Is the current state of the electric car market all that doom and gloom? That’s a very American problem. The rest of the world isn’t getting enough EVs, according to a new report from the International Energy Agency.
Last year, EV sales exceeded 20 million units, capturing 25% of the global market. Growth is highest in China, with market share accelerating in other regions. For example, sales in Latin America increased by 75%. On the other hand, sales in the United States are sluggish, and the market share of EVs remains at around 10%.
The EV market is undergoing a K-shaped shift, and automakers of all types, from legacy to startups, need to pay attention.
U.S. sales were held back last year by the One Big Beautiful Bill Act, which eliminated tax credits for electric vehicles, and by policies that blocked Chinese automakers from entering the market.
The road ahead is certainly more difficult for startups like Rivian and Lucid, which have invested heavily in the U.S. market. Legacy automakers are somewhat isolated because they can rely on more profitable fossil fuel vehicles, at least in the short term. But without a solid EV strategy, they will lose further global market share as consumer preferences and expectations change.
Elsewhere, the Chinese automaker is driving the K’s upper limbs higher. This growth was most pronounced in China, where almost 55% of new cars were electric vehicles. Affordability helps: More than two-thirds of EVs sold in the country were cheaper than the average fossil fuel vehicle.
Chinese automakers also contributed to the increase in EV sales in Southeast Asia, Latin America, and Europe. For example, more than half of the EVs sold in Southeast Asia are manufactured by Chinese companies, and Europe imports more than 500,000 Chinese-made EVs.
The tremendous growth of EVs in Southeast Asia and Latin America breaks down one of the common theories: that electric cars are too expensive for developing countries. In Thailand, the price of EVs has been comparable to internal combustion engine cars for the past two years. “Imports of affordable electric vehicles from China have driven down prices and increased sales of EVs in many emerging markets in recent years,” the IEA report said.
However, it may not last forever.
Chinese automakers exported more than 25% more vehicles than were purchased in overseas markets. Dealers outside China may resist accepting more EVs until they can sell what they have on hand. Additionally, countries may begin to resent the flood of cheap Chinese cars and impose tariffs.
Even if that were the case, it would be foolish to exclude Chinese brands. The Communist Party has invested huge sums of money to turn the auto industry into a powerhouse. As a result, the country has enough manufacturing capacity to meet 65% of global demand. Thanks to state support, Chinese automakers are able to produce huge numbers of vehicles for far longer than other companies can remain solvent.
But in the long run, even without subsidies, EVs promise to outperform fossil fuel cars. According to Gartner, battery electric vehicles will be cheaper to manufacture than internal combustion engine vehicles as early as next year.
The Trump administration is trying to steer the U.S. market toward fossil fuels, believing the domestic market is different from other markets, but it faces strong headwinds. The market for fossil fuel cars and light trucks peaked in 2017, and while sales of hybrids and plug-in hybrids are increasing, they are not growing as quickly as pure EVs, according to BloombergNEF.
Perhaps the most alarming story comes not from American automakers, but from Japanese automakers.
Honda recently canceled three EV projects, putting its future as a global automaker in jeopardy. By retreating from EVs, companies like Tesla and BYD will forget important lessons that have helped them reduce vehicle costs. And because EVs are the ideal platform for building software-defined vehicles, Honda will miss out on another trend sweeping the industry: one that’s also helping companies save money.
Overall, this paints a tough picture for traditional automakers, which have been rolling back their EV ambitions.
Companies that fail to properly manage their respective EV houses could lose out to competitors in the global market, sacrificing profits that would allow them to remain competitive for years to come.
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