The electric coup de grâce

A tough climate… but carmakers remain greedy

The end of combustion engines in 2035

At a time when demand for new vehicles is relatively low, one might imagine that with the environmental crisis now weighing on the minds of people around the world, this would be a good opportunity to boost sales of electric cars.

A crucial step in this direction was the European Parliament’s vote on 8 June to ban the sale of new internal combustion engine vehicles from 2035. This was the first time a decision of this kind had been made on a continental scale. Many manufacturers have chosen to be proactive and switch to 100% electric production before the deadline. In 2024, Alpine will become the first brand to take the plunge. The Stellantis megacorp will also be at the vanguard of this change, with DS following suit in 2027, Opel in 2028 and Fiat in 2030. 2030 is also the year that Ford (in Europe only), Mercedes, Peugeot and Renault have set as their cut-off date.

Profit margins could not be heathier

The magic of electricity has provided manufacturers with an opportunity to further increase margins that have already been rising steadily on the whole. Between 2012 and 2018, they averaged around 6%. They then fell to 4.8% in 2019 and 3.5% in 2020. 2021 saw them rebound sharply. The average profit margin of the world’s 16 leading manufacturers now stands at 8.5% (Fig 56). A strategic shift has led to them raising their prices to offset reduced sales volumes. This promises a decent financial outcome for shareholders, but less so for motorists. However, significant differences can be observed from one brand to the next. For instance, the gap between Tesla and Mitsubishi is 10 points. Enough to make other automakers want to imitate the “king” of the electric-vehicle world, which, one should remember, was founded barely 20 years ago.

Widescale investment in electric vehicles

According to Global Data, manufacturers are set to invest heavily in the development of electric vehicles.
These companies are expected to spend €600bn over the next decade. Heading the field are the Volkswagen group ($100bn), Stellantis and General Motors ($80bn), Toyota ($70bn), Mercedes and the Renault-Nissan-Mitsubishi alliance ($40bn).

Rare and costly materials

However, the rise of electric vehicles and the profit margins they bring is likely to come up against a major obstacle. The raw materials most commonly used in the manufacture of battery cells, which are a fundamental part of these vehicles and account for around 75% of the cost of batteries, are becoming increasingly expensive. This is particularly true for lithium, one of the three essential materials found in electric vehicles along with cobalt and nickel, although its cost is expected to fall by 2023 (Fig 57). 

Two additional issues could also make it more difficult for production of these materials to be ramped up. Indeed, they are mined in only a very small number of countries and are therefore very sensitive to geopolitical conditions. For example, 10% of the world’s nickel is produced in Russia. What’s more, the mining methods employed are not especially eco-friendly. Lithium extraction, for instance, requires huge quantities of water.

The electricity in the air is weak

Thus, while the current success of electric vehicles is undeniable and while the regulations that will be coming into force over the next few years will undoubtedly boost sales, the price factor again prompts motorists to express reservations.

1 in 10 respondents state that they own a hybrid or electric vehicle (Fig 58). It is no surprise that this category of motorist is most likely to be found in Norway, Japan and China. In South Africa and Mexico, however, such vehicles are almost non-existent. This is also the case on the used-car market. Only 4% of the motorists who bought their vehicle second hand report that they drive a hybrid or electric vehicle. Obviously, the result can be explained in great part by the fact that this is a relatively new market. Once more, Norway and Japan, but also Brazil, are the countries in which the market is the most developed (13%, 9% and 8%).

Why are electric vehicles struggling to win people over? 7 out of 10 respondents point to their excessive price, which puts them off buying one. This is a majority opinion in all but two of the countries covered by the survey. Naturally, the nations in question are Norway and China, whose electric vehicle markets are the most mature and the most successful.

Prices* that make you think

When comparing similar models, the energy source used has a significant influence on the price. This is demonstrated by 5 examples taken from the French market.

Hyundai Kona I 48V mild hybrid: €22,500, hybrid: €25,000, electric: €34,150
Peugeot 208 I diesel: €22,500, petrol: €16,400, electric: €34,500
Renault Twingo I combustion: €15,750, electric: €24,050
Renault Mégane I combustion: €28,800, electric: €35,200
Volkswagen up! I combustion: €16,550, electric: €25,400

* catalogue price, excluding grant.

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