Shift to Electric Mobility Gets Pushed Out
Marc Amblard
Senior Advisor on the Mobility Revolution & Autotech | Based in San Francisco
The consensus across the automotive industry still remains that all vehicles will eventually run on electricity, completely taking fossil fuel out of the mix. However, we are currently experiencing slippage in the shift towards electric mobility. Yet, an increasing number of climate events across the planet tell us that time is limited to drastically curb CO2 emissions in transportation.
Back in February, I analyzed the slowdown in vehicle electrification in my article “Is EV Growth Really Stalling? What to Expect Next”. In this article, I will explore the impact this shift has had on OEMs’ plans and their supply chains, as well as what can be done to restore the growth we badly need to rapidly electrify mobility.
I will purposefully focus on the European and U.S. markets, excluding the China where BEV sales continue to grow, already exceeding 25%. I will also not address Chinese vehicles sold in Europe — for reference, none are sold in the U.S. which will likely be the case for several years.
EV Sales Growth Continue to Lose Steam in Europe and the USA
In Europe, BEV sales have decreased y.o.y. so far this year in part due to the critical German market. BEVs reached 12.5% of new cars sales for Jan-July 2024 vs. 14.6% in 2023. Hybrids (HEV) and plug-in hybrids (PHEVs) saw their share grow to 29.6% and 6.9% year to date.
This market suffered from EV incentives which expired at the end of 2023 in Germany, Europe’s largest automotive market. However, the local government is considering restoring some sort of fiscal incentive to rebuild the lost momentum.
In the USA, the BEV market penetration is flat at around 7.2% of the light vehicle market so far this year. Volume grew slightly after going up by over 50% in 2023. JD Power is projecting BEVs to represent 9% of the market for the full year.
Outside China, slower growth — or even a recent decrease in Europe — can be partly attributed to Tesla’s lackluster performance. The global BEV market leader has not introduced a new vehicle since 2019 — its model range is about six years old on average. The company CEO’s recent political positions are also deterring some buyers. In my opinion, Tesla will miss an opportunity to grow their EV sales if they confirm they will not introduce a vehicle in the mid $20k (or 20k€) — I believe their robotaxi ambition is still too far-fetched.
In the USA, Tesla’s share of the BEV market dropped below 50% in Q2 2024 from 66% two years prior while many incumbents saw their BEV sales grow significantly. In Europe, BMW recently took over Tesla’s BEV sales crown. In both regions, Tesla’s loss of sales momentum weighs on the overall market given their relatively high share. The company has clearly lost its locomotive role.
Incumbent OEMs Postponed BEVs in their Product Plans
A few years ago, most established OEMs made bold announcements about their shift to full electric model ranges. Some indicated all their new models would be battery electric at a given time, e.g., Cadillac starting in 2021, Nissan Europe in 2023, Jaguar in 2025, Alfa Romeo in 2027, Opel in 2028, or Chrysler in 2028.
Others initially announced their timeline for reaching 100% BEV sales, although at a later stage. This is the case for Stellantis, Renault, Ford (passenger vehicles only) and Nissan for their European sales, for Volvo globally, and Lexus in N. America, all by 2030. Audi and VW Europe positioned their shift to 100% BEV sales in 2033. And GM announced “no tailpipe emissions” by 2035.
The tone has clearly changed as most OEMs have pushed out the introduction of new models or their commitments to full electric fleets. Last February, Mercedes-Benz postponed their electrification target, adding hybrid versions back in the mix well into the 2030s. Renault will now continue to offer ICE-based powertrain beyond 2030. In July, General Motors said they will not meet their plan to achieve 1 million BEVs by 2025, and delay the launch of new BEVs as well the opening of a battery plant by one year.
Last month, Ford announced they were reducing their investment in new BEVs, scraping a planned three-row electric SUV and delaying an electric pickup by 18 months. Earlier, the company said they were reconsidering their plan to go full electric by 2030 in Europe. This week, Volvo announced it was amending its plans to have an all-electric fleet by 2030, now shooting for 90% BEV+PHEV vs. 100% BEV previously.
Most OEMs will compensate the lack of CO2-free vehicle sales by quickly adding HEVs or PHEVs in their line-ups. Likewise, Extended Range EV may become more common as they are fast becoming in China. This emerging powertrain type — first seen on the Chevrolet Volt in 2010 — features a small internal-combustion engine that operates as a generator to charge a potentially smaller battery. This solution may alleviate range concerns.
What Can be Done for EV Sales to Grow Again?
Incumbents’ first-generation platforms are, well, first generation. For instance they lack the maturity of Tesla vehicles in EV-specific technologies. Powertrain efficiency (mi./kWh or kWh/100 km), overall packaging (e.g., lack of front trunk) and cost (i.e., low profitability) are not on par with market leading Models Y and 3.
Vehicles based on second generation platforms are expected to be significantly more mature than current ones on these metrics, as well as for software integration to some extent. I expect new models launching in 2025 onwards to significantly close the gap with Tesla products.
In the USA, the average transaction price for BEVs stands at $57k vs. $48k for the overall light vehicle market. The cheapest BEV (Nissan Leaf) is priced just below $30k. Conversely, too many BEVs have been positioned north of $70k — e.g., large pickup trucks and SUVs — where the market is limited, thus delivering disappointing sales. It is critical for more BEVs to be positioned at the core of the market and for models to be introduced below $30k as Ford seems to have understood. Several such vehicles have already been introduced in Europe.
The charging network — or perceived deficiency thereof — also plays a key role although significant investment is underway. Yet, it seems difficult to the match the growth rate of the charging infrastructure with that of the EV fleet. Too fast a growth leads to a low ROI for the sites, too slow translates in constraining vehicle sales as potential buyers need reassurance regarding charging.
Dire Consequences if Sales Growth is not Restored
The fact that most OEMs are reconsidering the speed at which they are shifting to EVs has a direct — and often painful — impact on the entire supply chain. Incumbent suppliers have invested heavily in motors, power electronics, battery packs, EV-specific thermal management solutions, etc., based on their customers’ plans. Most end up having idle capacity which weighs heavily on their financials.
In addition, several battery companies have issues keeping the lights on such as Ionic Materials whereas Freyr and Northvolt are adjusting their footprint (closed US entity Cuberg). Many others — alongside their OEM partners — are scaling down investments in new capacity.
Furthermore, the CO2 emissions limit will drop in January 2025 in Europe, thus putting pressure of OEMs to shift more sales to zero-emission vehicles. Yet, Renault’s CEO recently indicated that the European auto industry would suffer fines amounting to about 15 billion euros given the current trajectory towards electrification.
We must also keep the mid-term objective in sight. Europe and California have voted to ban the sales of CO2-emitting vehicles by 2035. Yet, Italy is now challenging the EU to advance to early 2025 a reassessment of the ban originally planned in 2026 given the current trajectory.
Energy flexibility is the name of the game for the next few years. Yet, the clock is ticking to fully decarbonize mobility.
Marc Amblard / Founder & Managing Director, Orsay Consulting
Orsay Consulting is a boutique advisory firm based in Silicon Valley and focused on mobility and autotech. We provide global startup and tech scouting thanks to our proprietary repository with curated information on 4000+ companies across the globe (90%+ startups), deep market insights, executive workshops, keynotes and strategic advisory services to corporate clients. We also advise several startups in the USA and Europe.
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Leverage Silicon Valley
3moGreat analysis Marc!
Head of Sales for TheSignallingCompany
3moInsightful! It seems that governments expectations were ahead of the market’s ability to deliver. Hybridslooks like a good next step until battery costs and range improve