Equities
EV Sales Slow Amid High Costs, Policy Uncertainty, and Charging Shortage
EV sales slow globally as hybrids gain traction, with HEV sales potentially exceeding projections by 1-2 million vehicles.
Key Takeaway
- EV sales are slowing globally due to high capital costs, policy uncertainties, and a shortage of rapid-charging stations.
- Hybrid vehicles (HEVs) and plug-in hybrids (PHEVs) are gaining traction, with US hybrid sales outpacing EVs recently.
- China's excess EV production capacity poses a threat to Japanese brands in Southeast Asia but faces barriers in the US, Europe, and India.
EV Sales Momentum Slowing
Sales momentum for electric vehicles (EVs) is decelerating globally, with hybrids (HEVs) and plug-in hybrids (PHEVs) proving more competitive than initially anticipated. Goldman Sachs Research analyst Kota Yuzawa notes that the bear case for EV sales is becoming more likely. Despite this, Yuzawa sees investment opportunities in automakers with strong balance sheets and diverse powertrain lineups. The team also expects gradual growth in EV demand as the pursuit of carbon neutrality continues.
Yuzawa identifies three main factors hindering EV penetration: rising concerns about EV capital costs due to lower prices for used EVs, uncertainty around government policies affecting the EV industry due to upcoming elections, and a shortage of rapid-charging stations. For instance, used EV prices in the UK have fallen sharply in recent months. Additionally, several automakers have expressed concerns about driving range and charging infrastructure, which may deter consumers from purchasing EVs.
Hybrid Sales Gaining Traction
As EV sales slow, HEVs and PHEVs are experiencing accelerated growth. In the US, hybrid sales have outpaced EVs over the past several months. Yuzawa believes global HEV sales could exceed projections by 1 to 2 million vehicles. HEVs are seen as a transitional technology that can help reduce CO2 emissions while maximizing earnings and supporting investment in EVs for automakers.
HEVs offer a significant advantage in terms of payback period compared to EVs, with an estimated payback period of just over three years, assuming annual fuel savings. The first HEVs were introduced in 1997, leading to high confidence in their used car prices. Additionally, HEVs have shown higher horsepower performance than gasoline-engine vehicles, providing reassurance to drivers in situations like merging into fast-moving traffic on highways. However, if EV costs decrease by 2030, the advantages of EVs may come back into focus.
China's Impact on the EV Market
China's excess production capacity, currently over 5 million vehicles, is driving efforts to expand domestic EV uptake and export EVs to overseas markets. China benefits from cost advantages due to its concentrated EV supply chain, including batteries, and is highly competitive in lithium iron phosphate batteries. However, government policies in the US, Europe, and India aim to block Chinese EVs from entering their supply chains. Given that EV demand outside China is limited, it is unlikely that China's supply surplus will be easily eliminated.
Chinese EV makers pose a significant threat to Japanese brands, which have maintained high market share in Southeast Asia for many years. Southeast Asia has become a major export destination for Chinese EVs since 2023. The extended payment cycles of Chinese EV makers, such as Nio and Xpeng, indicate financial stress in the industry. Nio took around 295 days to clear its receipts payable at the end of 2023, compared to 197 days in 2021. Xpeng took 221 days, up from 179 days in 2021. In contrast, Tesla took around 101 days, with this period remaining stable over the past three years.
Street Views
Kota Yuzawa, Goldman Sachs Research (Bearish on the global EV market):
"We think our bear scenario calling for a year-over-year decline in EV sales volume in 2024 has become more realistic given the three negative factors outlined above."
Kota Yuzawa, Goldman Sachs Research (Bullish on automakers with strong balance sheets and multiple powertrains):
"Now is the time for upfront investment in vertical integration. As we expect demand will eventually shift to EVs in pursuit of achieving carbon neutrality... We are bullish on automakers with strong balance sheets and lineups with multiple powertrains, such as HEVs."
