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Who will survive the EV sales crash?

Sales have plummeted this year but some momentum remains - in the UK electric vehicle sales grew a fifth year-on-year in January
March 7, 2023

Investors in electric vehicle (EV) manufacturers have been in a froth over declining sales and aggressive discounts, concerned the industry’s boom has come to an end.

Tesla (US:TSLA) this week announced another round of price cuts in order to boost sales, which have dipped alongside a general global economic slowdown. Global EV sales in January hit 672,000 but this was nearly 50 per cent down on December. Consultancy Rystad Energy described the drop as “one of the most dramatic collapses” witnessed. The situation was not helped after demand from China dropped as subsidies from the Chinese government came to an end.

So is the electric vehicle industry heading into a dip? Perhaps not. January’s sales – while down on the previous month – were 3 per cent higher than the year before. Abhishek Murali at Rystad, added: “The automotive market is cyclical and sales usually take a hit when subsidies change at the start of each year [in China], followed by a gradual recovery. However, the [subsidy] cuts in January hit harder than normal, triggering this dramatic collapse.”

The drop was also witnessed elsewhere. Sales fell 59 per cent from January to December in the UK, according to the Society of Motor Manufacturers and Traders, but January’s numbers were still 20 per cent higher than 2022 year on year. This is because December’s figures represented a recent record for sales: EVs made up a third of all new car registrations, with most of the sales going to fleet and business buyers.

Fellow consultancy Benchmark Minerals Intelligence, which tracks manufacturing capacity and materials prices, was more optimistic. Senior analyst Daisy Jennings-Gray said: “This [sales drop] was driven by weak downstream demand ahead of the spring festival [in China] and then a slow recovery after the holidays.”

 

Price shift

The market has changed, however. Tesla has once again led the way and cut prices in reaction to slowing demand. This would have been unthinkable two years ago when the company could not keep up with orders. However, chief executive Elon Musk is keen to boost sales and reduce Tesla’s inventory, and therefore dropped prices.

At the same time, the world’s biggest battery manufacturer, CATL, has offered significant discounts to buyers who sign long-term sales agreements. “The move sparked a price war among CATL’s competitors despite many of them having yet to turn a profit,” said Benchmark.

For EV-exposed companies the sales drop off has not been overly damaging, although weakness continues outside the industry’s star player. Tesla’s share price fell after its investor day last week because executives stuck to high-level goals rather than announcing new models or plans. However, the share price is still up 80 per cent year-to-date.

Fellow carmaker Polestar (US:PSNY) has not seen the same recovery despite forecasting a 60 per cent sales increase in 2023. The company had a non-traditional route to market, as a joint venture between Volvo and its owner Geely with a modest float from a Spac listing last year. It is trading around $5 (£4.20) a share, after hitting $15 soon after listing in mid-2022.

The start-ups of the industry are where the real carnage is found. Rivian (US:RIVN) is in the best position of the bunch given there is plenty of demand for its utility vehicles – but it has had to recall most cars it has sold. UK van company Arrival (US:ARVL) is at death’s door: its share price has fallen 98 per cent from its peak, and the company only made a handful of the commercial vehicles last year at its Bicester factory. The company has not yet released its Q4 results, but had $330mn of cash on hand at the end of September and had spent $180mn in the quarter, so cutting spending was the top priority for management.

Actual carmakers are where the real game is: in its 2023 results, Volkswagen (DE:VOW3) said EV sales had grown as a percentage of overall sales. The company has stuck to its plan to make EVs 20 per cent of total cars delivered by 2025. In 2022, they were 7 per cent of 8.3mn cars delivered.

Arno Antlitz, CFO and COO of Volkswagen, said: “Despite significant supply chain challenges leading to a decline in overall delivery numbers, we delivered 572,100 all-electric vehicles and simultaneously further increased operating profits.”

UBS analysts said the sector was running away from the carmaker, however. “There are bigger question marks than ever about VW’s EV profitability longer-term in light of intensifying competition and the big cost cap vs. Tesla and leading Chinese players,” they said.