Electric Cars – Slamming on the Brakes

13 mins. to read
Electric Cars – Slamming on the Brakes

Last month we learnt from Volkswagen that sales of their electric cars in Europe plunged by 24 percent in the first quarter of this year. It seems that demand for battery-powered vehicles has stalled, and buyers of new vehicles still prefer petrol-powered cars. Globally, all-electric sales at the German automotive giant, which as well as VW owns the Audi, Skoda and Porsche brands, fell by three percent to 136,400. At the same time, sales of internal combustion engine-powered cars climbed by four percent to nearly two million. Mercedes has also reported a fall in EV sales.

Sales of battery electric models made up 15.5 percent of total new car registrations in the UK in the first three months of 2024. That was roughly the same proportion as a year ago, according to the Society of Motor Manufacturers and Traders (SMMT).

Why would motorists not want to buy EVs? It is not difficult to think of numerous key reasons.

Firstly, electric cars are still more expensive to purchase than their petrol-powered analogues. In fact, the last few years of inflation and higher consumer credit rates across Europe have made the price differential even wider – especially as government subsidies are being reduced or even cut in some countries. A basic petrol-powered Vauxhall Corsa will set you back by around £16,000 here in the UK. But the EV variant comes in at over £30,000.

Second, the running costs of EVs have risen along with the cost of electricity. Third, there is still widespread “range anxiety” as many countries, including the UK, have not rolled out the charging infrastructure as fast as promised. Fourth, as I have discussed here before, the second-hand market for EVs is still thin and buyers are acutely aware that the value of new EVs depreciate rapidly. Fifth, the costs of repairing malfunctioning EVs are only now becoming apparent – and they are significant. In fact, once a battery goes, the cost of replacing it is uneconomic. Sixth, insurance companies have increased premiums for EVs hugely over the last two years.

I can think of another reason too. Until recently, the purchase of a new EV was an attractive proposition to the early adopters who wanted to try out a new technology. Hence the phenomenon whereby well-off middle class families have a sleek electric gazelle in the drive for pottering about and short commutes, and a petrol-powered beast of burden for serious journeys like the annual trip to Scotland. (It’s a bit like those people one knows who carry the latest iPhone to play while sending and receiving most messages on a trusted Android mobile). The novelty value of a shiny new EV has given way to a familiarity which can breed contempt. Electric cars simply don’t turn heads anymore – except when they break down.

There is also the issue, which I have also addressed in these pages before, of whether EVs really are so good for the environment. Sure, they don’t require fuel and therefore don’t emit CO2 once they are on the road. But the CO2 emitted in the production of an EV – and especially in the fabrication of its battery, which requires the mining of some 40 tonnes of ore (often using highly questionable labour practices in countries like the Democratic Republic of Congo or Peru) – is certainly much greater than that for an equivalent internal combustion-powered car. Moreover, the emissions of particulates from their tyres and brakes is greater than that for conventional cars because they are much heavier.

And, of course, the electricity required to charge EV batteries is only partially generated from renewables and therefore they cannot be said to be carbon neutral even when on the road. As I write, according to Gridwatch (formerly the National Grid Status Monitor), about 30 percent of Britain’s electricity is being generated by natural gas turbine facilities and 15.5 percent is coming from nuclear. Labour’s stated aim of making the UK grid entirely carbon neutral by 2030 is very unlikely to be achieved without substantially compromising the security and continuity of the power supply. (On that, more anon).

Now, in a sensible market-based economy, governments would stand back and let consumers decide which technology they prefer, and which models they wish to pay good money for. And if EVs were really so good we would all rush out and buy one. But that is not what is happening. People all over Europe and beyond are hesitant to adopt this technology, and yet governments are penalising automotive manufacturers for not selling enough EVs.

Several governments have put back the date when the sale of new petrol and diesel-powered will be outlawed altogether. Last September, Mr Sunak announced a stay of execution for the internal combustion engine from 2030 to 2035. But the UK government’s Zero Emission Vehicle Mandate (ZEV mandate) still came into force on 01 January this year. This measure requires that if a UK-based car manufacturer does not sell sufficient EVs as a proportion of its total unit sales each year, then it must pay a surcharge or fine on each petrol or diesel-powered vehicle sold. This year that proportion is set at 22 percent for cars and ten percent for vans – but it will ratchet up each year to 80 percent by 2030 and then to 100 percent by 2035. The fine per vehicle is set at £15,000.

Last month Carlos Tavares, the CEO of Stellantis which owns a stable of leading European car brands including OPEL (which trades as Vauxhall in the UK), warned that the ZEV mandate would force Stellantis to reconsider its operations in the UK. He said it was “terrible for the UK” because it would force auto manufacturers to sell their cars at a loss. If ministers did not make urgent changes to the rules, he said, Stellantis might slash the number of cars it sells in Britain or increase prices drastically – or both. He refused to rule out halting the sale of some models altogether. Ford echoed this warning last week.

Mr Tavares met with UK Transport Secretary Mark Harper MP on 24 April to make his case. He is urging the Government to ease the pressure on carmakers by combining their allowance for passenger cars and vans, and also by allowing manufacturers to count cars they make for export towards their domestic targets. Mr Tavares also warned that forcing carmakers to oversell EVs would leave European carmakers more exposed to the threat from cheap Chinese electric car imports.

However, he said that Stellantis opposes punitive tariffs on Chinese manufacturers. He thinks that protectionism would feed through into higher prices which would disadvantage consumers. He said the main objective should be to reduce the cost of EVs for the middle classes, adding: “If you only sell EVs to the wealthy, it doesn’t fix global warming.”

This came after The Daily Telegraph revealed that three quarters of new EVs listed on AutoTrader were being offered at a discount – a sign that second-hand EV prices are falling further, however much the government tries to talk them up. The Government has argued that the ZEV mandate will safeguard British jobs in the automotive sector and is designed to support existing manufacturers. But this policy of market manipulation – which will only intensify under Labour – may have quite the opposite effect and kill off the British automotive industry altogether. Just as the net zero agenda and our uncompetitive energy prices have already killed off the primary steel industry in the UK.

Aston Martin, one of the few remaining luxury British car brands, has delayed the launch of its first fully electric car – essentially because it does not think it will sell. However, AML is planning to launch its first plug-in hybrid supercar, the Valhalla, later this year.

The deadline for petrol-powered cars in the European Union was already 2035 but it now seems likely that internal combustion engines which run on biofuels will still be permitted beyond that date. That is a tribute to effective lobbying by the German automotive giants. But the fact of the matter is that legislation in both Europe and the UK designed to foist electric cars on an unwilling public is running ahead of demand.

Tesla’s Tribulations

Tesla also experienced a decline in sales of its models in the first quarter and its share price fell accordingly throughout April. On 28 April, however, Elon Musk made a surprise visit to Beijing to hold talks with Li Qiang, who is the China’s second in command. He then revealed that Tesla’s vehicles have been included on a list of 70 models which have been approved by the Chinese authorities for data security compliance.

The big news thereafter was that Tesla had agreed a tie-up with Chinese internet behemoth Baidu whereby Tesla’s vehicles would get access to Baidu’s navigation, mapping and data systems – although details of the deal were scant. Tesla’s shares, which had previously fallen by 40 percent year-to-date, jumped by 15 percent on the news. Analysts perceive that, working with a data and internet giant, Tesla will be able to complete the elusive quest for truly autonomous vehicles, about which I wrote here in March. There are rumours that Tesla will launch a revolutionary “robotaxi” imminently which will comprise “a combination of Airbnb and Uber”. In their down-time the machines will use their spare processing capacity “to train” other vehicles.

But in cosying up with Chinese tech, Mr Musk risks a backlash in Washington where how to restrain the all-pervasive influence of social media platform TikTok is top of the agenda. Last month, Congress passed legislation which will force TikTok in the USA to separate from its Chinese parent, ByteDance, or face a national ban. Be it noted that X, owned by Mr Musk, is prohibited in China. Some analysts think that Tesla will be able to create “a firewall” between its Chinese and US operations – but that remains to be seen. The China pivot also makes Tesla’s status in India – an enormous potential market for their cars – more questionable.

Immediately on his return from China, Mr Musk announced to senior executives that he was about to fire hundreds of staff, including Tesla’s entire public policy unit – and the head of HR. In an intra-company email he said: “We need to be absolutely hardcore about headcount and cost reduction”. He also fired almost the entirety of the 500-strong Supercharger Team whose mission was to roll out charging stations across the USA and beyond. This was on top of a previous round of 14,000 job cuts in early April. Some institutional investors are concerned that Mr Musk has cut muscle as well as fat.

Tesla’s principal challenge is a brutal price war with Chinese manufacturers of EVs such as BYD, which is backed by Warren Buffett’s Berkshire Hathaway, and which recently overtook Tesla as the world’s biggest-selling EV brand. The BYD Dolphin is currently retailing in the UK at around £25,500 while the Tesla Model 3 is available at around £40,000. That is why President Biden this week unveiled a prospective new tariff of up to 100 percent on Chinese EVs imported into the USA.

Another challenge is that, according to the Financial Times, a number of American consumers abstain from buying Tesla’s models because they are repelled by Mr Musk’s outbursts on the social media platform he owns and with which he is obsessed – X, formerly known as Twitter. Critics say that the acquisition of Twitter/X has distracted the concentration of the propelling mind behind Tesla, SpaceX, Neuralink, xAI and so much more. Since Mr Musk started to buy tranches of shares in Twitter in early 2022, Tesla’s market capitalisation has fallen by more than half from $1.2 trillion in November 2021 to $548 billion yesterday.

The company has confronted serious adverse publicity in the USA around the safety of its vehicles, especially its autopilot function. There have even been reports of steering wheels coming loose. Mr Musk wants Tesla to be perceived not as an automobile manufacturer but as “an AI robotics company”. That accounts for why the share price has rebounded of late, given the hysteria around AI; but it does not address the issue of why consumers are becoming more hesitant to buy EVs.

Sensible Toyota

Toyota is the sole global automotive giant which has refused to join the new-age chorus of kumbaya for the electric car. CEO Akio Toyoda has repeatedly said that the future of the motor car will be a multi-pathway of EVs, hybrids, hydrogen-power and even – shock horror – ultra-high efficiency and low emission internal combustion engines. Mr Toyoda has been widely criticised; but now that sales of EVs are stalling globally analysts have started to listen more carefully to his pronouncements.

Toyota sold 10.3 million cars in 2023 – an increase of 7.7 percent on 2022. That included 3.5 million hybrids and plug-in hybrids, but only 104,000 EVs. Profits are robust. Toyota’s hybrids are especially popular in China – where there will be no ban on internal combustion engines in 2035. Hybrids tend to be considerably less expensive than pure EVs because their batteries are much smaller. They are also more fuel-efficient when running on petrol. The Toyota Prius, an early hybrid, is one of the most popular cars in the world.

Mr Toyoda pointed out is a message to employees in January that nearly one billion people out of a global population of just over eight billion have no electricity at all, and therefore cannot even contemplate buying an EV. But Toyota’s hydrogen-powered Mirai, which retails at around $50,000 in the USA, has had disappointing sales. Hydrogen cars use a fuel cell instead of a battery which ignites a chemical reaction to create electricity. They suffer from the disadvantage that there are even fewer places to fill up with hydrogen than there are EV charge-points.

China Rampant

Having cornered the market for rare Earth metals and having achieved global market dominance in EV battery production, China’s electric vehicle sector is soaring. Last week saw the flotation of Zeekr on the Shanghai market with an initial market capitalisation of US$6 billion.

Chinese EVs are aesthetically designed. They have an abundance of functional features such as in-car mobile phone chargers, AI-assisted aircon, “intelligent driver assistance” and sophisticated infotainment (to use the horrible word now popular with dealers). Best of all, they are “affordable” (meaning relatively cheap). It does look as if the market price of good quality EVs manufactured in China is falling even as it is rising for such vehicles manufactured in Europe and North America.

The West might well be able to protect itself against competitive Chinese imports with tariff barriers; but it is now inevitable that China will dominate the EV markets across much of Asia, Africa and South America. Needless to say, Chinese cars are now ubiquitous in Russia given the sanctions regime prevailing. Mercedes is no longer king of the road there.

The Beijing International Automotive Exhibition, which ran from 25 April to 04 May, was an opportunity for China’s roster of EV manufacturers to showcase their latest models. BYD and Geely (which owns Volvo in Sweden and Lotus in the UK) took pride of place. Over 100 new car models were unveiled.

Collaboration between Chinese automotive players and the country’s tech giants was evident. JiYue is a joint venture between Geely and Baidu, while IM Motors results from collaboration between SAIC and Alibaba. Both of these are offering vehicles which are at least partially self-driving. IM Motors Model 6 is one of the first EVs to use a solid state battery. Xiaomi is a Chinese mobile phone manufacturer which now makes electric cars – something that Apple has not yet achieved, despite reportedly having invested over $1 billion to that end. Interestingly, Tesla did not even exhibit at the Beijing exhibition, which suggests that, even if it produces there, it does not see China as a principal market for its products.

Chinese EVs are about to arrive in Europe equivalent in price with their European internal combustion-powered analogues.

There will be blood.

Listed companies cited in this article which merit analysis:

  • Volkswagen AG (ETR:VW)
  • Tesla Inc. (NASDAQ:TSLA)
  • Baidu Inc. (NASDAQ:BIDU)
  • Stellantis (BIT:STLAM)
  • Aston Martin Lagonda Global Holdings PLC (LON:AML)
  • Toyota Motor Corp. (TYO:7203)
  • BYD Company Ltd. (HKG:1211)
  • Zeekr Intelligent Technology Ltd. (NYSE:ZK)
  • Geely Automobile Holdings Ltd. (HKG:0175)

Comments (3)

  • Bob Mackintosh says:

    Thank you, Victor. Another vitally useful and masterly account. It always needs to be emphasised that further electric vehicle use will require more electricity! So the existing production will need to be ramped up. Which of the categories: renewable (solar, wind, hydro-electric, tidal), nuclear, or CO2-generating (gas) can be ramped up? In the short term, only gas. So those new EV’s will be powered by gas. The powers-that-be at Stellantis don’t seem to realise this! And Governments certainly don’t. Weakness in understanding the physics and chemistry (I hesistate to use the frequently-misused term “science”) is a very serious matter. Even you yourself Victor (I think) state that just hydrogen fuel cells “ignite a chemical reaction” to create electricity”. All cells (i.e. any car battery) “ignite” (i.e. cause (allow) to run, and thus release energy) a chemical reaction. When you recharge a battery you run a chemical reaction in reverse – in the energy-consuming direction (I.e. it is a reversible reaction) and recreate the original chemicals. The energy that you store has been produced by burning gas, if your demand has increased the overall energy demand. I tutor science, and was explaining hydrogen fuel cells to a GCSE chemistry pupil (!) prior to his exam yesterday morning. Hopefully the topic came up!

  • Bob Mackintosh says:

    I should have added in my last comment that hydrogen “burning” (or rather the equivalent – see below), in hydrogen fuel cells, although being a combustion reaction like the burning of gas in a power station, or of fuel in an internal combustion engine, is perfectly “clean”, because it doesn’t produce any CO2 at all (only water – the single “waste” product). (But no electrochemical cell does any actual combustion. The same reaction, releasing exactly the same amount of energy, is performed by a different route, which produces ions (charged atoms) – and releases the energy as energy held in electrons (electricity).)

  • Richard Green says:

    Once one realises that the end game of the globalists is to deindustrialise and impoverish and weaken the West, all this green, zero emission nonsencence makes perfect sense.

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