial obstacles to the electrification of road transport. These challenges are compounding the existing demand-side difficulties.[2]

The perfect storm

Global EV sales this year are set to top 17 million, more than a fifth of total global vehicle sales, but growth is expected to slow in major markets compared with 2023 as per IEA. Changes in customer behavior, driven by trends like mobility-as-a-service (MaaS) gaining adepts, declining purchasing power, inflation, and other macroeconomic factors are impacting demand and thus supply chain operations. At the same time, the automotive industry is undergoing a deep transformation, mainly driven by the shift to electric vehicles (EVs), that is being reflected in significant alterations for production inputs (i.e., required components and manpower), assembly times and methods, and vehicle prices. This transformation has impacted traditional ICE suppliers as new entrants from technology and systems place additional market pressure and create new areas of value creation that traditional suppliers may struggle to replicate . They will need to address a change in their business models while they additionally face financial challenges, including peak debt due to continuous margin pressure and upcoming debt repayments.[4]

The Path Forward

In 2023, the electric car market saw a significant boost, with the number of available models surging by 15 percent to nearly 590, driven by manufacturers ramping up their electrification efforts to cater to an expanding consumer demand. However, the production of fully internal combustion engine (ICE) models, excluding hybrids, took a downturn for the fourth year running, with a 2 percent annual decline. According to recent OEM announcements, the electric car model count could skyrocket to 1,000 by 2028. If this happens and the ICE model decline continues at 2 percent annually, the automotive market might see a parity between electric and ICE models before 2030.

The Global EV Outlook 2023 report indicates a significant market shift toward larger EVs, with two-thirds of battery-electric models in 2023 being SUVs, pick-up trucks, or large cars. This trend is particularly pronounced in the U.S., where only 25 percent of EV sales were small- and medium-size models, contrasting with Europe’s 40 percent and China's 50 percent, respectively. This shift toward larger EVs reflects the broader automotive trend, where larger vehicles like SUVs dominate global sales, suggesting a growing consumer preference for bigger cars across both electric and conventional vehicle markets[5].

The role of battery prices

The falling prices of EV batteries are seen as a key factor that could help achieve cost parity with ICE vehicles, thereby facilitating mass EV adoption toward a net-zero carbon future.[7] Electric vehicle battery prices are falling faster than expected, driven by rising prices of raw materials like lithium, nickel, and cobalt. Research predicts battery prices to drop to $99 per kilowatt-hour by 2025, a 40 percent decrease from 2022. This price reduction is expected to make EVs more competitive with ICE vehicles by the middle of this decade on a total-cost-of-ownership basis without subsidies. The transition to a new phase of EV market growth, influenced more by consumer adoption than government subsidies, is anticipated.

Strategic solutions for businesses

To navigate the current challenges and capitalize on the growing trend toward electric mobility, businesses should adopt a strategic approach. This may include:

??????? Understanding the Market Dynamics: Stay informed about the latest trends, economic forecasts, and technological advancements in the EV sector.

??????? Collaboration: Engage with stakeholders across the EV ecosystem to share resources, knowledge, and innovations.

??????? Diversify EV Offerings: Expand the range of EV models to cater to different market segments, including affordable options for lower-income consumers. This approach can help increase EV penetration by making electric vehicles more accessible to a broader audience.

??????? Invest in Infrastructure: Address the infrastructure challenges by investing in charging stations and improving the electrical grid to support widespread EV use. This includes not only the physical infrastructure but also digital solutions to enhance charging efficiency and reduce congestion.

??????? Leverage Technology Innovations: Focus on technological advancements, such as battery improvements and new materials, to reduce the cost of EVs. Collaborate with technology companies to develop innovative solutions that can lower the total cost of ownership of EVs.

??????? Promote EV Adoption through Incentives: Implement and expand government incentives, such as tax credits and rebates, to encourage consumers to switch to EVs. These incentives can help bridge the gap between the initial purchase price of EVs and ICE vehicles, making EVs more attractive to potential buyers.

[1] Europe sales drop in March as EV weakness persists, Automotive News Europe, Link

[2] Electric cars fend off supply challenges to more than double global sales, IEA, Link

[3] Figure 1: Development of car sales in Europe. Source: Euromonitor, LMC, Eurostat

[4] Automotive: In the midst of global transformation, KPMG, Link

[5] Trends in electric cars, IEA, Link

[6] Annual EV battery demand projections by region and scenario, 2020-2030, IEA, Link

[7] WEF: A Vision for a Sustainable Battery Value Chain in 2030, Link

[8] Electric vehicle battery prices are falling faster than expected, Goldman Sachs