IDRV - Rising Input Costs Squeezing Out Entry BEVs

Summary

• The biggest challenge for OEMs rolling out new battery electric vehicles (BEVs) is rising input costs, which are affecting cost parity with traditionally powered vehicles.
• S&P Global Mobility does not expect the pricing pressures to have much impact on vehicle sales at the topline, despite expectations that smaller vehicle segments will retain limited BEV options as a result.
• Consumers are most likely to accept price increases when they are in the form of moderate lease rates for less-price-sensitive buyers. Another outcome may be consumers switching to lower-positioned brands or segments.

The biggest challenge for OEMs rolling out new battery electric vehicles (BEVs) is rising input costs, which are affecting cost parity with traditionally powered vehicles. With prices of key raw materials used in BEVs having risen dramatically since 2019, S&P Global Mobility sees the potential for changes in consumer behaviour, although the projected long-term market share of BEVs is likely to be unchanged.

• Overall, we expect 2022 to be a year when rising raw material prices peak. However, we also expect automakers to be working with critical raw materials prices about 75% higher in 2030 than in 2019. Our forecasts for vehicle sales, powertrains, and components now reflect the impact of that expectation.
• In terms of the current make-up of the global passenger car market, we expect two major challenges for vehicles powered by traditional ICE technology. Firstly, stricter emissions regulations will increase the cost of vehicle technology and emissions controls. Secondly, in the shift to electrification, with decreasing volumes of ICE vehicles against increasing volumes of BEVs, this will erode the economies of scale of ICE vehicles and probably increase their cost base.
• Prior to the rise in critical raw materials costs, some price parity of BEVs with ICE and hybrid models had been expected by about 2025, excluding vehicles in entry-price-point segments. Such parity would probably result in some OEMs leaving the city car segment and increasingly narrowing options in terms of entry-level A-segment vehicles.

Market dynamics may see some change

• S&P Global Mobility does not expect the pricing pressures to have much impact on vehicle sales at the topline, despite expectations that smaller vehicle segments will retain limited BEV options as a result. In 2031, our latest forecast sees BEVs reaching a 51.5% market share in the United States, nearly 78% in Europe, and about 74% in China. However, the rest of the world is expected to continue to lag and BEVs to have a market share of only about 27%.

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