Electric Vehicle Market Is Alive And Well; Maybe Just Alive
“EV market shares, especially in Europe, are rising in 2020, as automobile sales are falling. Government subsidy policies are growing and are needed to overcome buyer resistance due to the high cost of EVs.”
The global pandemic has certainly upset everyone’s life. From a buoyant economy, the world shifted into ‘lockdown mode’ to appropriately address the virus. Economic lockdowns were proclaimed as the optimal strategy for “flattening the curve” – the way to slow the virus spread so health facilities and workers would not be over-whelmed. When people couldn’t leave their homes other than to purchase food or medicine, and only essential workers could visit their workplaces, economies were crushed. That meant people lost their jobs and their incomes. Unemployment soared, spending cratered, savings jumped, travel ceased, and economic pain and suffering was widespread. This transition was from free economies to ones where people totally depended on governmenOne fallout has been motor vehicle sales. From 91.2 million units last year, vehicle sales for 2020 are projected to only reach slightly over 70 million. This forecast was made in July by Lee Bo-sung, the head of Hyundai Motor Group’s global business R&D center, at a seminar held by the Korea Automobile Journalists Association. Hyundai’s assumption is that global economic activity will slowly increase during the second half of 2020, even so, the economic contraction will be greater than experienced during the 2008-2009 financial crisis and recession. Hyundai does not foresee global vehicle sales reaching 2019’s level before 2023. Mr. Lee noted that Covid-19 disrupted both supply and demand, unlike in 2008-2009 and the 2011 Japan earthquake and tsunami. This downturn impacted all markets – developed and emerging economies.
Global auto sales in the 1H2020 fell 29.5% from the previous year, according to Hyundai. Monthly sales fell to 3.56 million in April amid the lockdowns and lockouts. Not a single car was sold in India, the world’s second most populated country. For India, two-wheeled vehicles dominate the transportation market. According to Mr. Lee, monthly global vehicle sales will exceed 20% throughout the balance of the year unless demand recovers in emerging markets.
The lone bright spot in the global vehicle market has been the sale of electric vehicles (EV). This is highlighted by the data for passenger vehicle sales for the first half of 2020, as reported by Bloomberg Green based on data from Bloomberg New Energy Finance (NEF). According to Exhibit 11 (next page), worldwide passenger EV sales declined 15%, while world internal combustion engine (ICE) passenger vehicle sales fell 26%. As Bloomberg NEF highlighted, Europe was the world’s EV bright spot, as sales rose 45.6%, at the same time ICE sales fell nearly 56%.
Exhibit 11. EVs Are The Stars Of 2020 Auto Sales SOURCE: Bloomberg
Looked at from a different perspective (possibly different data totals, too), we see on a monthly basis that global EV sales declined every month, except for February. July sales jumped 77% ahead of 2019 sales. We know the EV market is helped significantly by subsidies and government mandates for clean energy and bans on ICE vehicles, and governments have continued to expand both.
Exhibit 12. Global Monthly EV Sales Struggle in 2020 SOURCE: EVvolumes.com
Europe was the clear 1H2020 regional winner due to its generous incentives and a better supply of new and improved EV models. Europe is likely to lead the regional growth race for the entirety of 2020. EV sales in Europe grew 57%, reaching a 6.7% light vehicle market share. This compares to a 2.9% market share in 1H2019. Europe’s share of global battery electric vehicles (BEV) and plug-in hybrid electric vehicles (PHEV) increased from 23% to 42%. More EVs were sold in Europe than in China for the first time since 2015. All of the larger European EV markets experienced sales increases, with the exception of Norway that fell 6%. The largest EV sales growth occurred in Germany, France, and the U.K.
Six European countries introduced additional green recovery incentives to promote higher EV sales, starting in June and July. These incentives are part of stimulus programs designed to help speed the economic recovery. The auto industry also geared up to meet the EU’s new 95 grams of CO2 per kilometer emissions target for 2020-2021. Over 30 new and improved BEV and PHEV models were introduced in 2H2019, and production was ramped up sharply. July’s preliminary results suggest that sales increased by over 200%. Estimates are that sales remain strong through the balance of the second half and that total sales for the year surpass one million units, with market shares running in the range of 7%-10%.
The Chinese market has struggled since July 2019 after the government made changes in EV subsidies and boosted incentives for purchasing ICE vehicles to stimulate its auto industry and the overall economy. EVvolumes.com hammered on the fact that China’s six-month sales performance was being compared against the pre-subsidy reduction period. The outcome was that 2020 sales fell 42% compared to 1H2019 volumes. China’s market share plummeted from 57% in 1H2019 to only 39% for the first half of 2020. Preliminary July sales data indicate a recovery of New Energy Vehicles (NEV), with a 40% increase over July 2019.
Exhibit 13. EV Unit Sales By Country And Region SOURCE: EVvolumes.com
Global BEV and PHEV sales for 1H2020 totaled 989,000 units, down from the 1.149 million units sold in 1H2019. The global EV market share was 3%. For all of 2019, the EV market share was 2.5%, up from 2.1% in 2018. Estimates are that 2.9 million EVs will be sold globally this year, assuming the strong July sales are reflective of the pace for the balance of the year. That suggests the global market share could rise to 4%, up 1.5 percentage points.
Market shares are jumping as total new vehicle sales have collapsed. The small markets continue to lead, as 68% of 1H2020 sales in Norway were EVs. Iceland was second with 49% and Sweden was third with 26%. Among the large markets, France leads with 9.1%, the U.K. with 7.7%, Germany with 7.6%, China at 4.4%, Canada at 3.3%, and Spain at 3.2%. All other vehicle markets with over one million total sales showed 3% or less in market share for 1H2020 sales. The preliminary car registration data for August for Western European markets shows a -15.5% decline versus last year, but year-to-date, the decline is -33.1%. The data does show that monthly sales volumes are slowly improving offering hope for a better last part of 2020. It should be noted that U.K. EV sales collapsed in July as incomes fell and people could not even afford the heavily-subsidized vehicles. Moreover, a recent survey showed that nearly half of potential EV buyers are reluctant to purchase one prior to the 2035 ban of ICE vehicles. The survey results show that with increased tax subsidies, U.K. buyers may be enticed to purchase an EV sooner.
Assuming the 2020 EV sales projection is attained, the global EV fleet will reach 10.5 million units by the end of 2020. If we add in medium- and heavy-duty commercial EVs, which adds another 800,000 units, the total fleet reaches 11.3 million units. Based on the estimated global vehicle fleet of 1.2 billion units, EVs would have a market share of just under 1%. This is where perception becomes an issue for the EV business. The recent Carbon Commentary Newsletter, published in the U.K. by environmentalist Chris Goodall, noted the 2020 energy transition report by DNV. Mr. Goodall thought they were too conservative in their EV forecast. He wrote:
“Personally, I think DNV is too pessimistic about the third of these blockages; the world is seeing very rapidly increasing emphasis on the electrification of even the heaviest vehicles. I thought that its assumption that about half of all cars sold in 2032 will be electric also looks too downbeat. Almost 5% of all cars sold in Europe this year will be purely battery powered, almost double last year’s level. At the current rate of change - and assuming successful large-scale entry by Chinese manufacturers into the market - a 50% share may be achieved at least six years earlier than this in Europe.”
Recently, during a presentation on energy minerals by Rystad Energy analysts, they threw out an estimate that 32 million EVs would be sold in 2030. In our model, which we discussed in the last Musings issue, that sales estimate is reached in 2032. As we showed in the article, our forecast for EV sales in 2030 closely matched the latest projection by Bloomberg NEF, but was widely exceeded by the forecast from the International Energy Agency (IEA). So, while DNV may be more aggressive than Bloomberg NEF, it falls short of the IEA’s forecast. Is any model right?
Mr. Goodall’s view is based on the latest EV sales data, especially from Europe where he lives. The market share and sales percentage performance this year are distorted by the Covid-19 impact on the overall automobile market. EV market shares are higher, but to a large degree, their gains are attributable to smaller overall vehicle markets, after acknowledging that EV sales have increased due to subsidies, etc.
Given these conditions, we were intrigued by a special email from Gary Burnison, the CEO of executive recruiting firm Korn Ferry. It was titled, “What Do You See?” He opened with the following question: “Has the world gotten smaller, or have our minds become narrower?” He asked people to examine the photo in Exhibit 14.
Exhibit 14. An Elderly Gentleman Walking? SOURCE: Korn Ferry
He questioned: “Do you notice an elderly man, walking slowly, carrying something in his right hand—a cane, perhaps? Narrow perceptions, though, can be far from reality.” This was an astute observation, as he showed the same picture with additional scope.
Exhibit 15. The Man Doesn’t Have A Cane SOURCE: Korn Ferry
What you see from the larger perspective is that the elderly gentleman wasn’t just walking down the street, rather, he was a jazz saxophonist making music to entertain people as he walked. The point Mr. Burnison was making was that we need to pull back and avoid making quick judgements, especially about people. The same could be said about markets influenced by people. We would further suggest people hesitate, when dealing with numbers, about jumping to conclusions too quickly. Yes, EV market shares are up. Increased tax subsidies and other incentives, combined with government anti-fossil fuel mandates and increased EV model selection, are having an impact on EV sales. However, the decline in global auto sales is also having an impact on EV market share – potentially a more significant impact. We’d like more than one data point before embracing a new trend. We understand how proponents of any cause are likely to jump on the latest datapoint that supports their vision. We will not rush to judgement, but rather try to take the wider perspective.