EV sector trends: Mapping the 2023 landscape

From supply to demand constrained

China’s decision to withdraw subsidies and policies for electric vehicles (EVs) at the end of 2022 has created an uncertain outlook for the world’s biggest EV market. Demand for EVs, particularly high-end models, has slowed in response, impacting sales volumes and potentially market share growth.

Meanwhile, automakers are still grappling with the lingering effects of Covid-19 shutdowns, semiconductor shortages and lead time challenges. Raw material costs have also been volatile in recent years and freight costs “astronomical”.

The global macro environment has exacerbated these headwinds, with Europe and the US also facing significant challenges. Last month, Tesla reduced its prices – again – in an attempt to boost sales as higher borrowing costs weighed on buyers. With other leading players following suit, a price war has ramped up the competition at a time when a growing number of traditional manufacturers are entering the fray.

At the same time, we heard that 2023 heralds “the first year of the battery era”, with many manufacturers starting to make their own batteries and other developments on the horizon that could drastically alter the future landscape.

EV adoption is still clearly on the rise, but experts we have spoken to say global EV players face a tougher playing field as the operating environment shifts from being supply constrained in 2022 to demand constrained in 2023.

Competitive dynamics across EV players

BYD stopped producing fossil fuel vehicles in April 2022 and overall had a strong year, with YoY sales growth of 208%. If the company’s product development pace remains stable, its market share is expected to grow in 2023 thanks to its supply chain integration, sales terminal improvements and cost reduction potential, a former manager at a Chinese EV manufacturing company told Forum.

However, sales of BYD’s Seal model have been adversely impacted by Tesla’s price cuts, particularly as one of the first players to respond to China’s withdrawal of subsidies. The expert noted that BYD increased its prices twice in 2022 due to higher battery costs and supply chain disruptions, and then for a third time this year. “There is a huge gap between BYD’s selling prices at the beginning of the year and now, and the gap may be RMB 12,000 or even above.” However, in March the company offered discounts on its Song Plus and Seal models.¹https://www.reuters.com/business/autos-transportation/chinese-ev-comptition-hots-up-byd-offers-discounts-2023-03-09/

Overall, the specialist believes EV market share in China could reach 30% in 2023 vs 10% in 2018 as charging facilities improve and insurance premiums become more palatable. Battery costs are also expected to fall as raw material costs normalise and chip disruption eases. Manufacturers will be looking for new ways to financially incentivise consumers in response to fiercer industry competition, they said.

In contrast, a former store manager at a Chinese EV manufacturer is more pessimistic about developments this year. They are particularly bearish about vehicles priced at over RMB 300,000, a segment in which Nio, XPeng, Li Auto and Tesla are among the key players. For example, XPeng’s prices are the lowest, but its range starts at RMB 200,000. Sales of lower- priced models such as those offered by BYD for RMB 100,000-200,000 – including Song, Seal and Dolphin – may increase due to the macro environment, we heard.

“The general sales volume of NEVs [new energy vehicles] will continue to grow, especially low-price models… However, it will be hard to improve the sales volume of more expensive NEVs.” Former store manager at a Chinese EV manufacturer

Sales of Zeekr, one of Geely’s mid- to high- end brands, fell sharply in January 2023 from 10,000 each month in Q4 2022 to 3,000. The withdrawal of subsidies and Tesla’s price cuts were cited as primary factors, potentially exacerbated by the Chinese New Year holiday, a former project manager at a China-based EV manufacturer said.

The specialist also said promotional activities make little difference to Zeekr’s costs and that the company is close to reaching its breakeven point. Zeekr, along with Nio and XPeng, could face headwinds in 2023, according to the expert. “Zeekr’s and XPeng’s main models are priced at RMB 200,000- 400,000, which has put them in an awkward position.” BYD’s growth has been driven by sales of entry-level models such as Song Pro, which starts at RMB 99,800, they noted.

The end of China’s subsidies is reshaping the competitive landscape in 2023. Growth is expected to remain strong but average transactions are expected to decrease as lower-end models take up more market share, according to the former project manager. Indeed, a flurry of new EVs priced at RMB 100,000-200,000 have been launched over the past year and historically high-end brands such as Nio, XPeng, Li Auto and Zeekr are also entering the lower-priced segment.

Consumers are also becoming savvier. “Nowadays, people find that the EV market is changing so fast that EVs are becoming similar to smartphones: each year’s new products are a generation ahead of the previous year.” This has triggered a shift in spending behaviour as consumers opt for entry-price vehicles they can afford to swap when new models are launched.

Meanwhile, Tesla has enjoyed a decade of “almost no challenge” in the EV market, but this is changing. The EV giant’s biggest risk, according to a VP at US EV manufacturer, is not freshening up its product suite and continuing to rely on the Model 3 and Model Y for growth. If the company continues on the same path, gross margins could come under pressure, the specialist warned. This is particularly true of the USD 40,000-60,000 segment as consumers increasingly search for value. Tesla has the brand cachet but could start facing market saturation and stiffer competition in China, which has been a significant growth region for the company to date. Nio is its biggest competitor, but it also competes with Audi, Mercedes and BMW.

“Previously, Tesla… didn’t really have any competition in China because none of the Chinese electric vehicles were competitive in terms of range or performance… I think now you’re starting to see Nio and BYD mature.” VP at a US EV manufacturer

A manager at a European auto and EV manufacturer expects flat growth in the auto market from 2022-25, with Mercedes outperforming thanks to its new EV portfolio and relative insulation from inflation as a premium player. The specialist expects Mercedes to perform particularly well in North America with its electrified SUV portfolio.

In fact, Mercedes could “eat some market share” from Tesla in North America, the specialist added. “This upper luxury comfort that appeals more to older customers is something that Tesla really does not offer yet, so I would expect North America to be its big bet in the next 2-3 years.” On the other hand, China is a growing concern as consumers appear to be increasingly “domestic-centred”.

In other observations, we heard Mercedes has a “clear strength” on charging time at 8-9 minutes per 100km. Charging is something consumers are looking more closely at when making purchasing decisions – more so now than vehicle range, we were told.

In an Interview on General Motors (GM), a former director at the company said GM is also taking market share from Tesla due to the latter company’s limited product line-up. However, we heard this could be difficult to sustain over time unless GM continues to launch new products. GM’s prices are resilient given the relatively limited competitive pressure from Tesla, the former GM director added.

Lithium’s continued volatility

Global EV sales doubled from 3.3 million units to 6.6 million units between 2020 and 2021, and are expected to continue increasing in 2023 and beyond. However, lithium miners have been unable to scale rapidly and new capacity can take 3-5 years or more to come online.²https://www.etfstream.com/articles/lithium-market-update-elevated-prices-are-creating-favourable-dynamics-for-miners

Geopolitical turbulence and the volatile nature of raw material supply chains has also put pressure on EV manufacturers in recent years. Soaring prices have threatened supplier and OEM profit margins, resulting in elevated component and vehicle prices.³https://www.spglobal.com/mobility/en/research-analysis/a-reckoning-for-ev-battery-raw-materials.html%20

Although commodities markets have returned to more normal territory, lithium remains volatile. A turning point for lithium prices in late 2022 was observed when EV demand in China slowed ahead of the planned withdrawal of subsidies.⁴https://www.reuters.com/markets/commodities/lithium-price-slide-deepens-china-battery-giant-bets-cheaper-inputs-2023-02-28/ As we heard, since mid-to-late November 2022, “the lithium industry has been on a downward trend”.

The price of battery-grade lithium carbonate dropped sharply from RMB 610,000-620,000 in November 2022 to RMB 460,000-470,000 per tonne in January 2023, primarily because EV volume lagged in Q4 2022, a former director at a China-based mining and manufacturing company said earlier this year. The specialist estimated that it will remain stable or rise slightly in the short term, but potentially drop to RMB 330,000-360,000 due to an increase in supply. In March 2023, the price was RMB 338,000 per tonne (USD 49,088). Goldman Sachs reportedly sees spot prices sinking even further to USD 34,000 a tonne in the next 12 months. However, by 2025 it expects supply to grow on average by 34% a year against an annual demand growth rate of 25%.⁵https://www.reuters.com/markets/commodities/lithium-price-slide-deepens-china-battery-giant-bets-cheaper-inputs-2023-02-28/

Meanwhile, we heard in a Forum Interview that the cost to acquire, develop and operate lithium resources globally is only increasing. In response, a former director at a chemicals manufacturing company said direct mine-to- OEM supply agreements are becoming more commonplace, in turn stabilising contract rates.

Albemarle’s 15% increase in its 2030 lithium demand forecast is likely to have been informed by direct engagements with OEMs, we were told. The specialist noted the huge demand in China for lithium carbonate, and said that although EV demand could slow in the short term, there is certainly long-term demand. “I know if you asked people like Elon Musk or some of the other OEMs how much lithium they want, they’ll tell you, ‘Give me what you’ve got’.” When it comes to demand, “you’ve got to see beyond the regular OEMs”, the specialist added. “There are new EV companies that are going to be demanding lithium, and they all want it now for future fleets.”

“I know if you asked people like Elon Musk or some of the other OEMs how much lithium they want, they’ll tell you, ‘Give me what you’ve got’.” Former director at a chemicals manufacturing company

Battery charging and equipment developments

This is the “first year of the battery era”, according to an engineer at a Chinese EV manufacturer. We learned that industry leader CATL has upgraded its cell-to-pack (CTP) technology three times, launching Qilin, which is module-free and has an improved internal structure, last year based on CTP 3.0. CTP technology directly integrates battery cells into the battery pack and the specialist expects Qilin to be supplied to mainstream auto manufacturers this year. We were told the Qilin battery is highly competitive, having gained significant experience through the various CTP iterations.

Meanwhile, some manufacturers, such as Tesla, have been working on cell-to-chasis (CTC) or cell-to-body (CTB) technology. This comes as several EV manufacturers have started to dabble in battery development. As we are beginning to see on the mineral mining side, the specialist said in the next 2-3 years manufacturers will increasingly seek to bring battery inventory closer to source – by developing their own production capacity. Chery and Geely are among the players already doing so, we heard.

On battery charging and swapping, a divisional leader at an EV manufacturer told us the industry faces several challenges in 2023, namely rising prices following the end of subsidies, as well as high energy prices, and the growing presence of auto manufacturers and energy enterprises in the industry, which is increasing the competition. The specialist believes auto manufacturers will continue to adopt aggressive battery charging and swapping station strategies in 2023 as third-party operators, which primarily serve a saturated B2B market, continue to struggle with profitability. Nio is the only manufacturer that “vigorously promotes battery swapping” and outshines its peers thanks to its model that returns energy to the grid, we were told.

“In 2023, auto manufacturers will continue to adopt aggressive NEV battery charging and swapping station investment strategies while the growth of third-party operators will gradually slow down.” Divisional leader at an EV manufacturer

A former manager at Porsche Engineering R&D believes battery swapping and charging will coexist in the long term, serving different business needs respectively. Battery swapping’s main applications are taxi and shuttle bus fleets, whereas car owners generally opt for charging because they prefer owning their battery assets, the expert said.

For now, battery charging prevails and we learned there are three fast charging technology routes. Porsche and Mercedes- Benz lead the trend of using a high voltage of 800V and a moderately high current. “Chinese auto manufacturers who want to sell their vehicles at over RMB 300,000 in the premium or luxury vehicle market all use the voltage of 800V as a fast charging standard,”the expert said. Brands with aggressive expansion strategies, such as XPeng and Aion, offer high-voltage and high-current charging, but the standard configurations of their mass- produced vehicle types do not usually include a high-current charging system.

The main challenge for 800V fast charging is compatibility with 500V charging piles. One solution offered by a German brand is to equip 800V battery packs with a series-parallel switching device, an approach that could soon be adopted by other industry players. Research suggests that 800V charging is 10-15 minutes faster than 400V high-current charging, but the specialist believes the impact on the user experience is limited.

Experts have also shared insights on the rise of mobile charging robots. They comprise movable bases with obstacle avoidance features, energy storage batteries and mechanical arms. Operators have three main revenue sources: charging fees, rental fees and digital advertising.

At present, a set of mobile charging robots costs RMB 300,000-400,000 but this is expected to fall as the technology matures and is produced on a larger scale. At RMB 100,000-200,000 per set, a general manager at an industrial robot supplier said they would be very optimistic about future application prospects. As traditional charging piles cannot provide DC fast-charging services, we were told there is significant potential for mobile charging robots to add further value.

“Traditional charging piles cannot provide DC [direct current] fast-charging services. If mobile charging robots can provide such services, they will have huge market potential.” General manager at an industrial robot supplier

Turning to battery equipment, a former director at a manufacturer of high-tech equipment said lithium battery equipment has been “growing very quickly over the past few years”. As battery manufacturers ramp up their production, the lithium battery equipment market could grow by “at least 50% in 2023”, we heard. Meanwhile, many production lines have moved to the US in light of the Inflation Reduction Act (IRA), which recognises the importance of developing the EV industry. Lead Intelligent, which already works with Tesla, is well positioned as an equipment provider, we heard. By contrast, battery manufacturers that look to develop their businesses in the US may lose their competitive advantage that comes with being located close to material supply chains in China.

Integrated die casting has become a major trend as EV technology matures and manufacturers look for ways to reduce vehicle weight. Only Tesla has achieved integrated die casting, a former sales manager at a manufacturer of machinery products said, but others are watching closely. Integrated die casting machines can also boost efficiency, as parts can be produced simultaneously without the need for human management. However, integrated die casting also brings challenges. For example, control systems, hydraulic systems and mould materials are more difficult to manage as equipment sizes increase. LK Technology was the first company to apply integrated die casting, we heard, followed by Yizumi and Haitian.

On battery pricing, we heard capacity has been tight and characterised as a seller’s market in recent years. However, the situation is changing. “More battery plants are opening up, and the dynamic is shifting a little bit more towards the buyer’s market on battery cells now,” the VP at a US EV manufacturer said. The expert said battery prices could fall throughout the year, but also noted there is a 3-9 month lag between the cost of raw materials normalising and prices being reflected in vehicles and purchasing contracts.