The EV Slowdown Will Last Another 12-18 Months, Analysts Say

After that, plan for a "resurgence"—especially if traditional automakers ink deals with EV startups and Chinese firms.

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Tim Levin

By: Tim Levin

Sep 6, 2024 at 5:00pm ET

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The current slowdown in electric car sales will last another 12-18 months, analysts from Morgan Stanley said in a new report.
Starting around 2027, they expect EV sales to start accelerating again.
Big automakers should team up with EV companies and Chinese manufacturers to supercharge EV adoption, the analysts said.

Following years of explosive growth, big promises and a healthy dose of hype, the transition to electric vehicles—particularly in the U.S.—has hit some turbulence. Car companies like Toyota, Ford and Volvo are scaling back their electric plans in the face of uneven consumer demand. And in some ways it all makes sense given how adoption of a new technology typically works out; it’s not always up and to the right, even if that’s the general trajectory.

In a new report out this week, Morgan Stanley's auto-industry analysts say to expect the global EV slowdown to persist another 12-18 months. Around 2027, however, they expect a “resurgence” in EV momentum.

What’s important to note about this “slowdown” is that it’s a drop in the rate of growth—not a decline in overall sales. Amid all the gloomy headlines, it’s easy to miss that more and more people are buying EVs. Morgan Stanley notes that the world is headed for yet another record year of electric sales. The bank’s analysts have an interesting take on what’s causing the slowdown and the keys to fixing it—maybe a Ford/Xpeng collab?—so let’s dive in deeper.

Why EV Sales Growth Is Slowing Down

Much of the shortfall in EV volume will stem from markets like the U.S. and Europe, where EV affordability and tariffs against Chinese manufacturers “remain key gating factors to EV adoption,” the bank says. EV prices in those markets are 20-30% higher than their combustion counterparts, the analysts note. High interest rates aren’t helping either.

On top of that, global automakers are pumping the brakes on their largely unprofitable EV investments. Most companies making EVs have invested a huge amount in R&D and new production lines, but haven’t hit the economies of scale necessary to be in the black. So they’re doubling down on combustion.

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A new boom in demand for hybrids and plug-in hybrids (PHEVs), the analysts say, is also to blame. They’re cheaper and easier to live with than full EVs, in many cases, and threaten to cannibalize EV sales in coming years. Given the surge in PHEV sales over the last year, Morgan Stanley bumped its estimate for global PHEV penetration to 14% by 2030, 3.5% higher than its prior estimate.

How Will EV Sales Bounce Back?

So, what’s the key to an EV rebound? In general, industry watchers point to more confidence-inspiring charging infrastructure, lower vehicle prices and a wider variety of appealing EV options. The Morgan Stanley team argues something different—that the future health of the EV industry hinges on new collaborations between EV companies and established automakers, and especially between Chinese and Western manufacturers.

In other words, Ford ought to strike a deal with China’s Xpeng. Or maybe General Motors should team up with Lucid or Li Auto.

“[I]ncreasing collaboration among legacy OEMs and EV players, evidenced by VW-XPeng, Stellantis-Leap, and VW-Rivian, could help reignite interest in global EV adoption,” the report says.

More On China's EVs

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Trump Hates EVs, But Welcomes China To Build Cars In The U.S.

Legacy automakers, the analysts say, benefit from lots of manufacturing capacity, developed global supply chains, strong brands and access to capital. EV players have the upper hand when it comes to software, electrical architectures (which are becoming increasingly important), driver-assistance tech and technological innovation more broadly. American and European automakers are struggling to produce affordable EVs profitably. Chinese manufacturers, aided by a plethora of government subsidies, are known for blistering development cycles, advanced technology and low manufacturing costs. But tariffs threaten to hinder their advance into huge Western markets.

All of this makes joint ventures look like a win-win, the analysts say. And it’s already happening. The huge Volkswagen Group recently inked a multi-billion-dollar deal with Rivian to leverage the startup’s vehicle software and electrical architectures. The big question is: Would the U.S. government let joint Chinese-American ventures build EVs in the U.S. despite geopolitical tensions? After all, the U.S. plans to slap a 100% tariff on Chinese-made EVs.

What do you think?

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The Morgan Stanley analysts say there’s no other choice: “We think joining hands with China's EV ecosystem has become a prerequisite to manufacturing affordable EVs in the US, rather than being optional.”

Contact the author: tim.levin@insideevs.com

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