Automotive companies have scaled back their plans to produce and sell electric vehicles (EVs), instead focusing their attention on more profitable legacy petrol-powered cars and hybrid models.
At least 15 well-known car brands have delayed their switch to all-electric vehicles and launch of new EV models, according to research consultancy CRU Group, including the likes of Aston Martin, Audi, Ford, General Motors, Mercedes-Benz, Toyota and Volvo.
Higher price tags for battery electric vehicles (BEVs) than internal combustion engine (ICE) cars, and higher interest rates that makes financing new purchases more expensive, have added to consumer worries about EV charging infrastructure and driving range.
Car brands have hit the brakes on their electrification strategies as they have struggled to move beyond early adopters and wealthy consumers and sell their EVs into the mass market. It also highlights the difficulty in adjusting their factories to produce competitive EVs, which are more reliant on software than ICEs and need competitively priced battery technology.
Edward Sleijffers, industry lead for automotive and mobility at digital acceleration agency Newcraft, tells fDi that weaker western demand for EVs is rooted in the fact that automotive original equipment manufacturers “have failed to manufacture affordable EVs quickly enough” after the initial wave of interest in premium and luxury sports utility vehicles (SUVs).
Swedish automaker Volvo Cars, which is owned by China’s Geely, said on September 4 that it would abandon its goal of selling only fully electric cars by 2030, instead aiming for between 90% and 100% of global sales.
US carmaker Ford said last month it would reduce its percentage of annual capex going towards purely EVs from 40% to 30% and cancelled plans to build all-electric three-row SUVs, instead opting to produce hybrid SUVs. Its rival GM has also shifted its EV strategy to include plug-in hybrid models.
Wolfsburg-based Volkswagen is considering closing German factories for the first time in its 87-year history as part of its painful transition to EVs, which has seen falling demand for its cars in Europe and China, its largest market.
While each automaker has its own challenges, they are all facing tough competition from much cheaper Chinese EV rivals such as BYD, Nio and XPeng, which have all recorded strong growth in their EV sales. Governments, including those of the EU, US, Canada and Turkey, have imposed tariffs on EVs made in China to protect their domestic auto industries from competition. This has led Chinese automakers to invest in countries with free access to western markets to get around these tariffs.
It suits Western automakers to push back their EV targets and investment as they are not yet in a position to be competitive with Chinese EV makers, says David Leah, senior automotive analyst at CRU Group. “They will build up their capability at a more reasonable pace,” he says, underlining the need for these automakers to manage their existing combustion engine businesses.
The toned-down EV strategies also reflect the financial pressures on automakers that have invested heavily into building out capacity to produce batteries and repurpose their existing plants. Research by fDi Intelligence found that western automakers have suspended or cancelled battery joint venture projects worth at least $13bn as part of the readjustment.
Carmakers are also shifting to focus on plug-in hybrids because they are able to generate more revenue from maintenance than with pure EVs. “Automotive manufacturers make money from maintenance in the supply chain. With battery electric vehicles, they actually lose one of their key revenue streams,” says Andy Leyland, managing director of SC Insights, a consultancy.
Sales of BEVs have been lower than expected, particularly outside China, the world’s largest EV and automotive market. Sales of BEVs in China rose by 22% year-on-year to reach almost 5.5m in 2023, according to data provided by CRU Group. At the same time, BEV sales in Europe were 2.11m in 2023, up by 34% on the previous year but less than half sales in China. North American BEV sales rose year-on-year by 55.9% to 1.34m, but were still less well below Europe’s.
fDi
