An inconsistent EV transition
While growth has slowed, electric vehicles continue to dominate the outlook
The transition to electric vehicles (EVs) is unfolding unevenly across global markets.
GlobalData reports a sharp slowdown in global battery electric vehicle (BEV) demand, with first-half 2023 growth at 37% year-on-year, dropping to 10% this year.
This deceleration has prompted automakers to recalibrate their strategies to align consumer expectations with the actual capabilities of EVs available today, whether through plug-in hybrids or BEVs.
The slowdown is particularly evident in Europe, where demand growth has been reported at under 4% for the year to date. This has been attributed to consumers slowly recovering from challenging economic conditions, persistently high prices for BEVs and reduced government incentives, especially in Germany.
In contrast, the US EV market has experienced moderate growth in BEV sales, which are up by 7% compared to last year.
Falling demand growth aside, ambitious targets continue to be set to achieve an electric future.
Range anxiety remains a significant obstacle, however – particularly in areas with limited charging infrastructure. This is especially true in the Middle East, where residents of apartments and high-rise buildings struggle to find charging networks.
Along with high purchase prices, these are the two main factors preventing consumers from transitioning to EVs.
Understanding and addressing these perceived shortcomings are critical to encouraging adoption.
“Despite a slowdown in EV adoption, it is essential to consider the overall market context,” said Benjamin Asher, global head of automotive at GlobalData. “Global vehicle sales grew by around 2%, but EVs, particularly BEVs, still grew by 10% – five times faster than the rest of the market, though significantly less than the previous year.”
The semiconductor crisis and post-Covid demand shifts contributed to this dip, as 2023 saw a boost from pent-up demand due to the easing of supply chain disruptions and changing consumer behaviour.
Asher views the current situation as a temporary slowdown, expecting demand to stabilise and resume growth as the market adapts.
His comments came during a Mashreq MEED automotive roundtable that brought together industry leaders to examine the EV market and delve into its impact on businesses, consumers and policymakers.
Affordability and infrastructure
The transition to EVs will hinge on affordability.
This is largely because internal combustion engine (ICE) cars remain comparatively more affordable than their electric counterparts in most markets.
The International Energy Agency reports that the EV market as a whole is still 10%-50% more expensive than ICE vehicles in Europe and the US, depending on the country and vehicle segment.
This price disparity makes it difficult for potential buyers of BEVs to justify the financial investment, negatively affecting sales.
Additionally, the weak regulatory framework in these regions is not incentivising original equipment manufacturers (OEMs) to expedite the launch of new BEV models, further hindering market growth.
China, on the other hand, has achieved economies of scale, states Asher, which have helped to drive down EV prices.
For example, the BYD Seagull is priced at just $10,000 in China. Even with a 27.5% import tariff, it would still undercut every EV available in the US if it were sold there.
Another threat to adoption is the low resale value of these vehicles.
“According to McKinsey, in the US and Australian markets, for instance, about 46%-50% of consumers are reluctant to repurchase EVs,” said Karim Amer, head of automotive, heavy equipment and multinational trading corporates at Mashreq.
Concerns about range anxiety, resale value and higher insurance premiums, coupled with higher costs, contribute to this hesitancy.
However, swapping lithium-ion batteries for solid-state batteries could be key to mitigating range anxiety. An extended-range electric vehicle (EREV) with a small gasoline generator could extend the range by up to 2,000 kilometres.
Attempting to address these concerns is Japanese automotive giant Nissan Motors, which recently patented second-life battery technology (2SAB) aimed at maximising the lifespan of EV batteries.
Discussing its functionality, Krishna Acharya, general manager for treasury and trade finance at Nissan Middle East, explained that the technology allows EV batteries to be repurposed for less demanding applications – providing them with a ‘second life’ in roles such as stationary energy storage once they are no longer capable of supporting full vehicle performance.
Globally, there is a push towards energy efficiency, aiming at packing more power into less space.
“We are seeing a trend in EVs where the cost per kilowatt is dramatically decreasing and energy consumption per kilometre is also falling, due to improvements in battery efficiency, motors and wheels,” said Ajit Kumar, chief operating officer for commercial at Saeed & Mohamed Al-Naboodah Group.
China impact
According to a McKinsey report, China was the global leader in e-mobility in 2023, with BEVs comprising one in every four car sales.
As of August, over 50% of all new car sales in the country are new energy vehicles (NEVs), including BEVs, plug-in hybrid electric vehicles and EREVs.
Known for their rapid development of intelligent technology, adaptability and local market strength, Chinese automakers are redefining competition – moving beyond traditional global brands to mainstream success with companies such as BYD, NIO, Xpeng Motors, Li Auto and Geely.
“With their vast scale and focus on democratising BEVs, Chinese brands are leading the charge,” said Oscar Rivoli, CEO of Al-Ghurair Motors.
Previously focused primarily on sales, these automakers now engage directly with consumers to better tailor their offerings to meet market needs.
Besides their domestic dominance, these brands have also penetrated global markets.
According to GlobalData, BYD is the largest Chinese automotive brand globally, primarily due to its strong sales within China. It is forecast to sell 4 million units in 2024 – of which around 3.7 million are expected to be domestic sales. Outside of China, MG, part of the SAIC group and focused mainly on exports, leads with an estimated 600,000 units forecast for 2024.
“In the UAE, Chinese brands hold about 10% of the market, on par with European and American brands. In the UK, they have captured 15%-16%, largely at the expense of Japanese and Korean competitors,” said Rivoli.
This growth in market share reflects a broader shift in China’s automotive landscape, highlighting the rapid evolution of its industry.
“Two years ago, China was a net importer of finished cars, importing $40bn-worth,” said Amer. “As of today, they have made a remarkable $70bn swing, transforming from a $40bn net importer to a $30bn net exporter.”
Setback for OEMs
Transitioning to EVs necessitates establishing entirely new production facilities and platforms, mainly because modifying existing factories to accommodate EV manufacturing is often not economical.
Most traditional automakers struggle to keep pace with the likes of Tesla and Chinese manufacturers as they have significant investments tied to existing production facilities.
“These OEMs anticipated having 15 to 20 years to recoup those investments, but that timeline has suddenly been cut short with the rise of EVs,” said Asher.
Building new facilities from scratch is frequently more cost-effective and efficient than retrofitting older plants.
However, a slow transition to EVs creates significant challenges, forcing companies to manage two separate production lines – one for ICE vehicles and another for EVs.
“The only thing worse than a fast transition to EVs is a slow one,” said Asher.
This dual operation complicates supply chains and resource allocation, leading to inefficiencies.
Another key challenge for traditional automotive distributors is determining how their role will evolve as EVs gain widespread adoption in key markets.
“With maintenance needs drastically decreasing and vehicles being upgraded on the go, the maintenance revenue will diminish significantly, and spare parts sales may nearly vanish,” said Kumar.
Manufacturers must reinvent their existing business models and revamp the auto ecosystem to meet changing consumer expectations. GlobalData expects BEVs to remain the most popular model, achieving 35% of the light vehicle market by 2030. To cater to this demand, automakers must design vehicles that can withstand future disruptions.
