What is the Manufacturing Impact of Drop in Demand for EVs?

Manufacturing operations are facing significant hurdles as the global electric vehicle market experiences a cooling period.

Key drivers include the “Osborne Effect”, where manufacturers have heavily promoted future models with better range and solid-state batteries.

This has caused consumers to delay buying current models to avoid owning outdated technology, leading to delays across the industry.

Infrastructure and reliability gaps also remain, with charging availability uneven in rural areas. Concerns over high electricity costs and high-profile recalls involving Hyundai and Kia have reinforced a perception that electric vehicles are currently less dependable than traditional internal combustion engine vehicles.

Uneven infrastructure and charging gaps

Rapid depreciation and used market volatility have created a mistrust of valuation forecasts for leasing companies and reduced the confidence of private buyers who fear their investment will collapse in value.

For this – and other – reasons, the global car industry has taken a hit of at least US$65bn in recent months.

Stellantis took a $26bn charge to scrap fully-electric models and revive the 5.7-litre “Hemi” V8 engine in the US. It also decided to revive diesel engines for several European models.

This shift followed a reversal in climate policy in the US, where companies that made the biggest pivot away from petrol were hit hardest.

Retooling lines for traditional engines

Stellantis, the owner of Peugeot, Fiat and Jeep, had previously targeted for electric vehicles to account for all European passenger sales by 2030.

Industry executives now expect such vehicles to account for 5% of the US market in coming years, which is half the current level.

Ford recently disclosed a US$19.5bn write-down as it cancelled its electric F-150 pick-up truck. Ford CEO Jim Farley told investors that the global regulatory environment was the wildcard as the company refined its investments. “There’s enough choice around the world on electrification for us to cherry-pick customers’ choices,” he said.

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Production write-offs for major players

Volkswagen, Volvo Cars and Polestar have also suffered hits to their programmes. Bernstein analyst Stephen Reitman said carmakers failed to offer vehicles that met drivers’ price and range expectations.

“Everyone got caught up in the kind of euphoria of ‘look at the valuations Tesla was getting’ . . . and they didn’t bring the customers with them,” said Stephen, who noted the market had left customers behind.

Tesla has since ended production of its top-end Model S and X cars due to competition from Chinese rivals. Meanwhile, Honda forecast US$4.5bn of annual losses, including US$1.9bn of writedowns as it reassessed its overall production strategy.

Monitoring volume and production strategy

“The EV market is dramatically changing,” said Noriya Kaihara, Honda’s executive vice-president. “So we would need to monitor our sales volume trends and then we might have to take some [further] actions if needed.”

Honda is also negotiating the end of its partnership with General Motors, which has written down US$7.6bn on its electric operations. GM chief executive Mary Barra said its “end game” would remain electric vehicles, though the pace of transition is diverging.

As markets in the US and China move at different speeds, it will become more costly for manufacturers to offer hybrids, petrol and electric models simultaneously.

High costs of multi-platform manufacturing

Macroeconomic pressures, including high interest rates and the cost-of-living crisis, have made the higher upfront cost of electric vehicles a significant barrier.

Price parity with combustion engines has yet to be reached in many segments. In response, some manufacturers are refocusing on hybrid and petrol models.

Despite the struggle in the new car market, the used electric vehicle market is booming, with sales surging nearly 46% year-on-year as buyers seek more affordable entry points while manufacturers reset their long-term production goals.