Behind the Headlines: OEMs gently braking on EV investment

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In 2024, sales of battery electric vehicles (BEV) settled to single-digit growth. Though BEV demand continues to grow, the mismatch between naturally progressing demand and automaker forecasts set the world on edge.

Given the billions invested and being deployed in the transition, concern is warranted. Volume has largely increased, though Tesla has seen softening demand for several of its products. Tesla's outsized share of BEV sales has a significant impact outside of mainland China. At the same time BEV demand has entered an inconsistent and choppy growth phase in most markets, mainland China automakers are making inroads with less expensive BEVs. The ability of some mainland Chinese automakers to offer lower-cost BEVs and remain profitable has also set most other automakers on edge, as BEV profitability remains elusive across the industry.

A bright moment in US light-vehicle registrations saw an 18% year-over-year increase in battery electric vehicles (BEV) registered in July 2024, the highest of the year so far and above the 6.0% the overall market improved. The gain was supported by increasing incentives as well as having more models available at higher inventory levels. In July 2024, BEV share climbed to more than 8%. Year to date, BEV registrations are at 7.6%, versus 7.2% at the same point in 2023. BEV registrations grew 8.6% in the January to July 2024 period; the total market has improved 2.5% in the same period.

However, this pace is not what many automakers counted on when making investment decisions in the 2020-2023 period and the first half of 2024 was dominated by stories covering a perceived slowdown in BEV demand. It is more accurate to say that BEV demand did not meet high projections than to say demand was slowing.

However, in the first seven months of 2024 US light-vehicle registrations saw more growth in traditional hybrid-electric vehicles (HEV). Plug-in hybrid electric vehicles (PHEVs) have improved as well, though that solution still sees slower adoption than either BEV or HEV. In July 2024, HEV registrations were at 10.4% of the total market and volume grew to just under 146,000 units for the month, compared with about 121,000 BEVs being registered. In the January to July period, HEVs accounted for 9.2% of all registrations.

The transition to BEV as a dominant propulsion system is likely to continue to be inconsistent. Availability in terms of inventory and vehicle segments still lags behind traditional internal combustion engine vehicles, pricing is still higher than comparable ICE products, infrastructure does develop slowly, and there are still miles to go in terms of consumer education, awareness and engagement. These issues take time to resolve.

In the meantime, many automakers are revising timing for BEV investment. BEV profitability remains elusive and there remains the need to support customers not ready to make the BEV switch, while still addressing regulations. In 2024, it has become obvious that the transition to BEV dominance will be inconsistent and less predictable. HEV and PHEV will remain important for a longer period than some automakers were targeting.

Automakers are adjusting their plans to ensure the right product mix at the right time as well as managing capital investment carefully. BEV production targets have been cut in the immediate term, products canceled or delayed, longer-term BEV targets adjusted, and capital investment re-timed. Automakers have not abandoned the longer-term goal of zero emissions vehicles as part of the path to a bigger goal for net zero carbon emissions.

Ford and GM have both retimed BEV capacity development, delaying when programs will come on line and how quickly capacity is being increased. Ford most recently cancelled two BEV three-row utility vehicles in the Ford Explorer and Lincoln Aviator space and will use hybrid electric propulsion systems instead. GM lowered production targets for 2024 and 2025 and delayed the retooling of a BEV full-size truck plant. GM has not announced as many changes to specific product plans but is expected to have canceled or delayed several projects internally as well. GM's Cadillac division has stepped back from its plans to shift to an all-BEV lineup by 2030, and now says it will offer the "luxury of choice" when it comes to powertrains. GM has delayed opening of its planned fourth US battery plant to 2027, aligning with the delays in BEV production plans, and its partner LG Energy Solutions is slowing development of one of its US battery plant projects.

Mercedes-Benz and Volvo Cars have also slowed some of their expectations for electrification. Volvo Cars dropped its forecast from expecting 100% electrified powertrains (BEV or PHEV) in 2030 to between 90% and 100%. Volvo Cars does expect to see 50% of its sales in 2025 be electrified vehicles, however. Mercedes-Benz is increasing investment in ICE projects to ensure its engines remain competitive as the change to BEV has not come as quickly as it expected, and Mercedes-AMG has said it will maintain V8 engines longer than planned.

On the other hand, Hyundai announced a major strategy update to invest billions more into electrification as well as targeting annual sales of 5.5 million by 2030; by 2030, Hyundai expects 36% of its global sales to be BEVs, though also planning an extended range BEV by late 2026 and not letting up on its goals for hydrogen powertrains. After Hyundai announced plans to spend US$90 billion over the next 10 years to support its initiatives, GM and Hyundai announced a memorandum of understanding to discuss potential partnerships for platforms, electrified vehicles and BEVs. It is far too soon to know what will result from those talks. Yet, if the two companies work together to reduce costs over the next decade, this could have a substantial impact on the market by making more affordable electrified products available faster while the automakers potentially see profitability faster.

Though a transition to zero emissions transportation remains a central target, consumers are weighing in. In 2024, consumer purchase behavior is causing automakers to rethink investment timing. The dynamics of this year reinforce the complex nature of the change to increasing BEV adoption, that consumers do hold significant power along the way, and the importance of a nimble corporate strategy.

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This article was published by S&P Global Mobility and not by S&P Global Ratings, which is a separately managed division of S&P Global.