Overview
Volkswagen is planning to invest €180bn (from 2023-2027) in EVs, (EV-related) software and to expand its presence in China & North America. This is to help bridge the gap between VW and its peers, as last year VW sold c572k of all-electric vehicles (up 26%) however Tesla and BYD sold 1.3m and 911k EVs respectively. VW has lost around 4% (down to 15%) market share since 2020 in China. Around €122bn of the investment will be used for EV battery cell production, raw materials and on software for EV battery management (including advanced driver assistance features).
The (Tesla) Price War saga continues and interestingly, it has spilt over to ICE vehicles. Companies such as Citroen, Mercedes-Benz and Chevrolet have slashed prices on certain ICE models, to protect their market share. For example, Citroen C6s have been slashed by 40% ($12,900) until the end of March. In China, Chevrolet started offering discounts of as much as 70,000 yuan on its Blazer model, which starts at 230,000 yuan. However, even before the price war started, sales of ICE vehicles were waning, falling by 13% in 2022 while BEV sales rose 74%. Subsequently, if you factor in the EV price cuts by Tesla and BYD to increase demand, ICE manufacturers have suffered and responded with these short-term cuts.
NIO has stated that it will not get involved in the Price War. The company views the current wave of price cuts as a short-term cyclical fluctuation due to transitioning from ICE vehicles to EVs. The company believes that price cuts are not the solution. NIO believes the solution is to stick to (their) brand values and focus on R&D and infrastructure spending to enhance user experience.
BYD has entered into a partnership with (UK-based) Octopus EV and will supply them with 5,000 EVs over the next 3 years. This is a significant event, as it represents, BYD entering the UK passenger car market. As part of the agreement, Octopus EV will also become BYD’s recommended salary sacrifice partner for their business customers in the UK.
China reported strong February retail sales of new passenger vehicles, which increased by 10% compared to February 2021. The key driver was the timing of the 2023 Chinese New Year holiday which resulted in more working days this February as compared with the same month last year. Chinese New Year was in February last year, while the holiday was in January this year. EVs continued to perform strongly, as 439k were delivered this February, this represents a 61% increase, compared to February 2022. We believe that China will continue showing strong monthly figures however, there could be a slight stagnation in/leading up to, summer, as the end of Chinese EV policies are truly felt, before it picks up leading up to Christmas. We still maintain a bullish stance on the EV Chinese market for 2023.
BYD has ruled out building a factory in the UK due to Brexit. The company confirmed that the UK did not even make the Top 10 shortlist, as it perceives the UK to be too risky to build a Gigafactory. Countries such as Germany, France, Spain, Poland, and Hungary are on the shortlist, as potential Hubs for operations. This follows on from Elon Musk's comments, in 2019, when he decided against opening a factory in the UK due to the same reason. It is hard to predict if other companies, will follow this rationale and pattern. However, it is a blow for the UK economy, as the two largest global EV manufactures deem the UK to be too unpredictable.
Spotlight: UK Spring Budget Highlights
EVs did not feature in this budget at all. There was optimism, leading up to the budget, that the government would reduce VAT for public EV charging points, as it had previously done for low-carbon technologies, such as solar panels and heat pumps, however, the budget did not heed this call. Although this budget will be seen as a disappointment for progressing EV adoption, renewable energy was a key theme in this budget. The budget focussed on the following renewable energy themes:
- Fuel duty: This budget has maintained its 5p per litre (ppl) cut, introduced last year, for a further 12 months.
- This avoids a potential 12p rise in fuel duty at the end of the month. Fleets have welcomed this move, as they have been experiencing record pump prices in the last 15 months. This will also help fight inflation (to an extent), as driving is essential for businesses and companies. The IFS estimates this freeze will cost the government c£6bn in 2023-2024.
- However, the SMF argues this is not enough, as fuel duty freeze savings this year will only impact 5% of the lowest-income brackets, compared to 13% for the highest-earning brackets of people.
- Carbon capture, usage, and storage (CCUS): New financial support for British CCUS projects has been announced. The government has promised (up to) a £20bn fund, with the aim to bolster its domestic energy supply.
- Industry experts have greeted this with muted applause. This is an encouraging step and symbolises the government is doubling down on its commitment to CCS technology.
- Chancellor Hunt has stated that this fund would support up to 50,000 jobs, attract private sector investment and help capture 20-30m tonnes of CO2 per year by 2030. However, industry experts are waiting on more granular detail on the implementation of the fund before truly celebrating.
- Nuclear: Nuclear power will be (subject to consultation) classified as environmentally sustainable going forward. This will help stimulate private-sector investment.
- However, the greatest ramification of this classification will be that nuclear projects will have access to the same investment incentives as renewable energy.
- This follows the Chancellor’s confirmation of a £700m investment in Sizewell C, the first state-financed nuclear project for nearly 30 years, in the Autumn Statement.
- The Chancellor also announced the launch of a new development body called ‘Great British Nuclear’ (GBN). The aim of GBN will be to bring down costs and provide opportunities across the nuclear supply chain, in the hope to provide up to 25% of our electricity by 2050.
This budget has been criticised for using a broad-brush approach regarding low-carbon technologies. However, the government has been proactive with its ZEBRA and ScotZEB programs which are making a positive impact on the adoption of EV buses across the UK. We hope and believe going forward, the government will heed the calls of EV industry experts and focus on the EV sector in the next budget, to provide (more) policy tailwinds.