“Reports of the demise of electric vehicles have been greatly exaggerated” – S&P Global Mobility
Electric vehicle (EV) sales are growing, not slowing, according to a new report from the International Energy Agency (IEA). But in the past six months the EV narrative has changed dramatically, from high growth to sputtering sales, perhaps even the end of transportation electrification. What’s going on?
In a word, change. Let’s start with the IEA’s data.
Global sales grew by 35 per cent in 2023, adding 14 million to a global fleet of 40 million electric cars and trucks. That’s still a drop in the bucket, only 2.6 per cent of the global automotive fleet of just under 1.5 billion. And sales were concentrated in just three regions: China (60%), Europe (25%), and the USA (10%). Major markets like Japan and India still haven’t warmed to electric cars.
The big story, though, is the automotive industry.
Roughly 25 years ago, China decided that its rather large automotive industry would never catch up with American and European internal combustion engine technology. The national government went all-in on “new energy vehicles” by employing what was then an outmoded idea: industrial policy. Generous support was provided on both the supply (manufacturing) and demand (consumers) side. The government also invested in supply chains, like batteries, and infrastructure, like public charging stations.
Not long ago, China had 700 EV makers. Now it has 100. Fierce competition and thin (often non-existent) margins are expected to thin out the herd to around a dozen.
Leading Chinese companies like BYD are destroying the competition. Tesla is frantically cutting prices to remain relevant to China’s consumers. Legacy manufacturers like GM, Ford, and VW are cutting back EV plans, partly because they haven’t mastered the basics like software and batteries. Meanwhile, China is packing more and more desirable technology into its “rolling iPhones,” which is what consumers want.
While China’s EV makers focused on the low to mid-range of the market and learned how to make a $10,000 car, like BYD’s Dolphin. That expertise is under-valued by the West and the oil-producing nations. China is already beginning to export EVs in large quantities to emerging economies in Latin America and Asia. In some cases, like BYD in Brazil, they are building factories to serve local demand.
Cheap EVs coupled with cheap solar panels looks to be a winning combination in markets where price really counts: emerging economies. Why build landlines when you can buy cell phones?
You can listen to or read the transcript of my Energi Talks interview (China’s EV revolution: What makes it tick?) with Anders Hove, a member of the China Energy Research Programme at the Oxford Institute for Energy Studies.
US Treasury Secretary Janet Yellin was recently in China fretting over the clean energy manufacturing “over-capacity” that has driven down prices for solar, batteries, and EVs. Especially worrying is that China’s government intends to keep on subsidizing more and more production. Where will all those surplus units go? To more and more low to middle-income markets, of course.
Meanwhile, legacy automakers are struggling to pivot to electric. Pursuing their usual strategy of starting at the high end of the market now appears short-sighted and foolish. When car salesmen complain in American news stories about how there aren’t enough “early adopters,” what they mean is that the pool of buyers willing to fork over $80,000 to $100,000 – or more – for a Ford F-150 Lightning is rapidly diminishing.
But Hyundai says that they could sell twice as many of the Ioniq 5 (which starts in the low $40,000s, mid-$30,000s with rebates) if their South Korean factories could produce them.
Consumers aren’t the problem.
The North American industry and governments’ reluctance to invest in public charging infrastructure at anything like China’s pace is also a huge problem. BloombergNEF estimates that $100 billion has been invested globally in charging. But look at the distribution: China accounts for 69 per cent, with Europe a distant second at 17 per cent, and the US at a paltry six per cent.
Why the IEA report is important
Too often, North Americans are fixated on their own navels and forget there is a big world out there. The IEA provides a global lens on the EV industry’s future.
Here’s what automotive veteran Carlos Tavares, Stellantis CEO, thinks of that future.
“The magnitude of the Chinese offensive, the competitiveness that they can demonstrate and the massive arrival of all of their best carmakers is a significant change,” he told Bloomberg a few months ago. “If the automotive industry doesn’t move, this industry will disappear under the offensive of the Chinese industry.”
BYD’s CEO Wang Chuanfu has declared war on gasoline, calling on other Chinese EV makers to “kill” combustion technology. The IEA modelling shows what that war might look like.
Under the Announced Policies Scenario (APS), the most likely in my opinion, the global EV fleet reaches 600 million by 2035, just 11 years away. EVs account for two-thirds of all vehicle sales by then. Include similar (though somewhat less aggressive) trends for two and three-wheelers, buses, medium-duty trucks, and long-distance freight haulers, and it’s not hard to imagine Chuanfu winning his war against gasoline and diesel.
The Americans and Europeans are waking up to the China threat. Canada, unfortunately, remains mired in the energy past, captured by oil and gas incumbents that refuse to adapt to a rapidly changing global energy system.
The IEA’s 2024 EV Outlook should be required reading for Canadian CEOs and policymakers at all levels.
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