Super car

Rising input costs squeezing out entry BEVs

The biggest challenge for OEMs rolling out new battery electric
vehicles (BEVs) is rising input costs, which are affecting cost
parity with traditionally powered vehicles. With prices of key raw
materials used in BEVs having risen dramatically since 2019,
S&P Global Mobility sees the potential for changes in consumer
behaviour, although the projected long-term market share of BEVs is
likely to be unchanged.

  • Overall, we expect 2022 to be a year when rising raw material
    prices peak. However, we also expect automakers to be working with
    critical raw materials prices about 75% higher in 2030 than in
    2019. Our forecasts for vehicle sales, powertrains, and components
    now reflect the impact of that expectation.
  • In terms of the current make-up of the global passenger car
    market, we expect two major challenges for vehicles powered by
    traditional ICE technology. Firstly, stricter emissions regulations
    will increase the cost of vehicle technology and emissions
    controls. Secondly, in the shift to electrification, with
    decreasing volumes of ICE vehicles against increasing volumes of
    BEVs, this will erode the economies of scale of ICE vehicles and
    probably increase their cost base.
  • Prior to the rise in critical raw materials costs, some price
    parity of BEVs with ICE and hybrid models had been expected by
    about 2025, excluding vehicles in entry-price-point segments. Such
    parity would probably result in some OEMs leaving the city car
    segment and increasingly narrowing options in terms of entry-level
    A-segment vehicles.

Market dynamics may see some change

  • S&P Global Mobility does not expect the pricing pressures
    to have much impact on vehicle sales at the topline, despite
    expectations that smaller vehicle segments will retain limited BEV
    options as a result. In 2031, our latest forecast sees BEVs
    reaching a 51.5% market share in the United States, nearly 78% in
    Europe, and about 74% in China. However, the rest of the world is
    expected to continue to lag and BEVs to have a market share of only
    about 27%.

  • OEMs have some tools available to them to keep BEV costs in
    check. These include switching to less-expensive lithium iron
    phosphate (LFP) battery chemistries. One potentially interesting
    but untried option for managing residual values and lease rates is
    a Toyota proposal for factory refreshing of used cars. OEMs may
    also opt to reintroduce aggressive vehicle discounts, but in the
    past few years, the industry has been moving away from doing
  • For consumers, there are also options. First, we will see a
    degree of acceptance of price increases. Consumers are most likely
    to accept price increases when they are in the form of moderate
    lease rates for less-price-sensitive buyers. Another outcome may be
    consumers switching to lower-positioned brands or segments.
    Consumers may also increase the holding period of a vehicle or opt
    to leave the new-car market. Both of those options have the
    potential to affect topline sales volumes over time, however.

This article was published by S&P Global Mobility and not by S&P Global Ratings, which is a separately managed division of S&P Global.

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