Global automotive sales were hit hard by the pandemic; the market lost confidence and buyers remained understandably cautious, even when COVID-19-related restrictions began to lift. Light vehicle (LV) sales eventually started to rally in 2021 and thankfully moved up a gear in 2022—for the past 12 months, global LV sales are expected to show a 3.5% year-on-year growth. Interestingly, electric vehicles (EVs) and hybrids are where the industry has seen the most movement.
According to the latest EY research, EV sales are expected to outpace the market, with growth of around 48% in 2022 set to reach 9.4 million units globally. More importantly, what does 2023 hold in store?
The good news is that projected sales for the upcoming 12-month period look set to return to pre-pandemic levels with a growth of around 9%. Once again, EVs and hybrids provide a highlight; the sector is expected to grow by 29% year-on-year in 2023, to reach an estimated 12.1 million units globally. However, the threat of an impending recession and ongoing supply chain issues could cast a shadow over the personal vehicle market.
Challenging conditions on the road to recovery
It’s clear that the automotive industry will need to find ways of navigating the supply chain disruptions caused by the pandemic, and new approaches will be required to tackle worsening bottlenecks, which have been exacerbated by the war in Ukraine. As a result, automakers are expected to shift from “just-in-time” to “inventory banking” strategies to increase supplies, despite the additional inventory costs. To protect themselves from further supply chain disruptions, automakers are increasingly likely to consider vertically integrated business models, particularly in the battery value chain, with localised battery manufacturing rather than importing cells from one or two large suppliers. We will see increasing examples of a blended strategy here.
Significantly, the energy crisis has severely hit automakers’ profit margins. This is likely to continue well into 2023 and many automakers are expected to pass the costs on to customers. However, EY research suggests that the supply chain challenges will start to ease, enhancing capacity in vehicle production. Consumer demand remains strong and there’s good reason to be optimistic about EV sales in 2023. But certain regional variations are expected to emerge.
The US light vehicle market is projected to grow by around 10% to12% in 2023, with total sales of more than 14.5 million vehicles. However, macroeconomic issues and geopolitical uncertainties present a significant risk to this anticipated growth number. EVs are forecast to have 61% growth, with around 1.5 million in sales; a market share of 10%, up from 7% in 2022. The European LV market is also expected to experience double-digit growth during 2023 with overall sales exceeding 13 million vehicles. EVs are projected to register more than 50% growth, delivering around 2.8 million in sales; a market share of 22%, up from 16% in 2022.
However, things don’t look as promising in China, where sales are expected to be flat for much of 2023. Nonetheless, anticipated sales will total more than 26 million vehicles with the EV segment seeing a 20% growth, with around 6.2 million in sales—a market share of 23%, up from 19% in 2022. Potential COVID-19 outbreaks and shutdown strategies are wildcards for China and could impact volumes significantly depending on the direction.
EVs are on the charge
While the automotive industry faces several challenges, EVs are leading the charge with growing global interest. The EY Mobility Consumer Index revealed that 52% of the intended car buyers globally favor either a fully electric (EV), plug-in hybrid (PHEV) or hybrid vehicle. There is a three-fold growth in preference for fully electric cars, up from 7% in 2020 to 20% in 2022.
The move toward electrification is therefore expected to gain additional momentum in 2023, on the back of regulatory push along with stringent timelines and targets for bans on some types of internal combustion engine (ICE) vehicles. As a result, and if trends continue, 50% EV penetration, battery electric and plug-in hybrid (BEV+PHEV) is expected to be achieved in Europe by 2027 and in the US and China by 2032
A major growth contributor is the waning range anxiety. The increasing availability of long-range EVs, continuous improvement in battery technology and evolving charging infrastructure are making consumers less anxious of range. Increasing experience with EVs in personal environments will further alleviate consumer concerns.
The smart way to drive
Modern EVs are increasingly becoming cutting-edge pieces of technology, loaded with smartphone-like connectivity and infotainment systems, with features that appeal to younger consumers. Consequently, automakers are accelerating their plans to deploy technologies, such as advanced driver assistance systems, in vehicles to attract young drivers. Plans for full autonomy have been delayed, partly because of growing technical and regulatory complexities.
Automakers are instead expected to focus more on providing customised in-vehicle experiences; digital cockpits, biometrics, voice-enabled services, while display screens are expected to shift from touch controls to haptic feedback and voice commands with artificial intelligence-based digital assistants. Chinese manufacturers are leading the charge when it comes to EV adoption, and the development of enhanced 5G is expected to unlock advanced connected car capabilities, which are expected to have strong growth in 2023. There’s also talk about using augmented reality (AR), virtual reality (VR) and the metaverse to enhance the customer experience.
To bring these features to realisation, automakers will need to balance in-house software development with established technology partners to leverage their software expertise to deliver best in class software-defined features to customers.
Bridging the skills gap
One of the biggest gaps the automotive industry currently faces is a scarcity of skills. With the advent of megatrends such as electrification, the demand for tech talent has increased, while several roles have become redundant, including traditional engine assembly and service technicians. There is therefore a real need to reskill the existing workforce, which will require a significant investment, as hiring new talent will not always be an option due to the industry’s inability to offer the types of remuneration packages available in the tech sector.
Equally, growing regulatory scrutiny for decarbonisation will continue to push automakers to take concrete actions toward long-term sustainability goals. But they will need to find a balance between their business objectives and meeting green demands.
The end of the ICE?
To move to green mobility, automakers will have to strike the right balance between optimising today’s business, while simultaneously investing in the vehicles of tomorrow. It’s already starting to happen—80% of the key auto markets are aiming to phase out ICE vehicles by 2035, a move that is being accelerated by the rapid expansion of clean air or low-emission zones. There are also growing concerns about battery recycling, with steps being taken in the EU to help ensure the proper infrastructure is in place to facilitate it.
Potential COVID-19 outbreaks and shutdown strategies are wildcards for China and could impact volumes significantly
Automakers are therefore expected to sharpen their focus on sustainable operations, including the end-of-life processing of vehicles, including EV batteries, sustainable sourcing of parts and increased use of recyclable materials in the overall design.
What is abundantly clear is that 2023 is going to be a year of substantial change. Old “box on wheels” technologies will be supplanted by new smart vehicle technologies. The switch to EVs is rapidly reaching critical mass and the influence of environmental demands will further hasten the move to greener personal transport. Bringing this all together against a backdrop of supply chain uncertainty and a burgeoning energy crisis will be hard work but the consumer demand is there so a route through will be found.
The ICE car park is still extensive and will remain very large even with the targets mentioned above. One of the key questions remains: What do we do with the existing ICE vehicles?
The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organisation or its member firms.
About the author: Randy Miller is Global Advanced Manufacturing & Mobility Leader at EY