Car industry faces crunch as EV demand slumps and costs rise

The automobile industry, stretching from Europe to Asia, is bracing for a tough year ahead as rising costs and a slump in electric vehicle (EV) demand begin to take their toll on profits.

Mercedes-Benz Group AG, yesterday, revealed plans to extend the lifespan of their combustion-engine cars due to underwhelming EV sales. Toyota Motor Corp, anticipating a 20% drop in operating income this fiscal year, is banking on the success of hybrids to mitigate lower production levels. BMW AG, despite performing better in the EV sector, has raised concerns about escalating manufacturing costs.

Amid inflation that refuses to let up, stagnant economic growth across much of Europe, and a protracted recovery in China, where excessive EV discounting is impacting manufacturers, are further exacerbating the issues plaguing the industry, said Yoichi Miyazaki, Toyota’s Chief Financial Officer.

“We’ll have to continue enduring for several years until we have more battery EVs to offer.”

Mercedes reported a drop in earnings in April due to model changeovers and floundering EV demand. Similarly, Volkswagen AG and Stellantis NV have also flagged slow starts to the year.

BMW’s EV sales have seen a 28% jump, thanks to the introduction of a range of battery-powered models that bear a striking resemblance to its comparable petrol models.

The withdrawal of government subsidies for EV technology has left many carmakers reeling. The already expensive EVs have become even less appealing without the lucrative subsidies. The lack of a comprehensive charging infrastructure continues to deter potential buyers.

Continental’s CFO, Katja Garcia Vila, in a phone interview with Bloomberg, noted the change.

“Some of our customers have delayed product launches in general, also in the new EV arena. That caused delays in the ramp up of our production.”

Mercedes CEO, Ola Källenius, assured shareholders yesterday, May 8, that Mercedes will continue to manufacture combustion engine and hybrid vehicles “well into the 2030s” if there is demand.

Bigger vehicles with combustion engines still deliver the largest profits. Ferrari NV and Porsche AG are among the companies boasting the highest returns. And with China delaying the phasing out of new combustion-engine sales until 2060, luxury car makers still see potential for their legacy products in the world’s largest auto market.

Despite the slowdown in the shift to EVs due to demand issues, carmakers are not reversing their strategies. Toyota confirmed its long-term commitment to EVs and announced plans to invest an additional ¥500 billion (118 billion baht) in decarbonisation and the development of next-generation software.

Ferrari is constructing a factory in Italy for manufacturing hybrid and electric cars, with completion expected next month. Meanwhile, BMW and Mercedes intend to launch a new generation of EVs around the middle of the decade, reported Bangkok Post.