The electric vehicle market is slowing down

Project cancellations, drop in production, investment postponements, changes in electrification strategy of car manufacturers. The consequences of the slowdown in the growth of global demand for electric vehicles are multiple.

Between January and May 2024, announcements of postponed or canceled battery factory construction projects represented the equivalent of 220 gigawatt hours, or 3.5% of the additional production capacity that was expected to be added by 2030.

This was recently revealed by Benchmark Source, an analysis and information site on the production chain for the global energy transition.

And in a market dominated by Chinese, Korean and Japanese giants, smaller players are vulnerable.

A perfect example is Northvoltexplains Marc Sachon, professor at IESE Business School at the University of Navarra.

What comes into play here is that battery technology is typically a volume technology. You need economies of scale in these factories. And you have to achieve these economies of scale to reach the target price. [Donc] if you don’t achieve them because some customers drop out, you quickly find yourself in a very difficult situation.

The decline in revenue and profits can be dramatic. This is evidenced by the cancellations of battery orders from the three Korean giants due to the slowdown in global demand for electric vehicles.

LG Energy Solutions, SK and Samsung, which account for nearly a quarter of global battery production, saw a dramatic decline in the second quarter compared to last year. More than 46% for Samsung, almost 58% for LG Energy Solutions and 250% for SK.

Consequence? Production is slowing down. LG Energy Solution’s production capacity utilization rate dropped to 57.4 percent in the first quarter from 77.7 percent in the same period last year. The SK rate dropped from 96.1% to 69.5%. Samsung does not reveal information about its production.

Professor Sachon adds that the recent fall in the prices of certain metals, including nickel, creates uncertainty as to what type of battery will be the one of the future for the electric vehicle sector.

Everyone thought the lithium-iron-phosphate (LFP) battery, which is cheaper and a little safer because it doesn’t ignite as easily, would be the future. But its main disadvantage is that it has a lower energy density. However, the latest developments concern nickel batteries. Nickel is a very expensive material that has the advantage of higher energy density.

Demand for electric vehicles has slowed after several years of strong growth. According to many analysts, consumers are waiting for more affordable models or are turning to hybrid vehicles.

Manufacturers are changing their electrification strategy

In August, global sales of electric and plug-in hybrid vehicles reached 1.47 million units, according to Rho Motion, an energy transition market analysis site.

Sales increased 42% in China, which remains the largest producer and consumer of electric vehicles. The increase was 8% in North America and 4% in Europe.

The global slowdown in demand has forced several automakers to review their electrification plans.

Volvo no longer plans to sell only electric vehicles in 2030. Toyota has reduced its forecast for electric vehicle sales this year by a third.

Ford and GM have announced the postponement or abandonment of production plans for certain types of electric vehicles. Production of electric vehicles at Ford’s Oakville, Ont., plant was first pushed back two years to 2027, but then the company changed its plans and opted to build pickup trucks there instead. than electric vehicles.

For its part, automobile manufacturer VinFast announced last July that it was postponing the commissioning of its electric vehicle factory in North Carolina for four years due to North American demand.

The US$4 billion project will not ultimately be completed until 2028.

China is not spared from the slowdown

Chinese manufacturers continue to largely dominate the electric vehicle market, but the global slowdown is affecting them too.

Slow growth in rural China, a slowing economy and deep discounts offered to Chinese consumers in this competitive market (often up to 17% off this year) are also having significant impacts, even for BYD and Xpeng.

Both manufacturers are taking longer to pay suppliers compared to previous years, according to data compiled by Bloomberg.

The payment deadline of car manufacturers to their suppliers is an indicator of their financial health. Prolonged payment cycle shows that some of them are experiencing liquidity problemsDavid Zhang of the WDEF Digital Automotive International Cooperation Research Center in Hangzhou told the South China Morning Post.

According to him, these longer payment delays also risk disrupting suppliers’ production.

China has more than 200 manufacturers in the electric vehicle market and rationalization is on the horizon.

The world’s largest automobile market continues to be the powerhouse of the electric vehicle sector. The sale of conventional vehicles has declined this year, resulting in 40% of all cars sold in China being electric.

China has managed to maintain growth in electric vehicle sales, in particular thanks to the support of public policies. The government has set long-term goals and is encouraging electric vehicles through procurement mandates and incentives. But the subsidy program expired more than a year ago, and it’s now clear that consumers are turning to the technology because new electric vehicle models are getting better and cheaperwrote journalist Siyi Min of Bloomberg last April.

Professor Marc Sachon also believes, like the vast majority of electrification market analysts, that the slowdown in global growth in the sector is only temporary.

All the forecasts I see, and with which I tend to agree, say that we will reach 100 million units sold per year in the next few years. I have no doubt that in China people still want to buy cars. And then, there is the Indian market which is coming and Africa too. For me, it’s obvioushe believes.

More accessible and less expensive models could also be more numerous.