What’s the future for electric cars?

We are well into the post-Covid recovery, yet the output of new vehicles is still significantly lower than recorded in pre-pandemic times.

In 2023, global motor vehicle production rose to 94 million units, a 10.5% rise from the previous year, according to the International Organization of Motor Vehicle Manufacturers. However, 2022 was especially weak and pre-pandemic levels were higher than this, with production peaking in 2017 and 2018 at 97 million units each year. Since the pandemic, China, Japan, and Germany have been among the largest producers of cars and commercial vehicles. China, especially, has been responsible for a third of global car production alone (26 million units), with its largest car manufacturing company being Shanghai General Motors Company.

The main car manufacturers believe the shortage of microprocessors, which lead to a shortage of new vehicles, was the main reason for the poor performance in 2022 – but this is mostly over. We now need to ask if demand and product ranges are also important factors contributing to the decline. It could be that the advent of the electric car is changing the “normal”.

Consumer problems with electric cars

Whilst the green movement is promoting electric vehicles, many greens would prefer it if people – especially urban dwellers – got rid of the car altogether to rely on public transport and bicycles.

Many cities are implementing very restrictive policies towards car use and parking to put more people off having a private vehicle at all. Electric cars are currently more expensive than petrol or diesel vehicles. Governments, which have been generous to electric cars in terms of promotion, will probably need to tax their use to compensate for loss of diesel and petrol taxes when more people have switched. This will erode one of the benefits of the electric vehicle.

So far, it seems greening policies have been better at putting people off buying new diesel and petrol cars than at getting them to buy a new electric car. More people are running their older vehicles for longer, deterred by various features of the electrical alternative.

In the UK, Sales of electric cars are failing to keep up with the wider market. In March, 15.2% of new cars registered were battery electric vehicles, the Society of Motor Manufacturers and Traders (SMMT) said, down from 16.2% a year earlier. This resulted in renewed industry calls for the government to provide incentives for private buyers. China's largest manufacturer BYD has been vying with Tesla for the number-one spot. BYD also saw a slowdown between January and March. Electric vehicle sales in Europe fell more than 10% year-on-year in the final quarter of last year.

Some have range anxiety, worrying about how to complete long journeys when fast rechargers are not available in sufficient numbers and in an adequate number of places. Many have battery anxiety, wanting to learn more about the longevity of car batteries as they are so expensive. Others are put off by the computer complexity of the vehicle which makes them concerned about things going wrong, or they want a more conventional driving experience. Some say they will buy a new petrol or diesel close to the time when they are withdrawn from the market, as they still like them. They may point out electricity is now very expensive and worry about future tax increases.

As a result, we see good growth on a low base for battery vehicles, but nothing like the growth needed to carry out an early substantial switch to electrics. In Europe, well disposed to the general idea, battery EVs were only 12% of total purchases in 2022. Petrol cars were three times that, and diesel still higher than EVs.

The future for electric cars looks as if it will see lower volumes of total cars produced and sold in the advanced countries, balanced by further surges in Chinese and Indian growth as more people in those places come to afford a vehicle.

There are various issues facing the major motor manufacturers in developed countries. The pace of plant closures and write offs of capital sunk over the years in diesel and petrol-engine vehicles needs to be managed. Governments are determined to phase out new internal combustion engine (ICE) vehicles, and many local governments are keen to curb their use as a further disincentive. Traditional car makers also need to put up a better challenge to Tesla and the other new electric car makers, harnessing the power of their brands, customer lists and knowledge of what people want from a car so they can produce models with more customer appeal.

Co-operation required

At some point, the industry on both sides of the Atlantic will need to admit these problems and work with governments on realistic timetables to achieve the aim of a shift from ICE to electric.

Governments and electricity industries will need to do much more to deliver sufficient power to homes and fast-charging stations to make it feasible. Governments will need to set out how they will replace their lost fuel duties. They will have to decide on winning technologies to store and spread out the supply of renewable power, as the aim is to cut carbon dioxide output. Getting people into electric vehicles does not help decarbonise if the power they use is generated, as much of it is today, from gas or coal.

To date, the big winner of the electric car revolution has been Tesla. Early buyers of the shares have made good money out of its growth. It has a very volatile share price and is vulnerable to counter attacks from other carmakers. It reminds us it is possible to make good money on investments in shares if you choose the right one at the right time, but also reminds us of the massive winds of change being generated by the electric car revolution.

The big move to electric cars will only be possible if new players emerge that cut prices and margins as they popularise the electric vehicle for the many, not just the few. Which company will design the Beetle or Mini of the electric revolution? This will determine part of the outcome, as the industry learns to live with demand that is currently depressed by a variety of problems, including the transition to electric vehicles.