By Quincy Ng
Electric vehicles (EVs) have been hailed as a key step in tackling climate change and reducing air pollution. However, recent news suggest that the EV market is slowing, with carmakers like Ford, General Motors (GM) and Volkswagen (VW) slowing investment and delaying expansions in production capacity.
With global EV registrations breaking the 10 million boundary in 2022, up from around 6.5 million in 2021, shouldn’t the trend continue into 2023? News reports suggest that C-suite leaders from some of the world’s biggest automobile manufacturers have concerns over the commercial viability of these vehicles, placing their electrification overhaul strategies in jeopardy.
The EV market reflects a version of this, with GM’s Managing Director Mary Barra announcing the abandonment of its targets to build 100,000 EVs in the last half of 2023 and 400,000 in the first half of 2024. Ford is also not without its flaws, with the suspension of production of their F-150 Lightning EV, as well as losing $62,016 on every EV it sold in Q3 2023. With this news, it’s really no wonder that media outlets like Business Insider, Wall Street Journal, and Forbes are reporting an EV slowdown in the US and Europe.
Nightmare numbers like these are fuelling the notion that EVs are slowing down, but the facts show the opposite. According to S&P Global Mobility, market demand for lithium-ion batteries is forecast to reach 3.4 Terawatt hours (TWh) by 2030. In comparison, the 2021 output for the automobile industry was 0.29 TWh. Lithium-ion batteries are currently the most used type of battery in EVs due to being known for having a high power-to-weight ratio and for being the most reliable. Lithium production will need to increase over 270% to meet this forecast demand – an ambitious number that suppliers will need to meet while keeping ESG standards high.
If the manufacturers themselves have cut back on investment, targets and production, why are there still increases in EV sales globally? Is shying away from EVs a good response to increasing EV sales?
It really isn’t as it seems.
Huge traditional manufacturers aren’t the only ones in the EV business, and it’s starting to shock them. Manufacturers from overseas markets such as China are overcoming heavy hitters like VW and even Tesla, with Mainland Chinese conglomerate BYD reaching 21% market share in worldwide EV sales in the first half of 2023, compared with Tesla’s 15% or VW’s 7%.
What happened to Ford, one of the oldest car brands in the world? Despite being a well-established manufacturer with a respectable track record, the problem is profitability. It doesn’t matter how many sales an automaker has made; it must make money in the long run to stay afloat. With a loss of over $60,000 USD on each EV they sold, it was no longer viable for Ford to see their original plan through, resulting in the postponement of approximately $12 billion in EV investment. Similarly, GM plans to take a step back to “enhance the profitability of [their] EV portfolio and adjust to slowing near-term growth”
With US auto manufacturers changing plans, coupled with US EV demand lagging behind both Europe and China, the US market situation may seem dire. However, there may be more than meets the eye. The Inflation Reduction Act (IRA), signed into law in August 2022, provides a tax credit of up to $7,500 if the manufacturer sources EV batteries from within the US. As the law allows buyers in 2024 to receive this credit at the point of sale, rather than in their tax returns, many may be waiting for a more opportune chance to make the leap.
Besides profitability impacting production and investment, issues may arise from the production of EVs itself. The most vital component of EVs — the battery — is dependent on China in its supply chain. About 75% of all battery cell manufacturing capacity and 90% of battery anode and electrolyte production in 2022 was controlled by China, leaving foreign automakers reliant on Chinese suppliers like CATL for their lithium-ion batteries. Even worse are ethical dilemmas of said batteries, with countries like the Democratic Republic of Congo being notorious for human rights issues, unsafe working conditions, and corruption in the industry of cobalt mining — a key material in lithium-ion batteries.
Overall, the EV slowdown is not necessarily a sign of failure or decline but rather a reflection of the complex and dynamic nature of the EV market. Many issues continue to, and will, plague car manufacturers. The industry will need to balance the environmental and social goals of EVs and continue to uphold stringent ESG standards in their respective supply chains. The key is to adopt a holistic and long-term perspective and to foster a supportive and collaborative environment for the EV transition.
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