The narrative on battery electric vehicles (EVs) in the media these days is often that sales are slowing down. The truth is that the sales growth rate is tapering off which is very different. We are indeed entering a sobering period after the industry set out outsized expectations influenced in part by Tesla’s sales growth and high profitability. I feel this is particularly the case in the USA.

​

It is important to note that EVs experienced a significant, 30% sales growth in 2023, down from 70% in 2022. In Europe, EVs sales were up 28% to reach a market share of 14.6%, up 50% in the USA to reach 7.6%, and up 24% in China to a 24% market share. Market leader Tesla managed to grow global sales by 38% yoy to hit 1.8 million units in 2023, essentially with two models. China’s BYD was not far behind with 1.6 million EVs (and 1.4 m vehicles with other powertrains), and even passed Tesla in Q4. Model Y was the global best-selling vehicle regardless of powertrains in 2023 with 1.2 million units sold! 

​

However, this growth showed signs of losing steam lately, or even going in reverse as was the case in Europe in December (vs. a high Dec. 2022). This was most significant in Germany after incentives were eliminated — although I would not be surprised if they were restored in some fashion.  EV sales also dropped in California in Q4 although they hit 21% of the market for the full year.

​

The new year may be challenging. In the USA, the 2024 list of vehicles benefiting from the IRA incentives (up to $7,500) is significantly shorter than that for 2023, pending increased sourcing localization. Germany, Europe’s largest market will experience its first full year without incentives. And Musk indicated Tesla will see marginal sales growth as its product range is aging, likely passing the battery EV crown to BYD.

 

​

Lower Prices is Paramount for Further Growth 

EV prices have dropped significantly over the past 12 months of so following a price war triggered by Tesla. The EV leader favored growth over profitability which took a major hit. Its operating margin dropped from industry-leading 16.8% in 2022 to just above-average 9.2% in 2023, which leaves limited room to cut prices much farther. 

​

Cost reductions will come from lower battery cost ($139/kWh at pack level in 2023 according to BNEV), switching battery tech from NMC to cheaper LFP, as well as increased efficiencies in supply chains and manufacturing. But this will not be enough. New, lower priced models are needed.

​

The EV average transaction price in the USA is now close to that of the rest of the market — around $50k + tax — which has gone up substantially over the past 2-3 years. Affordability across the market has become a significant issue, accentuated by high interest rates. It should be noted that the average EV transaction price is largely driven by Tesla (about 55% share of the US EV market) whose product line starts at $39k + tax. Clearly not a price point for all buyers!

​

Solutions to accelerate adoption include more affordable models (see below) and sustained incentives to continue supporting growth in a tactical way. For instance, France recently introduced a very successful “social leasing” program, subsidizing E leases at 100€ per month (effectively 50 to 150€ depending on the model) for families with low revenue. Such an initiative not only facilitates access to clean mobility but will also fosters the development of low priced EVs.

 

​

Affordable Models Are Needed to Reach Volume and Protect Regional Turf

Whereas the higher-end segments are getting saturated, the market needs products at the lower end to reach the masses and build on the recent momentum. Dacia Spring (18.4k€) and Chevy Bolt ($27.5k + tax) have experienced relative successes respectively in Europe and the USA. But the former is built in China and will lose some European subsidies, and the latter just ended its production run. 

​

New models are coming in Europe at price points below 25k€, e.g., Citroën e-C3, Renault 5, VW ID.2 or Hyundai. However, similar announcements in the US in the $25-30k range are scarce although needed to replace the now defunct Bolt and expand across this segment. Nevertheless, Ford just announced plans for a “low cost” platform. The elephant in the room: Tesla’s future low-end car can be a major hit and generate a new wave of volume growth when it is introduced, likely in 2026. 

​

In the meantime, Chinese OEMs will increase their pressure on the European market. They initially leveraged their low-cost export base but will pursue local manufacturing — BYD announced a plant in Hungary — to circumvent protectionist measures as already deployed in France.

 

​

The Industry is Scaling Down Its Ambition, A Risky Move

Renault recently cancelled its plan to IPO Ampere, its EV- and SW-focus entity. VW’s PowerCo energy storage-focused units followed the same path. Market conditions are not ideal as investors no longer see the valuations corporates were anticipating.

Furthermore, some OEMs have announced plans to delay future EVs, (re)introduce PHEVs in some cases, or rein in capacity growth. Similarly, several battery supply chain operators are downsizing the investment plans as well as their workforce.

While some incumbent OEMs scale down their ambition, EV market leaders don’t show any sign of backing off. In 2023, Tesla and BYD jointly represented 3.4 million EVs or about a third of all battery EVs sold — and 4% of the overall light vehicle market. And they are not resting on their laurels. How far can this go? 

​

The industry’s ambition cannot be limited to products but must also address the charging infrastructure. Substantial public budgets, industry partnerships and other initiatives are underway not only to boost the number of public plugs but also to significantly increase their reliability. Likewise, the dealer network must further embrace EVs and address the loss of some maintenance revenue. It is critical that buyers feel comfortable with the overall user experience before committing to EVs.

 

​

This is A Marathon, Not a Sprint

There is no denial that a switch to clean mobility is a must — unless you want to ignore the data. We have no alternative to preserve our planet while continuing to enjoy the freedom to move about.

The automotive industry must take a long-term perspective towards clean mobility. Killing — or postponing — relevant products today mean lower volumes tomorrow. This would lead to a slower climb down the cost curve which is paramount to shifting the focus from early adopters to the mass market. This is a “Catch-22” situation whereby interrupting this virtuous cycle would lead to failure, which is not an option.

​

Whereas 2024 may look like a transition period or a sort of consolidation, I expect EV penetration to accelerate again in 2025. Indeed, fleet CO2 targets will drop by 15% in the EU and localization will accelerate in the US, allowing for more vehicles to benefit from federal incentives of up to $7,500. However, the forthcoming presidential election in the USA could also result in headwinds. 

​

In parallel, PHEVs offer a transition to accustom drivers to charging. However, the technology suffers from several downsides, i.e., higher complexity vs. both ICE and BEV, higher weight, and often missed benefits due to an underutilization of the charging capability.

Sensible product plans with lower-priced EVs, flexible capacity growth across the supply chain, an adequate charging infrastructure, and an EV-embracing distribution network are all critical to achieving the necessary goal towards zero-emission mobility. Easier said than done!