Electric Car Market Faces a Crash Due to Diverging Trends


The global electric car market is heading for a crash as different regions show contrasting levels of adoption and investment, according to a Bloomberg Opinion column. The article argues that the industry is facing a costly dilemma of developing both gasoline and electric vehicles, while consumers are divided between a world that’s switching to electric cars and another that’s clinging to gas.

China and Europe Lead the EV Transition

In China and Europe, the transition to electric vehicles is gathering pace. Battery-powered autos made up nearly a quarter of sales in both markets in August, according to Morgan Stanley, with plug-in hybrids lifting the total share to 38% and 28%, respectively. These regions have also implemented strict emission regulations and generous subsidies to encourage the shift to EVs. EVs are competing on price with conventional cars in China right now, while margins at EV-maker BYD are already in line with those at comparable gasoline-powered marques, according to Bloomberg Intelligence’s Joanna Chen and Steve Man. In other countries, however, BloombergNEF sees a range of dates for parity ranging from 2025 to 2031.

Electric Car Market Faces a Crash Due to Diverging Trends
Electric Car Market Faces a Crash Due to Diverging Trends

US and India Lag Behind in EV Adoption

Things look very different in the US and India, where penetration is struggling to break north of 10%, and in Japan, where it’s on life support at 3%. Honda Motor Co. said last week it was dropping plans to build a sub-$30,000 EV with General Motors Co., while GM and Ford Motor Co. have pushed back targets for boosting sales of battery vehicles. Even Elon Musk has been talking down the prospects that Tesla Inc.’s Cybertruck will ramp up volumes any time soon. The main reasons for the slow uptake of EVs in these markets are the lack of charging infrastructure, consumer preferences for larger vehicles, and lower fuel prices.

Carmakers Face a Costly Dilemma

You might think a switch away from money-losing electric cars toward the gas-guzzling SUVs and pickups that people are still prepared to pay for was just the tonic for the industry. Price-earnings multiples for carmakers are typically in the low single-digits these days (the S&P 500 is on a far more robust 17.6). Ford, meanwhile, just agreed a 25% wage hike with striking auto workers that will put further pressure on margins and raise the prospects of similar inflation-busting deals at its US rivals. Maybe industry executives could wake up and discover the march of EVs was all a dream?

If only it were so simple. What the industry is getting may be the worst of both worlds: a global market bifurcated between one set of countries rushing to decarbonize, and a second where the electric revolution is looking shaky. That means it will spend longer paying to develop separate gasoline and electric drive-trains, rather than making a clean switch from one to the other.

Making and improving automotive product lines is a horrendously expensive business. Volkswagen AG and Toyota Motor Corp. dedicate more money to capital spending than Exxon Mobil Corp., Walmart Inc. and Intel Corp., with BYD Co. not far behind. Retooling factories with self-propelled assembly lines and gigapresses designed for electric cars is a once-in-a-century transformation that’s inevitably costly.

Ford last year put a $50 billion, five-year price tag on growing its EV division — enough to eat up nearly two-thirds of its capex budget, as well as tens of billions to be spent on acquisitions and engineering. That doesn’t leave a lot of money for conventional internal combustion engines. Indeed, one reason that conventional vehicles are so profitable at the moment is precisely that investment in them is being wound down. Product lines are getting simplified and R&D pared back. That reduces the cost base and lifts profit margins — but if transition to EVs gets delayed, carmakers will have to keep spending on both technologies for longer.

The Future of EVs Depends on Policy Choices

The future of EVs depends largely on the policy choices made by governments around the world. The COP26 summit in Glasgow has put pressure on countries to commit to more ambitious climate goals, which could translate into more support for EVs in terms of regulations, incentives, and infrastructure. However, there are also political risks involved, as some consumers may resist or resent being pushed into buying EVs that they perceive as less convenient or affordable than gasoline cars.

The article concludes by suggesting that carmakers should not rely on consumer preferences alone to drive the transition to EVs, but rather work with policymakers and regulators to create a level playing field that rewards innovation and efficiency. Otherwise, they may end up stuck in a two-speed market that crashes into a wall.


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