Article

The car industry’s global conundrum

Will enough people buy electric cars to boost the industry? So far, policies have been better at putting people off buying new diesel and petrol cars rather persuading them to buy an electric vehicle.

| 6 min read

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

Worldwide output in 2022 was 11% lower than seen in 2019. In Europe, production was down 29% and Russia reported a 61% fall, with the US 19% lower, Brazil down 26% and Japan seeing a 20% slide. Amongst the major nations only India and China saw output rise, with China greatly limiting the worldwide damage to these figures. China is now the world’s preeminent vehicle manufacturer, producing more than double Europe output and is close to being double that reported in the US.

Pandemic-related lockdowns in 2020-21 did, of course, disrupt both production and purchases. It also disrupted the second-hand car market, with the scramble to add to hire fleets when the US and others came out of lockdown adding to the pressure of demand and driving prices up.

The main car manufacturers believe the shortage of microprocessors, which lead to a shortage of new vehicles, is the main reason for the poor performance. Now the supply crunch in microchips is easing, we 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”.

Potential purchasers have many concerns

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.

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.

Traditional car makers also need to put up a better challenge to Tesla.

The future 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 carmakers if you choose the right one at the right time, but also reminds us of the massive winds of change being generated by the electrical 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.

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

The car industry’s global conundrum

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