While Canada seems to be going against the grain, much of the world is seeing a slowdown in EV sales growth.
While there is positive growth in the number of electric and plug-in hybrid electric vehicle sales, the rate of that growth hasn’t climbed the way initially expected.
Canada has been an outlier. S&P Global Mobility’s Q2 2024 Canadian EV Information and Analysis showed the country’s ZEV market share at 13.4 per cent (BEVs: 9.9 per cent; PHEVs 3.5 per cent), almost a full percentage point up from the 12.5 per cent seen in the first quarter.
The U.S., for example, has stayed at about 10 per cent growth.
However, an analysis from DBRS Morningstar observed that the EV market is facing significant headwinds as growth rates slow elsewhere, prompting concerns about the profitability of EVs and the feasibility of net zero emissions targets. Despite initial enthusiasm from early adopters, mainstream consumers are showing reluctance to embrace EVs, with cost, infrastructure, and performance concerns hindering widespread adoption.
These challenges have led to repeated price cuts by manufacturers, further undermining the already tenuous profitability of EV production.
Repeated price reductions squeeze profit margins
One of the key issues plaguing the EV market is the high cost of production compared to internal combustion engine (ICE) vehicles. EV batteries, which account for 30 per cent to 50 per cent of total production costs, remain a major factor. Despite these cost hurdles, several automakers, including Tesla and legacy manufacturers, have introduced multiple price cuts in recent months to stimulate demand.
However, these price cuts are undermining profitability, especially for legacy automakers, who are struggling to absorb the costs of producing both EVs and traditional ICE models. Ford, one of the few legacy automakers with a dedicated EV reporting segment (Ford Model E), has reported substantial losses from its EV division, amounting to $4.7 billion in 2023 and $2.5 billion in the first half of 2024.
Hesitancy despite lower prices
While early adopters were eager to pay the premium for new technology, mainstream buyers are more price-sensitive and hesitant to make the switch. Many prospective buyers cite the higher upfront costs of EVs, even after recent price reductions, as a key barrier. Though subsidies and incentives have played a crucial role in driving EV sales, the reduction of such programs in many regions has contributed to a decline in demand.
Other well-documented challenges persist, including concerns over EV range, charging infrastructure, and repair costs. Although advancements in battery technology have extended EV ranges, they still fall short of the convenience offered by ICE vehicles.
Extreme weather conditions and unreliable public charging stations only exacerbate these issues. Moreover, while EVs generally require less maintenance, the potential for expensive battery repairs has led to higher insurance premiums, further dissuading cost-conscious consumers.
Net zero targets at risk
The slowing pace of EV adoption has far-reaching implications, particularly for achieving global net zero targets. With transportation contributing over one-fifth of global energy-related carbon dioxide emissions, EVs are expected to play a central role in reducing greenhouse gas emissions. Under the Paris Agreement, projections indicated that EVs would account for over 80 per cent of total car sales by 2030. However, with electrified vehicles representing just 16 per cent of global car sales in 2023, the current sales slowdown threatens to derail these climate goals.
The slowdown is particularly concerning for automakers in Europe, where stricter emissions targets will come into effect in 2025. Many manufacturers had banked on robust EV sales to help them meet these new regulations, but the lagging demand has prompted some to lobby for relief measures ahead of the impending deadlines.
As the EV market grapples with these profitability and adoption challenges, DBRS Morningstar noted that it remains to be seen how manufacturers will adjust their strategies to maintain growth while staying on track to meet environmental goals.
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