WHAT DOES THE FUTURE OF THE ELECTRIC VEHICLE MARKET LOOK?

Demand for electric vehicles has increased significantly since 2010. Until 2019, the share of BEVs and PHEVs in new registrations in the EU-27 was less than 10%, but then exploded to approximately 23% in 2023. This reflects a shift in consumer preferences.

Electric cars have a bright future ahead of them, as they benefit from environmental problems such as global warming. While electric cars may be more expensive today, they are generally more wallet-friendly and will continue to become so. For example, less complex engines lead to a 35% reduction in maintenance costs, charging costs are on average 70% lower compared to gasoline cars, and buyers can access various forms of subsidies/incentives. Also important is that Europe will ban new registrations of cars with internal combustion engines by 2035.

However, this isn't without its challenges. We're currently experiencing another wave of skepticism. But why, then, are some investors abandoning the electric car market, as BBC's Top Gear mentioned? What are the threats to the EV market?

• Interest rates: Rising interest rates have led to lower-than-expected sales. While there's no clear vision for how these will develop, inflation is trending downward, and interest rates could follow the same trend.

• Rapid technological development: Battery capacity is increasing, with WLTP measurements reaching up to 700 km. Charging capacities are also developing rapidly: Cars are charging ever faster; some models, for example, can travel around 200 km after a charging time of just 5 minutes. The consequence of this rapid development is that consumers are delaying their car purchase because they know that another one with a larger capacity will soon be launched.

• Battery concerns: Despite rapid technological advances, drivers still fear running out of battery power before reaching their destination or the hassle of charging their cars on the road. To allay these concerns, automakers are constantly improving battery performance and charging times, which are becoming increasingly shorter. Countries are also seeking to promote electromobility as part of the energy transition and are therefore converting their infrastructures to include an increasing number of charging stations. Furthermore, there are some uncertainties regarding battery lifespan, as this depends heavily on weather conditions and charging habits. For example, the same battery lasted 5 years in Florida, while it lasted 13 years in Alaska due to the cold weather.

• Lack of information: People still have many misconceptions about electric cars, which prevents them from buying them. According to a study conducted by Ford, 90% of Americans and Europeans surveyed believe that electric cars have poor acceleration, even though in reality, all electric cars have good to impressive acceleration due to their instant torque.

• Raw material and supply costs: Batteries are currently made from materials like lithium and cobalt, which are expensive to mine, polluting, and available in limited quantities. As a result, automakers are struggling to offer cheaper models as their profit margins shrink. Several companies are currently working to solve this problem by developing smaller batteries that can store more energy and charge faster, thus requiring fewer raw materials.

• Competition: Traditional manufacturers are being challenged by the entry of electric car challengers. These offer a similar level of quality, some even with a better battery, at a lower price, which is distracting consumers from Western brands. However, it will still take some time for Asian cars to capture the majority of market share, as they have not established a strong brand image in the American and European markets. And even as digitalization takes hold worldwide, many customers still value contact with car dealers to see cars, test drive them, and discuss their features. Therefore, networking remains of utmost importance.

It's also fair to say that the introduction of electric vehicles has also triggered a wave of change in the automotive market. New players have entered the market, disrupting it with their unconventional management styles and overshadowing traditional OEMs. Why are some traditional OEMs being outmaneuvered by newcomers like Tesla or BYD?

Looking at the market share of electric vehicles in the US, Tesla has left all other manufacturers far behind with 72% in 2021, while traditional OEMs aren't even close to 10%. Why such a gap? There are several reasons that explain this:

• Pioneers: Tesla got the EV train moving, and other automakers have been slow to follow suit. The same brand also launched its e-commerce store in 2019, while most traditional OEMs took another three years to do the same. Newcomers are driving innovation, and fast.

• Speed: OEMs have a traditional corporate structure with a rigid hierarchy, while newcomers use the startup model with a flat hierarchy, which leads to fast decision-making and application.

• Production: OEMs offer many more models and customizations, leading to complex production lines. Newcomers took the risk by offering cars with a simple design and minimal customization, which attracted their target audience.

• Risk-taking: Newcomers are innovative and willing to take risks, while large corporations tend to avoid risks and play it safe.

• Expertise: Many original equipment manufacturers do not have all the expertise in-house, making them dependent on external factors, while newcomers tend to pursue the opposite strategy.

• Sales: OEMs rely primarily on physical dealerships, while we are in the digital age. Customers value personal contact with a salesperson, but also want the option to process their vehicle orders and payments 100% digitally.

  
  

Even if newcomers are ahead of the OEMs in the EV market, it's important to remember that they still have to put in significant effort to build their brand image. Moreover, some of them are heavily dependent on OEM financing, such as Polestar from Volvo, which was recently spun off.

OEMs can also look for solutions to provide a flexible, convenient, and seamless digital experience by leveraging a pure financing solution like LEASETEQ.

They also need to create a comprehensive ecosystem where customers can easily sell/buy/lease used cars. This would generate additional revenue while simultaneously relieving their customers of a burden.

In summary, although the electric car market has suffered a short-term slump, many consumers are convinced and determined to use more environmentally friendly solutions, which will certainly be reflected in electric car sales in the near future.

The new manufacturers still have a long way to go before they dominate the European market, giving Western manufacturers time to play their cards right by incorporating the necessary innovations into their products. We believe in a highly diverse automotive future in which different drive technologies and sales models will continue to coexist for a long time to come.