Is the EV market in crisis?

In response to the September 2024 new vehicle registrations data, the media narrative that the EV market is in crisis once again came to the fore.

The SMMT and some automotive manufacturers had written to government that “the EV market looks set to miss its targets”, citing costs of zero emission vehicles (ZEVs) remaining prohibitively high to the private consumer. Complementing this, national news ran headlines that diesel sales are “outpacing” electric.

To back up the idea of a crisis, the narrative calls into question the achievability of ZEV targets, demand for ZEVs, cost of ZEVs and provision of charging.

It is both a misrepresentation of the September data, which shows the biggest month of EV sales ever in the UK, and on an ongoing basis is setting up false factors "to blame" (targets, demand, costs, charging).

The widely reported claim that diesel sales are “outpacing” electric is based on year-on-year growth in one narrow category of sales, on which the auto manufacturers’ letter also focussed: private buyer registrations (i.e. an individual consumer buying a new car outright).

In practice, over half of all new vehicles are bought by fleets and a high proportion become private vehicles via leasing, rental or the second-hand market. The private buyer data point has been carefully chosen to argue that ZEVs are too expensive, and does not reflect the reality of the ways individuals buy and drive cars, or indeed the reality of the data.

With respect to diesel, the September data as a whole shows:

• Year-on-year growth +13.2% for BEV versus -12% for Diesel
• Year-to-date volumes of 269,931 BEV versus 97,649 Diesel

Where growth lies is even more apparent looking at older figures: as recently as 2020, September year-to-date sales saw 66,611 BEVs vs 209,093 Diesel.

The ZEV Mandate sets a headline target for manufacturers to sell 22% zero emission vehicles in 2024. In practice, manufacturers can achieve the 22% target thanks to credit trading schemes.

Independent research firm New Automotive reports that when the excess credits are taken into account, the industry as a whole is easily outperforming the 2024 target. This makes it very unlikely that any firm will have to make the “swingeing compliance payments” referenced in the letter; they will be able to buy credits cheaply from others who are overperforming.

Furthermore, the requirement to sell greater numbers of EVs has been signposted since 2020, giving auto manufacturers several years of visibility in advance of regulation. With the undisputable environmental benefits of the EV transition, there is only one direction of travel for the industry. The long-term impact of failure to meet achievable near-term targets is clear in the current state of the water industry.

In the words of New Automotive’s CEO Ben Nelmes,

“Let us not accept as settled fact that a dynamic global industry with a well-established capital base cannot respond to a UK regulation that provides a balanced diet of carrots and sticks to drive progressive change. They can.”

It is not only the narrative of EV sales in crisis and targets set to be missed that is inaccurate.

The auto manufacturers’ letter states that assumptions about “steady economic growth, ever cheaper batteries, plentiful raw materials and critical minerals, cheap energy, low interest rates, growing demand” have been “flawed”, with the result that “ZEVs remain stubbornly more expensive and consumers are wary of investing.”

Here are the corrections on several of these factors, including on the overarching argument that ZEVs remain more expensive for consumers.

Batteries are getting cheaper and will continue to do so. Bloomberg NEF reported that Lithium-Ion battery pack prices hit record lows in November 2023, and the continuing decline between then and 2026 is now predicted by Goldman Sachs to be close to 50%.

Source: Goldman Sachs

Raw materials and critical minerals have been plentiful. S&P Global reported surpluses in essential battery metals and a subsequent decline in raw materials pricing in 2023, continuing into 2024. The supply chain is being built.

Source: Bloomberg NEF

Demand for EVs is growing. Consumer appetite for fully electric has grown over time, translating into robust growth in EV sales since 2020. Bloomberg analysis of global adoption rates suggests the pivotal tipping point for mass adoption is when 5% of new car sales are fully electric. It was 20.5% year-to-date in September.

EVs are not more expensive than their ICE counterparts. There is now price parity in all market segments (see chart). Some companies are unable to or have chosen not to make cheaper EVs, preferring larger profit margins. But looking at the market as a whole, UK policy is successfully driving the arrival of cheap EVs, such as the Dacia Spring (£15k), Citroen e-3 (£21k) and Hyundai Inster (£23.5k). The new Vauxhall Frontera costs the same in electric or petrol (£23.5k). This is largely due to government retaining low tariffs, thereby aiding hard-pressed consumers and business and spurring effective competition.

The letter further states “A lack of confidence in the UK’s charging provision is another major barrier.” This is unsubstantiated. Roland Berger’s independent EV Charging Index recently reported UK EV drivers to be the most satisfied of Europe, with 85% stating their charging experience to have been satisfactory or very satisfactory.

In fact Roland Berger have recently published an independent paper on the economic potential of eMobility, including the sector’s growth and investment so far, and critical role in the energy transition. Read it here.

Sources:

SMMT vehicle sales data, September 2024

S&P Global Market Intelligence news, March 2024

Bloomberg New Energy Finance news, November 2023

Roland Berger Powering Ahead paper, 2024

Goldman Sachs research data

New Automotive research and commentary

Bloomberg NEF 2024 Electric Vehicle Outlook