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Survival Challenges for Automakers in the Transition to Electric Vehicles

GOOVER DAILY REPORT June 18, 2024
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TABLE OF CONTENTS

  1. Summary
  2. Current State and Market Dynamics of Electric Vehicles
  3. Individual Analysis of At-Risk Automakers
  4. Factors Influencing Automaker Survival
  5. Industry Trends and Competitive Landscape
  6. Conclusion

1. Summary

  • The report titled 'Survival Challenges for Automakers in the Transition to Electric Vehicles' investigates the formidable obstacles traditional automakers face while transitioning to the electric vehicle (EV) market. Using data surrounding industry trends, sales figures, technological advancements, and market dynamics, it outlines the competitive environment and critical factors determining success and failure. The report specifically examines the strategies and struggles of automakers such as Ford, Fiat Chrysler Automobiles (FCA/Stellantis), Mazda, Mitsubishi, and Subaru, highlighting their current progress and deficiencies in adapting to the EV market. Key findings reveal that these companies have not kept pace with industry leaders like Tesla and Volkswagen, resulting in a vulnerable market position as the industry rapidly shifts towards electrification. Significant factors influencing automaker survival include technological innovations, policy and regulatory pressures, consumer preferences, and competitive dynamics in the market.

2. Current State and Market Dynamics of Electric Vehicles

  • 2-1. Global Sales Trends and Regional Breakdown

  • In 2023, global sales of electric vehicles (EVs) were markedly concentrated in three major markets: China, Europe, and the United States, accounting for nearly 95% of new electric car registrations. Specifically, China led with just under 60% of global sales, Europe had just under 25%, and the United States accounted for 10%. In these markets, EVs represented a significant share of new car registrations (over one-third in China, over one in five in Europe, and one in ten in the United States). Outside these key regions, sales were limited, even in developed car markets like Japan and India. Emerging markets like Southeast Asia and Brazil showed growing but still low levels of EV adoption. Notably, countries such as Thailand and Viet Nam saw significant year-on-year increases in EV sales due to new subsidies and investments in battery manufacturing and charging infrastructure. For example, Thailand's EV registrations more than quadrupled in 2023, while electric car sales in Viet Nam increased from 7,000 in 2022 to over 30,000 in 2023.

  • 2-2. Leading Automakers in the EV Market

  • Tesla continues to dominate the EV market, although its stronghold is being challenged by other manufacturers. In 2023, Tesla's Model Y became the world's best-selling car with around 1.15 million units sold. However, competition from automakers like Ford, General Motors (GM), Volkswagen (VW), and various Chinese brands is intensifying. GM, Ford, and others are introducing competitive models like the Ford F-150 Lightning, Polestar 2, and Hyundai Ioniq 5. Chinese automakers, particularly BYD, are gaining ground with a substantial increase in exports and domestic sales. For example, BYD exported 1.2 million EVs in 2023 and plans additional production capacity in countries like Thailand. In India, Tata Motors and Mahindra lead the market, propelled by government incentives and the introduction of new popular models.

  • 2-3. Battery Technology and Supply Chain Developments

  • The EV market's rapid expansion is heavily tied to advancements in battery technology and supply chain configurations. Battery production and technological innovations are mainly driven by Chinese companies, with significant contributions from firms like Tesla, Panasonic, and Renault. In 2023, the end of national subsidies for EV purchases in China marked a shift towards increased price competition and market consolidation. Globally, efforts are ongoing to enhance battery capacity, reduce costs, and ensure the sustainability of supply chains. For example, Tesla's production of 4680 battery cells aims to decrease dependence on Chinese graphite and reduce overall EV costs. Investments in local battery manufacturing and supply chain diversification are also observable in emerging markets. For instance, Thailand's government is fostering domestic battery manufacturing with new subsidies and aiming to attract $28 billion in foreign investment over the next four years. Similarly, Brazil and Indian manufacturers focus on localizing battery production to bolster market penetration and reduce reliance on imports.

3. Individual Analysis of At-Risk Automakers

  • 3-1. Ford: Pursuit of Electrification

  • Ford has been actively pursuing electrification of its vehicle lineup. Despite significant investments in electric vehicle (EV) technology, Ford has struggled to keep pace with industry leaders. While the introduction of models like the Mustang Mach-E has shown promise, Ford's overall EV sales remain lower compared to competitors such as Tesla and Volkswagen. Ford's market share in the EV sector is still limited, indicating the need for more aggressive adaptation to consumer demands for electric vehicles.

  • 3-2. Fiat Chrysler Automobiles (FCA/Stellantis): Slow Transition

  • Fiat Chrysler Automobiles, now part of Stellantis, has faced notable challenges in transitioning to electric vehicles. The company has been criticized for its slow adoption of EV technology compared to other major automakers. This sluggish transition has left FCA/Stellantis vulnerable in the rapidly evolving automotive market. The lack of a comprehensive EV lineup has contributed to its struggle to maintain market relevance amid growing competition from both established and new entrants in the EV sector.

  • 3-3. Mazda: Traditional Focus and Slow EV Adoption

  • Mazda has maintained a traditional focus on internal combustion engines, which has resulted in a slow adoption of electric vehicle technology. Historically known for its emphasis on fuel-efficient gasoline engines, Mazda has been late to the EV market. As a result, the company has lagged behind competitors in terms of EV offerings. This delay in embracing electrification poses a significant risk to Mazda's market position, especially as consumer preferences continue to shift towards sustainable and eco-friendly transportation options.

  • 3-4. Mitsubishi: Declining Market Share and Limited EV Offerings

  • Mitsubishi has experienced a declining market share, largely attributed to its limited electric vehicle offerings. Despite being an early mover with the Mitsubishi i-MiEV, the company has not expanded its EV lineup significantly. This has hindered its ability to attract eco-conscious consumers and compete effectively in the growing EV market. Mitsubishi's current status in the EV sector reflects a need for more substantial investments in new electric models and technology to regain market traction.

  • 3-5. Subaru: Loyal Customer Base but Insufficient EV Investments

  • Subaru enjoys a loyal customer base, but its investments in electric vehicles have been insufficient to meet rising demand. The company's focus has traditionally been on all-wheel-drive gasoline vehicles, with few notable developments in EV technology. This insufficient investment in electric mobility raises concerns about Subaru's ability to remain competitive. As the market increasingly favors electric and hybrid vehicles, Subaru's reluctance to diversify its offerings risks alienating its customer base and decreasing its market share.

4. Factors Influencing Automaker Survival

  • 4-1. Technological Innovations in Electrification

  • Elon Musk's Tesla has been pivotal in spearheading the electric vehicle (EV) revolution, setting new standards for range, performance, and technology. Traditional automakers initially viewed EVs as niche products but are now scrambling to catch up. Companies like General Motors and Volkswagen have announced ambitious plans to electrify their vehicle lineups, but Tesla's head start, including its vast Supercharger network and cutting-edge software, has made it a tough competitor.

  • 4-2. Policy and Regulatory Pressures

  • Price suppression is a significant regulatory challenge affecting competition in the market. It occurs when companies deliberately lower prices below the cost of production or market rate. This practice can drive competitors out of business, leading to reduced competition, fewer consumer choices, decreased innovation, and potentially higher prices in the long run. Governments can address this through regulations, such as anti-dumping laws and promoting fair competition to ensure consumers have access to diverse and innovative products at reasonable prices.

  • 4-3. Consumer Preferences and Market Trends

  • Tesla's innovative direct-to-consumer sales model has challenged the traditional dealership system. This model allows Tesla to maintain control over pricing and customer experience. Consumers benefit from transparent pricing, an engaging showroom experience, and online sales, eliminating the need for middlemen. As EV technology becomes more mainstream, consumers are increasingly valuing attributes like sustainability, innovation, and seamless customer service, which Tesla has effectively capitalized on.

  • 4-4. Price Suppression and Competitive Dynamics

  • Price suppression can lead to a decreased number of competitors in the market as smaller companies may struggle to compete with artificially low prices set by larger companies. Initially, consumers may benefit from lower prices, but in the long term, they may face fewer choices and less innovation. Companies that engage in price suppression may ultimately dominate the market, leading to stagnant competition and potential increases in prices once competitors have been driven out.

5. Industry Trends and Competitive Landscape

  • 5-1. The Rise of New Entrants in the EV Market

  • The EV market has witnessed the entry of several new players, significantly altering the competitive dynamics. As noted in a report by Bloomberg Intelligence, Chinese automakers such as NIO and XPeng are rapidly closing the technology and branding gap, competing directly with established brands like Tesla, Volkswagen, and BMW. This influx of new entrants is intensifying competition, particularly in markets like China.

  • 5-2. Strategic Investments by Leaders like Volkswagen

  • Volkswagen has aggressively moved to transition to electric vehicles, making substantial investments in battery technology and supply chains. Bloomberg Intelligence highlights that Volkswagen's foresight includes commitments of tens of billions of dollars toward battery development and partnerships. The automaker plans to establish six 40 GWh battery factories in the EU by 2030. This aggressive strategy is a significant factor in Volkswagen's expected surge in BEV sales, potentially overtaking Tesla's market leadership by 2024. Additionally, an IPO for its Porsche marque could further boost its capital for investment in electrification.

  • 5-3. Challenges of Supply Chain and Battery Costs

  • Legacy automakers face significant hurdles related to supply chain constraints and the high costs of batteries. The Bloomberg Intelligence report emphasizes that these challenges make it difficult for many legacy automakers to transition their BEV-related assets independently from their combustion vehicle production. Rising battery costs and limited profit incentives also add to the complexity, hindering the rapid scale-up necessary to compete with market leaders.

  • 5-4. Hybrid and Mixed Approach Strategies in the Market

  • Many traditional automakers, including Ford, GM, and Hyundai, are adopting a mixed strategy by offering a range of vehicles, from gas-powered to hybrids and fully electric models. For instance, Ford has increased its production of hybrid models to cater to consumers hesitant about fully electric vehicles and to meet federal carbon emission standards. GM plans to integrate plug-in hybrids alongside its EV lineup, while Volkswagen is in discussions to introduce hybrid vehicles in the U.S. market, reflecting a more balanced approach to automotive electrification.

6. Conclusion

  • The analyses presented in the report underscore the severe challenges confronted by traditional automakers such as Ford, FCA, Mazda, Mitsubishi, and Subaru in the competitive EV market landscape. While companies like Tesla continue to dominate through innovation and a direct-to-consumer sales model, traditional automakers grapple with slow adaptation and limited EV offerings. The findings stress the urgency for these automakers to accelerate their electrification processes to maintain relevance, necessitating significant investments in technology and strategic market alignment. The report acknowledges limitations, including rapid technological changes, regulatory uncertainties, and unpredictable market conditions, which necessitate ongoing vigilance and strategic flexibility. Future prospects suggest that the industry will continue evolving with a stronger emphasis on sustainability and innovation, compelling traditional automakers to adopt more proactive and agile strategies. Practical applicability includes substantial investments in battery technology, diversification of product lineups, and strengthening supply chains to mitigate risks and enhance competitiveness in the evolving automotive market.

7. Glossary

  • 7-1. Ford [Company]

  • Ford is a traditional automaker facing significant pressure in the competitive EV market. Despite substantial investments in electrification, the company struggles to keep pace with innovative leaders like Tesla and Volkswagen.

  • 7-2. Fiat Chrysler Automobiles (FCA/Stellantis) [Company]

  • Historically slow in adopting EV technology, FCA (now part of Stellantis) faces challenges in transitioning to electric vehicles. Limited investment in EV technology places FCA at a competitive disadvantage.

  • 7-3. Mazda [Company]

  • Mazda’s primary focus on traditional combustion engine vehicles and slow adoption of EV technology has positioned it unfavorably in the market, as consumer interest increasingly shifts towards electric options.

  • 7-4. Mitsubishi [Company]

  • Mitsubishi’s declining market share and limited EV offerings put it at a disadvantage in the fiercely competitive landscape, necessitating substantial advancements in its EV lineup to remain viable.

  • 7-5. Subaru [Company]

  • Despite a loyal customer base, Subaru’s slow transition to electric vehicles and limited investment in a comprehensive EV lineup challenge its relevance as the market moves towards electric mobility.

  • 7-6. Volkswagen [Company]

  • Volkswagen is making aggressive shifts towards BEVs, with significant investments in battery technology and plans to establish multiple Gigafactories in Europe, positioning itself as a strong contender in the EV market.

  • 7-7. Tesla [Company]

  • Tesla, led by Elon Musk, is at the forefront of EV innovation, with a focus on sustainable energy, battery technology, and autonomous driving. Its success has set new industry standards, forcing competitors to catch up.

8. Source Documents