Lies, damn lies and entrenched interests. 

Introduction 

Some people, for whatever reason, claim that the sales of electric cars are in decline. Let’s analyse the 2022/2023 data for the UK and see what we can make of that claim

With thanks to Graeme Cobb, who gave us permission to reproduce his excellent analysis on Twitter.

What’s happening to EV sales

The media like to record the decline of the EV, in particular to manufacturers slowing down their rollout, some withdrawing earlier promises to go all-in on EV by 2030 and some ploughing ahead with their current ICE strategy regardless.

I have some thoughts on this.

Plug-in cars enjoyed a 280% growth between 2019 and 2021.

SMMT

The Society of Motor Manufacturers and Traders (SMMT) published data showing a growth in EV sales year-on-year. They also state that plug-in cars enjoyed a 280% growth between 2019 and 2021. With over 1 million EVs on the U.K. roads now, there is demand there.

So what is allegedly slowing demand?

With a cost of living crisis, high interest rates applied to borrowing on large purchases, and the U.K. teetering on the brink of recession, plus relatively high energy prices and ever increasing global instability, its unsurprising sales in luxury goods have slowed. This is especially true of the more costly cars, which include most EVs at the moment. So it’s true that sales of private EVs have fallen in the last year.

However, whilst private sales of EVs fell, sales in EVs grew 21% year-on-year overall, buoyed by fleet sales, or leased and salary sacrifice lease sales.

Some consider lease and SS lease a risk-free ownership experience especially for EVs who’s tech, like a smart phone, may lag newer EVs by the end of their lease term.

Second hand market

With residuals on used EVs declining, this may be a prudent approach in the short term.

As an aside, sales of used EVs has soared 90% year-on-year thanks to those declining residuals.

Sales of used EVs has soared 90% year-on-year

Side Note: 2022 – 2023 saw a huge peak in new car prices, including EV prices, thanks to post-pandemic supply chain issues, chip shortages and volatile energy markets.

With a glut of EVs coming off lease from 2020 and 2021, we can see more choice entering the used market, but the price drop is significant from that post-pandemic peak for EVs built in 2022 and 2023 EVs. Prices are now normalising.

What about petrol, diesel and hybrids

Internal Combustion Engine vehicles (ICE) which have a petrol or diesel engine, are also struggling. Looking further at SMMT new sales data, petrol sales grew by just 7.5%, diesel and ‘self-charging’ hybrid sales declined 10% and 1% respectively, but plug-in hybrid (PHEV) sales grew 31%.

There is a trend towards more plug-in electrification, not less.

Plug-in hybrids offer owners a stepping-stone into EV ownership, though with the added expensive of maintaining an internal combustion engine. Their purchase prices is often lower than a battery only EV (BEV).

Could this be temporary? With battery prices falling steadily this may not be true for much longer. Then, in under 11 years, petrol and diesel cars will be banned entirely from being sold as new vehicles in the U.K.

So why are manufacturers slowing down their production of EVs?

Partly because they see an uptick in PHEV sales, but mostly because these manufacturers need breathing space to re-engineer their EV platforms. Often they will sell an ICE, HEV, PHEV and EV version of the same car on the same production line. This doesn’t make for an optimal EV. This is especially true for German and Japanese manufacturers, who haven’t really embraced the transition.

For almost all manufacturers, despite taking this shared body approach to their line-up, they make a loss on every EV sold. This will be compounded by the ZEV mandate that requires them to build more EVs, not less, or face very hefty fines (£15,000 per car) so they need to work out how to make EVs profitably. If they don’t, by 2035, they will quickly go out of business and they know this.

Additionally, for most manufacturers production volumes of EVs are low vs their ICE production. To reach economies of scale, they need to build more EVs not fewer.

With many advocating PHEV, which is built on an ICE platform, it’s easier and more profitable to churn these out. In addition, they have likely secured a supply chain for smaller numbers of batteries years back when they forecast growth of EVs at a slower rate.

So, they’re constrained by production and manufacturing inefficiencies and battery supplies.

What effect are battery prices having

With China having reached $50 kWh in battery manufacturing costs (vs $1000 kWh 12 years ago), battery costs are no longer the issue. It is now entirely probable that EVs can be made and sold at price parity with their internal combustion counterparts.

With China having reached $50 kWh in battery manufacturing costs (vs $1000 kWh 12 years ago), battery costs are no longer the issue.

Changing manufacturing practice

But batteries are only one part of the issue. In order for an EV to provide great range from the least number of cells, that car needs to be lighter, built efficiently using bespoke EV architecture and built more quickly than ICE cars. And this is the sticking point because many manufacturers are not building optimised EVs and they haven’t reached volume production.

I nerd out on vehicle data and I also watch tear-down videos of EVs by Munro and Associates and can see, and I’m told by the industry experts, they are not being built optimally.

This could be the reason for the pause – manufacturers need to reset and create new manufacturing techniques and technologies in order to build better, more compelling EVs profitably.

Where does that leave us and legacy car manufacturers

The concern for car companies now is that (great) Chinese cars are coming and they will have a price advantage.

That 2035 deadline still looms in the UK, in Europe and beyond. EVs are coming. This is a market disruption event and there will be winners and losers.

The losers will be those manufacturers in denial and ploughing ahead with their incumbent technology.

The losers will be those manufacturers in denial and ploughing ahead with their incumbent technology.

The winners are those who innovate in the EV space quickly and those that can offer better EVs for less money.

The next 10 years could entirely change the landscape of the U.K. vehicle fleet.

These are just my thoughts and I know others will weigh in with opinions. All are valid, but these are just my ramblings so do not take my word for it, look for the evidence yourselves and draw your own conclusions whatever they are.

Graeme Cobb

Source: https://smmt.co.uk