HOT TOPICS WITH CENTER FOR AUTOMOTIVE RESEARCH INDUSTRY ANALYST 05/26/2023

On a bi-weekly basis, the Center for Automotive Research (CAR) welcomes our audience to decompress with our President and CEO, Alan Amici. This week we are joined by a special guest, Tyler Harp, Industry Analyst at CAR. Tyler covers and shares his thoughts on the latest Hot Topics happening in the automotive industry. If you would like to receive this bi-weekly insight into critical industry issues you and your organization are facing, sign up for our mailing list here to get Hot Topics sent directly to your inbox.

Impacts of Battery Woes:

• Analysis: GM’s 2025 EV output could be crimped by battery bottleneck 
• UK Lobbies for laxer Brexit Trade Rules as Carmakers Seek Help 
• Stellantis warns UK risks exodus of EV production under post-Brexit rules 
• U.S. would need to rapidly increase EV battery production to meet climate goals 

Tyler’s thoughts:

In the rush to adopt EVs, governments and automakers are setting aspirational goals such as the Biden administration’s 50% sales share by 2030 and GM’s 1,000,000 annual production capacity by 2025. It is good to aim high, yet in reading many goals, you will see an asterisk stating, “subject to actual future renewable energy generation” or “subject to availability of raw materials.” Battery materials still pose a significant hurdle to widespread EV availability with the potential to evolve into a supply chain bottleneck if unable to keep pace with demand.

In addition, governments have imposed regulations that could add more hurdles. The 40% critical mineral and 50% battery component sourcing requirements for EV tax credits in the US are having the desired effect of stimulating investment in local manufacturing. However, this comes at the potential cost of slower EV adoption – a price that may grow as requirements become stricter in coming years. Across the ocean, the UK-EU post-Brexit rules set to kick in 2024 will only hinder both UK and EU auto industries as they ramp up EV and battery production. Perhaps the EU is less so at the expense of the UK.

Economic and Supply Chain Impacts:

• Auto Industry could “cushion” Michigan’s economy in a coming recession  
• A new look at the electric vehicle supply chain as battery-powered cars hit the roads en masse 
• Europe sales up 16% in April as output improves on better supply chains 

Tyler’s thoughts:

A lot is weighing on the minds of both consumers and producers: inflation and high-interest rates increasing borrowing costs, volatile car prices as supply chain issues unwind, OEMs slashing prices for a competitive edge, and a recession hovering six months away for over a year.

Amid this economic uncertainty, OEMs have been doing well. Benefitting from shortage-fueled high vehicle prices, automakers will continue to benefit from a backlog of demand even as supply chain shortages ease. States with a strong automotive presence and those in the emerging “battery belt” may be buoyed against pending economic slowdown because of this pent-up demand.

However, turbulent times lay ahead. Sales are recovering as supply chains mend, and as EVs take a broader share of the market, OEMs are jostling to secure a larger slice of the pie. This will drag down profit margins automakers see now and may impact demand: cost-conscious customers seeing potential price wars flare up will likely delay purchases.

Can we hold onto ICE:

• Top Toyota scientist warns against ditching gasoline too soon 
• Can e-fuels put plans to end ICE vehicles on ice? 
• Europe lurches into civil war over car engine ban 

Tyler’s thoughts:

As the world scrambles to avoid or at least lessen a looming climate crisis, vehicle emissions are a necessary problem to tackle. But should we dump all our eggs into the BEV basket? There is certainly a case to be made for hybrids and alternative e-fuels. Hybrids demand less rare earth minerals, so in the short term there is more bang for your buck in the fight against emissions. In this fight every bit helps, and e-fuels have the potential to help “green” the current car parc and benefit from the same infrastructure advantages as gasoline.  

The problem: e-fuels may be a far-off solution to a present-term need. There is still a way to go before synthetic e-fuels are viable at scale, and BEVs are here now, albeit supply constrained. While they may provide a stopgap until battery supply chain kinks and lacking infrastructure get worked out, these alternatives must not delay the adoption of electric vehicles. And while forcing EVs on people may make them hold on to their ICE cars longer, promising they will still be able to use them undoubtedly will.