Electric vehicles (EVs) are reshaping the automotive landscape, challenging the very foundations of technology and manufacturing processes that have long defined industry titans like Ford, Toyota, and Volkswagen. As established automakers scramble to adapt, they find themselves significantly behind the likes of Tesla and a wave of innovative EV contenders emerging from China, including BYD and Xpeng.
This gap raises a critical question: Can European and U.S. automakers, particularly in regions where governments are already planning to restrict sales of new internal combustion vehicles, rise to the challenge and produce affordable EVs to meet the escalating global demand?
Managing partner at Deepwater Asset Management, Gene Munster, envisions profound transformations: “Ultimately, some of these car companies that have been the cornerstone of how we’ve thought about cars for the last 100 years will be a fraction of their size in future.”
The stark contrast in EV production numbers underscores this divide. In 2022, Tesla delivered a staggering 1.31 million battery EVs, while BYD’s sales surged to over 900,000 (nearly 1.86 million when plug-in hybrids are included). By comparison, Volkswagen Group, encompassing Audi and Porsche, sold 572,100 battery electric vehicles, and Stellantis lagged at 288,000. Meanwhile, Toyota, Ford, and General Motors face even greater challenges in bridging this gap.
The influx of new players has been propelled by cutting-edge technology and reduced production costs—a crucial factor in enhancing affordability. This cost barrier has been identified as a significant hurdle to widespread EV adoption, according to a 2021 survey conducted by the International Energy Agency (IEA).
China is solidifying its position at the forefront of the electric vehicle (EV) race, leaving once-dominant players like Japan, South Korea, Europe, and the United States automakers struggling to keep up. According to the International Energy Agency (IEA), between 2015 and 2022, the global market share of the largest car manufacturers in electric vehicle sales declined from over 55% to 40%. In stark contrast, Tesla and BYD combined saw their market share surge from 20% to over 30%.
UBS projects a significant surge in the global EV market share of Chinese automakers, doubling from 17% to 33% by 2030. This transition is expected to impact global players significantly, particularly those heavily exposed to the Chinese market, such as Volkswagen and General Motors, as noted by analysts at the investment bank.
In an effort to bridge the gap with China, traditional automakers are investing substantial sums into the EV transition. Nevertheless, UBS analyst Patrick Hummel highlights an inherent uncertainty regarding the returns on these investments, attributing it to a lack of essential in-house expertise.
Rising costs coincide with the hurdles presented by semiconductor shortages and disruptions in the supply chain. Despite efforts, car sales continue to languish below pre-pandemic levels, and profit margins for established players in the Electric Vehicle (EV) sector remain thin.
The linchpin of this transition, consumer demand, remains uncertain. Volkswagen’s decision to temporarily halt production of certain EV models in Germany next month due to weakened demand serves as a stark reminder of this unpredictability.
Ford also grapples with these challenges. In July, the company revised its projected losses in its EV business for the year to $4.5 billion from an initial estimate of $3 billion. Additionally, Ford pushed back its goal to produce 600,000 EVs annually.
The potential for improved pay deals for striking workers at Ford, General Motors, and Stellantis in the U.S. poses a further threat to the competitiveness of established automakers. If unions secure their demands, it could increase the cost of an average EV by $3,000 to $5,000, potentially jeopardizing the future viability of the industry’s major players.
Although EV production requires less labor, costs are hindered by the high expenses and scarcity of battery raw materials. China’s dominance in EV battery manufacturing and critical component supply further reinforces its lead.
In the midst of escalating trade tensions and government initiatives to reduce reliance on China, global automakers find themselves navigating intricate joint ventures with Chinese counterparts. Ford’s recent decision to temporarily halt work on a $3.5 billion factory in Michigan, originally designated for EV battery production in partnership with China’s CATL, exemplifies the evolving dynamics.
China’s control over vital EV raw materials and its commitment to a green energy transition solidify its leading position. Stringent controls on rare minerals crucial for semiconductor production have further enhanced China’s position. Meanwhile, the European Union’s investigation into state support for Chinese EVs raises concerns about unfair competition.
As Europe strives to decrease carbon emissions, the need for affordable EVs becomes imperative. A 2022 report by Jato Dynamics reveals that electric cars in China are nearly 40% more affordable than those in Europe and 50% cheaper than in the U.S.
China’s expansion into European manufacturing facilities mirrors its penetration into the U.S. market, where import duties for cars are set at 27.5%. Bill Ford, chairman of Ford, anticipates this inevitability and underscores the need for preparations to face the forthcoming competition from Chinese EVs.
In an industry teetering on the brink of transformation, established automakers grapple with mounting challenges. They navigate a rapidly shifting landscape, one that is increasingly dominated by Chinese automakers and the unassailable lead of Tesla. The stakes are high, and as the industry contends with uncertainties on multiple fronts, the future of electric vehicles hangs in the balance.
Source: CNN
