Overview
Ford Motor has announced its first all-new EV under its Explorer brand, which will be exclusively sold in Europe. Ford’s strategy is to leverage its most iconic brands to gain momentum in the EV market. This Explorer EV will become the first Ford to use Volkswagen Group's MEB architecture. Ford and Volkswagen first announced a broad collaboration on electric and autonomous vehicles in 2019. The collaboration on EVs was intended to speed up the process of getting vehicles to market, whilst Ford works in the background on its own dedicated platform. The Explorer EV is one of nine EVs Ford plans to introduce in Europe by 2024.
BYD has reduced shifts at its Xian and Shenzhen plants, which signals a weaker (Chinese) EV market for 2023. Bear in mind BYD is the biggest Chinese OEM globally. At its Xian plant, which is its biggest manufacturing hub, a portion of workers have been reduced to a 4-day week. This plant manufactures Song and Qin EV sedans. Whereas the Shenzhen plant has reduced its shifts from three per day to two per day. This plant is responsible for manufacturing Han sedans. BYD has not made an official statement as to why it has cut output or for how long.
Morgan Stanley has come out and stated the ongoing Price War will not be a short-term fad but an ongoing trend. This stems from their research, which found that Tesla’s investment cost per GWh at its new Nevada factory expansion represents a huge drop in anode production investment cost, in comparison with Korean and Chinese battery manufacturers. Another key finding was the comparison it found between the battery cost curves with polysilicon and LED cost curves when a production volume is reached whereby it is essentially commoditised. This is currently happening with battery production where not only is the cost of production decreasing but also the cost of capital investment. Morgan Stanley has stated that Tesla is a cost leader who is setting the tone for the price decline trend. If Morgan Stanley is correct, this benefits consumers and the ramp-up in EV adoption projections will need to be revised.
Leicester has received £3m in investment, from the UK government, to purchase 18 new electric buses. First Bus will be the bus operator of these 18 buses, while Wrightbus will manufacture all 18 buses, at its Northern Ireland base. First Bus intends to add 600 more electric buses to its fleet by March 2024. 117 of these electric buses will be spread across Bramley and York, Hoeford (Hampshire), and Norwich.
Tesco, and its partner Pod Point, will install and trial 75kW EV chargers at 12 of its stores. Since 2019 Tesco has partnered with Pod Point and VW to install charging points across 600 stores, with more than 2500 individual charging units at these sites. The new 75kW Pod Points units will be in addition to the 7kW, 22kW and 50kW chargers that are currently offered in Tesco supermarket car parts.
Dorset Council has announced further EV charging points in towns and villages across the Dorset area. This stems from being involved in the Charging Ahead programme, which aims, by 2030, to get 80% of Dorset households within a 10-minute walk of a public charge point. Over the last 3 years, the council has focused on building out the charging infrastructure in the main towns, with nearly 100 charging points installed to date. However, going forward there will be a greater focus on installing charge points in Dorset’s more rural areas. These installations will be funded by the government’s Local Electric Vehicle Infrastructure (LEVI) scheme and Mer, a European EV charging company.
Deals
Pull Systems, an EV performance software management startup has raised $5m in a seed round, led by UP.Partners. Pull Systems unveiled at SXSW 2023, is the first startup borne out of the partnership between Porsche and venture studio UP.Labs. Pull Systems SaaS platform provides performance management software to EV suppliers, manufacturers, and operators. A portion of the raised capital will go into automating the software using ML.
Green Li-ion, a Singapore based battery recycling startup, has announced a $20.5m pre-Series B round, led by climate-tech investor TRIREC. This capital will be used to scale up its production capacity to be able to process more used lithium batteries. This will produce precursor cathode active material that’ll eventually go into fresh lithium-ion batteries.
Spotlight: China
According to the China Association of Automobile Manufacturers (CAAM) and CEIC, 26.9m new passenger cars were sold in 2022 which represented a 20% increase in comparison to 2021. Around 6.9m BEVs and PHEVs were sold, which is double the number sold in 2021. In Q4 2022, all-electric vehicles contributed strongly to the general car sale figures, driven by EV subsidies ending by the 1st of January 2023.
The consensus, according to banks such as ING, is that globally new car sales are set to grow by 4%. China is expected to grow by 4-5%, which is still slightly above the sector average. However, as highlighted in previous newsletters, we concur with industry experts that China will stagnate in 2023.
We must contextualise this, as China has been the leader in EVs since the early 2010s and is still the biggest market in the world for EVs. However, in 2019 EV sales hit a 5-year low which led the Chinese government to introduce subsidies focused on consumers and corporate drivers which resulted in great uptake in EVs between 2020-2022. EV market share jumped from 6% to 26% in this period. Coming into 2023, these subsidies ended, and it is common for a (short) period of stagnation to stem from this.
- BYD reducing its output by reducing work shifts is a key indicator that demand for EVs will be weaker going forward.
- BYD is the leading OEM in China, followed by SAIC-GM-Wuling and Tesla. BYD had a market share of more than 30% for BEVs in 2022.
- Chinese brands account for just over 50% of home market sales, followed by German, Japanese and US brands.
- We believe that other Chinese OEMs will also lessen their output in the short term.
- The trend of EV prices has been coming down for years, however, according to BloombergNEF, 2022 was the first-time battery prices rose. In 2022 cobalt prices rose to $82,000, doubling from 2021.
- However, we started seeing prices for certain commodities such as cobalt and lithium salts (key materials in battery production) starting to drop in Q4 22 and this trend has continued in Q1 this year.
- Upon closer inspection the reason why lithium salt prices dropped is due to battery producers holding a pessimistic outlook for China’s EV consumption in Q1 2023. Thus, these producers cut production in December 2022.
- Thus, these decreases in prices or ‘normalisations’ were/are being driven by a weaker EV demand and holding a bearish sentiment of the global markets.
- We believe the industry sentiment that battery prices should start to fall in 2024.
- When battery prices start to fall, along with economies of scale and as the EV market matures, it is predicted that by 2026 in China, the cost of owning an EV is expected to match the cost of owning an ICE vehicle.
The Chinese government announced the renewal of the vehicle purchase tax exemption policy for new energy vehicles (a 5% tax exemption is around CNY10000). But there has been no indication that there will be a renewal of the cash subsidies on EVs. The general macro climate has resulted in governments having to deal with higher fiscal burdens and having to make sacrifices to fund other (time-sensitive) services. China is not immune to this.
- The Chinese government must weigh up whether it wants to boost EV consumption by spending on new subsidies or not. We believe that the Chinese government will not introduce any new subsidies in the short term.
- However, after witnessing how much FDI America has attracted with its IRA and BIL Acts, it would be not surprising if China does respond with strong policy measures by the end of 2023 or early 2024.
- The concept behind the subsidies is to spur EV manufacturers to offer discounts going forward. Interestingly the Price Wars, which was kicked off by Tesla, has spurred OEMs to offer discounts however these are over the short term, such as Ford and Xpeng slashing prices for specific BEV models.
- We believe that the Price War will be short-lived. However, the Price War could play a part in sustaining sales in 2023.
China’s car market holds a significant advantage compared to its Western counterparts. Chinese car sales are still trending up on a structural basis, this is being driven by the increasing car ridership among the middle class.
- Contrary to popular conjecture the Chinese market is not saturated.
- Currently there are around 265m cars however ING has forecasted this figure to rise to 340m in 10-15 years. This also implies the renewal rate of the fleet will be relatively high.
- Subsequently, the EV fraction in the fleet is growing faster than in Europe or the US, at around 5% in 2022. This figure is expected to reach just over 13% by 2025 (compared to 6% of the global fleet).