Elon Musk’s Prediction Comes True: Electric Vehicle Sales Begin to Slow Down in the Automotive Industry

ERon Musk became the richest man in the world by evangelizing electric cars and delivering one million electric cars. But in recent months, his company Tesla has struggled to maintain its momentum. This year's sales have declined and stock prices have fallen.

These struggles are emblematic of the broader situation facing the electric vehicle (EV) industry. The pace of sales growth has slowed after years of the coronavirus pandemic that sent demand and valuations soaring. The industry is entering a new phase, raising questions about whether the switch from gasoline and diesel to cleaner electricity will face a nasty stall or a temporary speed bump.

Musk acknowledged the difficulties this week, telling investors: “Globally, EV penetration is under pressure, with many other automakers pulling back from EVs and pursuing plug-in hybrids instead. ” he said. Musk, of course, insisted it was the wrong decision.

However, sluggish sales are a reality. Tesla and its closest rival in electric car sales, China's BYD, have both reported declines in electric car sales. Across Europe, the share of sales of battery electric cars fell to 13% from 13.9% last year, while sales of hybrid cars, which combine a battery and an internal combustion engine, rose to 29% from 24.4%. In the UK, electric cars accounted for 15.5% of total car sales in the first three months of 2024, only a slight increase on the same period last year.

In recent years, electric car manufacturers have been able to easily sell every electric car they make. However, many companies around the world are currently struggling to cope with the end of the era of rock-bottom interest rates, when households have less money left in their pockets.

“The economic headwinds are pretty bad across the board, so it's no surprise that the economy is slowing down,” said Ian Henry, whose auto analysis consultancy works with several automakers.

Buyers still have to pay more upfront for battery cars (though most will save money by owning an electric car because energy is cheaper). Additionally, electric vehicle repair costs and insurance premiums may be higher in some locations due to a lack of mechanics. Another important factor is that the rollout of public chargers has been very patchy, giving some potential buyers pause. All of these were pounced on by EV industry skeptics, turning the industry into a culture war battleground.

government's hand

Rico Luhmann, senior sector economist for automotive at investment bank ING, said EV sales had reached a “plateau” and that after an initial rush of early adopters accustomed to switching from gas-powered cars, electric vehicle sales were on the rise. He said sales will become even more difficult. diesel.

But there is more at play in this showdown than purely economic factors. Government also plays a big role. This trend is particularly evident across Europe, where EV sales are following diverging paths even as buyers face similar pressures. Norway is an outlier. Electric vehicle sales are heavily subsidized and EVs currently account for 90% of the market. This year, EV market share also expanded in Denmark, Belgium, and France.

However, in Germany, once the largest electric car market, the adoption rate of electric cars has declined simply because the government has ended subsidies.

Regulations not only affect demand but also play a large role in the cars sold. Matthias Schmidt, a Berlin-based electric vehicle analyst, has long predicted that European electric vehicle sales growth will slow in 2024. The reason is that January 1, 2025, is the date when the EU will take the next big step towards zero-emission vehicles, meaning lower average carbon emissions. The carbon footprint of the cars sold by each manufacturer must be reduced by 15% compared to 2021.

Therefore, this rule is a big incentive for automakers to focus their efforts on electric vehicles next year. Schmidt argues that the European industry is experiencing a “replay” of the situation experienced in 2019 when manufacturers held back sales of electric cars before mass-launching new models in 2020.

Sure enough, automakers are releasing new mass-market models at just the right time. Renault's electric 5 hatchback will cost less than €25,000 (£21,430) when it goes on sale this autumn, while Ford plans to launch an electric version of Britain's best-selling car, the Ford Puma, later this year.

moan maker

Stellantis, which owns the Vauxhall, Peugeot-Fiat, and Chrysler brands, is also joining the rush, unveiling the Vauxhall/Opel Grandland electric SUV on Tuesday. Still, the company's CEO, Carlos Tavares, complained bitterly about how regulations are encouraging the switch to electric cars.

This week, he slammed Britain's Transport Secretary Mark Harper over the government's zero-emission vehicle (ZEV) mandate, which forces car manufacturers to increase the proportion of electric vehicles they sell. He later told journalists that the mandate was a “terrible” policy because it would force automakers to introduce electric models too quickly.

“The result of this is that everyone starts pushing BEVs (battery electric vehicles), pushing metals into the market, completely destroying profitability and destroying businesses,” he said.

Schmidt said the automakers’ complaints could have ulterior motives. EU rules will ban the sale of most internal combustion engines by 2035 but are expected to be revised in 2026.

“Many manufacturers are now complaining that it's unrealistic to meet these goals, but that's lobbying by stealth,” Schmidt said. “They do it so often that it's almost like a boy-werewolf affair. There’s definitely an ulterior motive to their moans.”

But other manufacturers have already delayed that shift, which means extending the sales period for still-profitable gasoline models. In the United States, General Motors postponed production at a plant in Michigan last year, and Ford also postponed construction of a plant in Kentucky. And in the UK, luxury car maker Bentley announced last month that it would postpone the launch of its first battery car by one year, until 2026.

“Manufacturers are definitely struggling strategically at the moment,” Luhmann said. “They're playing around with the timing of the model right now, but they're not delaying it too much. If they don't, they're going to miss out in terms of market share.”

Perhaps the biggest reason why European and American automakers are unlikely to switch gears toward EVs is China. China sales growth may have slowed in the first quarter of 2024 compared to a year ago, but still exceeded 1 million units, according to industry data cited by Reuters. Many Chinese automakers, including leader BYD and cash-rich new entrants such as mobile phone maker Xiaomi, are fighting to dominate their home market and capture a new role as the world's biggest car exporter. There is.

During a recent visit to China, German Chancellor Olaf Scholz spoke out against protectionism, keenly aware that imposing penalties on Chinese EVs would lead to swift retaliation against German automakers, but that Chinese manufacturers remain He said there needs to be access to the market.

Massive competition is fierce for electric car makers, with even Tesla having to cut prices to keep selling its cars. The competition will give auto industry executives sleepless nights and could force some companies to face mergers or bankruptcies, causing job losses. But prices could fall even further, making electric cars cheaper than gasoline cars.

“This is potentially good for consumers,” Ian Henry said. “Whether that's a good thing for manufacturers who are trying to make a profit is another question.”