WHY GOLDMAN SACHS IS BEARISH ON EVS YET BULLISH ON HYBRIDS

The momentum in electric vehicle sales seems to be slowing down around the world, especially because of sluggish demand in Europe, the growth driver for the global EV market, says a latest Goldman Sachs report.

The global brokerage firm, however, remained bullish on hybrid vehicles on higher customer acceptance of price points.

EVs in slow lane in Europe

Analysts at Goldman Sachs said in a note that a bear-case scenario for the EV segment has become more realistic, given the slowdown in the European EV market since earlier this year. Rising concerns over three factors have contributed to this slowdown: Capital costs due to lower prices for used EVs; poor visibility on government policy; and a shortage of rapid-charging stations.

"Under our bear-case scenario, we see EV sales volume declining 2 percent year-on-year in 2024, and negative growth would likely result in oversupply across the EV supply chain," the report said.

Another challenge for EVs will be battery prices. "While it is difficult to forecast when used EV prices will bottom out, we think innovation in batteries, which account for 30-40 percent of EV costs, will be a key factor. If consumers think tomorrow’s batteries will be superior to today’s batteries in terms of performance, used EV prices are unlikely to stabilise," the report said.

Also read: China’s EV and solar boom is a capitalist win for communism

EV race hots up in ASEAN markets

Another major concern in the EV market is the intensifying competition in China. The country sits on an excess production capacity of over 5 million vehicles. Chinese EV makers will also soon begin to enjoy cost benefits by being the manufacturing hub to a large part of the EV supply chain, including batteries. Chinese EVs could also prove to be a challenge to the Japanese market.

"Meanwhile, many government policies in the US, Europe, and India seek to block Chinese and other foreign EVs from gaining a foothold in their EV supply chains," the report said. That could make it challenging for China to eliminate its oversupply as these three regions are the larger markets for EVs.

Potential regions where they could find opportunities are ASEAN countries such as Thailand and Indonesia. "We think ASEAN is becoming an increasingly important market where Chinese EV makers can secure stronger margins than in China, where pricing competition is intensifying," the brokerage said.

Preference for HEVs and PHEVs

In the midst of the slowdown in EVs, the brokerage sees an increase in sales and demand for hybrid electric vehicles (HEVs) and plug-in hybrid electric vehicles (PHEV). The US has been one of the drivers for this segment with the growth of HEVs outpacing EVs over several months. According to the report, the global HEV sales could exceed the current outlook by nearly 2 million vehicles. "While HEVs are viewed as transitional technology, we look for increasing focus on them to help reduce CO2 while maximising earnings and supporting investment in EVs for automakers," the report said.

Also read: New EV policy defines minimum investment at Rs 4,150 crore, customs duty lowered for limited import

Advantage Hybrid

According to Goldman Sachs analysts. consumer acceptance of the price premium of HEVs will be of advantage. The additional cost of an HEV compared to a gasoline engine vehicle is about $2,000 which is cheaper than the $4,000 in additional cost for EVs, according to Goldman Sachs estimates. This gives the segment a significant advantage in payback period.

But going forward, the report said that if lower EV costs are realised by 2030, the advantages of EVs will again come under focus. The brokerage has a positive view on hybrid makers like Toyota, Hyundai and BYD while it has estimated a lull for EV maker Tesla.

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2024-03-29T06:10:19Z dg43tfdfdgfd