Western EV manufacturers risk self-destruction

For an industry built on the quiet hum of its expensive technology, the sound of the creaking electric car market is too loud to ignore, writes Ben Marlowe in a commentary for the Telegraph.

The subsequent stockpiling threatens to become a battle for survival.

The dynamics are very simple.

It’s a classic case of supply far outstripping demand, in this case driven by politicians and regulators determined to impose arbitrary deadlines on carmakers, regardless of whether they’re realistic and without any consideration of the wider implications.

This is further evidence, if any was needed, of the misguided pursuit of carbon neutrality at all costs. Almost eight out of every 10 new electric cars are now being sold at a discount due to cooling demand. And while a similar proportion of gasoline cars face near-term price cuts, the value of electric vehicles is falling more sharply.

Meanwhile, the market is increasingly supported by tax-efficient corporate schemes as appetite among private buyers fades.

Purchases from commercial customers accounted for 60% of registrations since the start of this year, up from just over half for the same period in 2022.

Sales to individuals are down nearly 10 percent, suggesting that the so-called early adoption phase that led to the first wave of purchases is now over. In Germany, Sweden and Italy, sales of electric cars have fallen by 30%.

As car manufacturers struggle to meet the already set deadlines for phasing out petrol and diesel models imposed on them by their respective governments, the overproduction of electric cars is taking on a massive scale.

The industry may argue that it has no choice, as companies that fail to meet the targets must pay fines or trade carbon credits. But the result will remain the same: millions of unsold electric cars that accumulate in the warehouses of these same concerns or at dealers.

Major European ports are already turning into giant car depots as manufacturers, distributors and retailers can’t keep up with the slowdown in demand.

And despite all fears that Western brands can’t compete with cheap Chinese models flooding the market, cars from East Asia contribute significantly to congestion in many major ports.

Models of some Chinese brands sit in European ports for up to 18 months, prompting some authorities to require proof of onward transport from importers.

Without demand to sustain and make sense of the huge number of cars rolling off production lines, new data shows the global auto industry is on track to produce up to 20 million more electric cars over the next three years than the market can absorb. It is hard to come up with another example of such a stunning misallocation of capital. Maybe the dotcom bubble? This is the analogy of an analyst.

The optimistic view is that such a huge glut is good news for consumers because it means prices will fall, paving the way for the next wave of price-conscious buyers.

Yet price is only one reason why most consumers continue to stick with petrol and diesel models.

The obstacles to mass adoption of this drivetrain are now well known, but it’s worth remembering that they are also numerous: anxiety about mileage; lack of sufficient charging stations; reliability fears; the repair bills; insurance costs; concerns about the number of skilled technicians; limited choice; and, of course, accessibility.

Prices are dropping quite sharply. Tesla has just announced a series of price cuts in China, the US and Europe after slowing sales.

The expected influx of cheap Chinese electric models will help further reduce prices.

But there’s also every reason to think that there will be a whole new generation of consumers for whom the depreciation of their cars will be so great that in a few years they’ll be sitting on huge piles of losses, and that will put them off going back to EVs.

The more realistic view is that the EV market is on the verge of a major transformation, which will require a number of sacrifices.

The cracks are already showing.

Arrival, the electric van company that some derisively call “Britain’s Tesla,” has filed for bankruptcy just months after the bankruptcy of Swedish electric truck company Volta Trucks.

California startup Fisker, which was even more absurdly once compared to Apple, is expected to follow the same path.

These are the smaller players, but it would be a mistake to assume that the big manufacturers are immune just by virtue of size. Ford is considering a partnership with General Motors after warning that some all-battery models have become unprofitable due to rising raw material prices.

Car rental company Hertz has blamed high repair costs for the decision to part with 20,000 electric vehicles. Other firms are also, albeit tentatively, backing away from this drive.

And yet the industrial giants are not giving up on their strategies and investment plans.

Stellantis, owner of brands such as Fiat and Peugeot, plans to introduce more than 75 fully electric models by the end of this decade, while Volkswagen has earmarked 180 billion euros for electrification. It’s a really big bet.

Elon Musk recently said that Chinese EV companies will destroy most Western carmakers unless trade barriers are erected. But it may not come to that. Some of them are capable of wasting so much capital that they will eventually destroy themselves.