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Are EVs down and out?


Now's as good a time as any to have a comprehensive report card about prominent technologies that have been extolled to save the planet, namely electric vehicles (EVs). Sales growth of electric vehicles has slowed dramatically this year. Tesla delivered 20% fewer cars in the first quarter of 2024 than in the prior quarter, and BYD saw sales decline more than 40% over the same period. BYD’s EV sales were still up 13% when compared to the same quarter a year earlier, while Tesla’s sales were down 9%. Both companies have been slashing prices to stimulate demand. Another possible sign of an EV downswing can be seen with Hertz, the car rental company, announcing in January that they would be selling 20,000 EVs from their rental fleet, citing a lack of demand from rental customers and high repair costs. They said that they would use the proceeds to buy more internal combustion engine cars.

It is important to understand why EVs are seeing lower sales and whether the issue comes from the demand side or the supply side. Tesla, a prominent EV maker in the space and in hot contention for the largest EV manufacturer with Chinese manufacturer BYD, blamed their sales decline on the production ramp-up of the facelifted model 3 combined with factory stoppages caused by shipping disruptions in the Red Sea and an arson attack by environmentalists in Germany. However, when you look at the industry on a macro scale, it seems that other EV makers are hurting as well. C.A.T.L, the world’s largest EV battery manufacturer, recently announced a decline in quarterly profits blaming slowing growth in demand for EVs and increased competition. Albemarle, the world’s largest lithium producer, reduced its 2030 demand forecast for lithium, a key element in EV batteries, as it now sees the shift to EVs in the US and Europe taking longer than previously expected. With important manufacturers along the EV supply chain lowering their forecasts because they believe EV demand will fall in the upcoming years, it seems more likely that the demand side is more to blame for the slowdown in EV adoption.

One might argue that due to the rise in global interest rates, demand for automotive vehicles must be down in general. But new vehicle sales in the United States rose nearly 5% in the first quarter despite the higher interest rates making car purchases more expensive for consumers. EV sales grew only 2.7% over the same period, well below the 47% growth and 7.6% market share achieved last year. Americans are buying more cars; they’re just buying fewer EVs than they used to. Numerous factors contribute to this declining interest in EVs, such as the differing climates across the US that quicken the degradation of the lithium battery in the vehicles, as they can’t handle very hot or cold climates, unreliability compared to diesel or gasoline vehicles, much higher depreciation in comparison to more traditional cars, higher insurance and maintenance costs, and a lack of SUV models, which is the preference for many American drivers. The two major factors are their higher prices and the lack of good public charging infrastructure.




The lagging momentum for EVs contrasts strongly with the resurgence of hybrid vehicles, as they have gained significant momentum over their EV counterpart. Many motorists like hybrid cars as they are cheaper and often more practical than fully electric vehicles - especially if you take long trips or have a longer commute. The hybrid market is led by Toyota whose stock is up over 90% in the last year. Ford – the number two hybrid manufacturer - expects its sales of hybrids to quadruple in the next five years. General Motors, who stopped selling hybrids in the U.S. four years ago in favor of EVs, now says it’s considering bringing them back. Toyota has been slower to focus on EVs than other manufacturers arguing that not all areas of the world will adopt EVs at the same pace due to the high cost and a lack of charging infrastructure. EV adoption has been a lot slower in the US than in Europe and China, and the reasons I mentioned are key contributors towards this. The average American drives twice the annual mileage driven by Europeans, and Americans take more long road trips than any other nationality in the world. Of the Americans who do own electric vehicles, most also own a combustion-powered vehicle too and are able to charge their EV at home making it more practical. To alleviate the high cost of EVs, US government programs offer incentives to EV buyers like a federal subsidy of $7,500 towards the purchase price, and on top of that, a number of states offer additional credits of between $1,000 and $7,500. Of the top 10 EV adoption states, five of them have state incentives according to the BBC. This pattern of higher EV adoption due to more incentives to buy EVs serves as a connective tissue to why some countries are adopting EVs at a much faster rate. For example, Norway has emerged as the world’s leader in EV adoption. 87% of the country’s new car sales are now fully electric. In the 1990s it looked like Norway could be a leader in EV manufacturing and for this reason, the government made EVs exempt from taxes on new car purchases, which today add an average of $27,000 to the price of each new car sold in Norway. EV owners were additionally made exempt from paying road tolls and parking fees. As the roads grew crowded with electric vehicles, the country began phasing out the free tolls and parking, and today only the first $45,000 of a new EV’s purchase price is tax-free. The German government abruptly canceled its electric car subsidy program in December of last year due to a budget crisis. The German government has paid out approximately 10 billion euros since 2016 to encourage EV adoption. According to Bloomberg, sales of new EVs in Germany would need to quadruple over the next three years and rise sixfold by 2030 to reach Germany’s goal of having 15 million EVs on the road. Germany is not the exception to the rule of having unrealistic standards for EV adoption rates and deadlines in which gasoline/diesel-powered should be phased out. The state of California announced in the summer of 2022 that the state would ban the sale of gas-powered vehicles by 2035, requiring all new passenger cars and trucks sold in the state to be electric vehicles. Within weeks of this announcement, California residents were asked not to charge their EVs to conserve energy as California’s electrical grid was overwhelmed due to a heatwave. This highlights the lack of good infrastructure in the US to maintain the demand for electricity that a full EV future would require.

One of the few countries most likely to meet its EV targets is China as it is most likely to meet its target of EVs making up 40% of vehicles sold by 2030. EV sales in China already make up 31% of vehicles sold. Sales data in China shows that while willing to buy EVs, Chinese consumers are increasingly showing an interest in hybrids that burn fossil fuels as backup. Chinese sales of EVs and plug-in hybrids rose 36% last year, which sounds impressive, but that is down from the 96% increase from 2022. While there was growth in 2023, it was slower growth. According to the China Association of Automobile Manufacturers, Chinese vehicle sales are down 20% this year as the Chinese economy has been slowing. The reduction of sales in China has been a big driver behind the huge growth in EV exports to Europe, as manufacturers have been exporting unsold inventory at rock-bottom prices. As a result, European governments are accusing China of illegally dumping EVs into Europe.


Last year, the Biden administration proposed stricter regulations in the United States requiring two-thirds of new vehicles sold to be electric by 2032. It is impossible to predict what global demand for EVs will be in the coming years when subsidies and incentives are being added and taken away constantly, and this constant flux is likely a significant contributor to the volatility in the share prices of EV manufacturers. If Trump is elected into office again, it’s highly likely there will be significant changes in EV incentives, thus adding more uncertainty into the EV space. Other than the volatility introduced by changing political administrations, quality control and the difficulty for used car buyers to know the condition of a battery due to the climate the car was exposed to and how frequently it was fast-charged, adds to the hesitation of drivers opting into the EV space. Innovations in battery technology, better ways to charge are important advancements that need to be made in order for EVs to maintain relevancy. Due to the volatility of the industry, it is difficult to predict what EV demand might look like in the coming years as so much of it is driven by political decisions that can change at a moment’s notice. Therefore, I think a better solution that isn’t reliant on factors like EVs improving significantly or steady policies of subsidies and tax credits is a heavy push to expand and improve public transportation, especially in countries where it's lacking like the US. To be honest, I don’t think EVs are going anywhere, but they still have a long way to go in competing with gas vehicles, in terms of range, price, durability, and depreciation, before there is more widespread adoption.

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