As startups and tech giants enter the new energy vehicle track, fierce market competition is driving innovation to accelerate. Recently, our reporter participated in the UBS media sharing conference and had a conversation with Gong Min, head of automotive industry research at UBS China. While looking forward to the future development of China's auto industry, Gong Min also summarized the recent announcement of the electric vehicle consumer survey.
"From a global perspective, EV purchase intentions are broadly on par with 2023. However, China's willingness to buy has further increased, while the West has seen a brief bottleneck. Gong Min said. The survey results show that only 22%~33% of consumers in major Western markets say that they can fully afford an electric car. In China, the same answer is that 84% say they can afford electric vehicles.
Min Gong, Head of Automotive Research, UBS China
China is able to sell electric vehicles at almost parity with gasoline vehicles. In the West, electric cars of the same class are almost 50% more expensive than gasoline vehicles. It can be said that China can become the first major market to move towards full electrification without obvious policy tilt, which is also an affirmation of the strong competitiveness of the mainland's electric vehicle industry chain.
Among China's listed auto manufacturers, which have a 75% domestic market share, the capacity utilization rate of automobiles will increase from 70% in 2020 to 74% in 2023. The capacity utilization rate of domestic brands increased, while the capacity utilization rate of foreign joint ventures decreased. The increase in the market share of Chinese EV companies has led to overcapacity of foreign mass-market fuel car companies, especially in the 2020-2021 capital market bubble that provided funding for EV startups, and then fell into overcapacity.
As capex continues to shift from fixed assets to intangible assets and demand becomes more unpredictable during the EV transition, UBS believes that optimal utilization will generally decline, and that global demand and the green transition will also require sufficient EV capacity.
Compared with EV batteries, EV companies have higher average capacity utilization, but lower profit margins, although this is more due to market fragmentation than overcapacity. There are many players in China's EV market, ranging from Tesla and traditional Western automakers, to traditional domestic automakers, startups and tech giants. Such competition drives accelerated innovation, technology iteration, and cost optimization, incubating future industry leaders, even though it may be a drag on margins in the short term.
Global Electric Vehicle Consumer Survey
In UBS's latest EV consumer survey of 10,500 respondents across six of the world's six largest automotive markets, UBS observed the following trends:
First, 46% of respondents are considering buying a pure electric vehicle, which is the same as the previous year.
Globally, consider buying an electric vehicle (survey question: "Are you considering an electric vehicle for your next vehicle?"). The share of respondents remained stable at 46%. Interestingly, China, Germany, and the United States, as the top three markets for electric vehicles in the world, all showed a slight year-on-year growth trend.
Second, skepticism about BEVs has increased, limiting short-term EV growth.
The proportion of respondents who are skeptical about BEVs (i.e. unlikely to consider buying them) has risen slightly to 30% from 27% in 2023, so the proportion of respondents who have not yet made up their minds has declined. As a potential source of growth, the shrinking size of this group may drag down the short-term demand curve.
Outside of China, there is still a strong positive correlation between EV purchase intention and household income. In the Western markets covered by the survey, about 20%-30% of respondents in the low-income group are considering buying an electric vehicle, while the proportion of respondents in the high-income group is about 30%~60%. It can be seen that the penetration rate of electrification is further increasing, and car companies need to launch more affordable products.
UBS believes that the demand for electric vehicles in the Western market will continue for several years, because the cost of electric vehicles is still 15%~25% higher than that of fuel vehicles of the same level, and it will be difficult for traditional car companies to bridge the gap in the next 2~3 years.
Third, consumers in Europe and the United States believe that affordability has deteriorated, and price friendliness is the key to increasing the penetration rate of pure electric vehicles.
In line with previous surveys, price, safety and cost remain the top three factors influencing consumers' new vehicle purchase decisions. The top three reasons respondents said they did not consider BEVs were: high purchase prices, insufficient driving and long charging times.
Compared to the 2023 survey, the proportion of respondents who said that electric vehicles are beyond their affordability has increased (up 100 bps year-on-year to 51%). Despite the recent price reductions in BEV products, consumers are actually feeling that affordability is deteriorating. UBS believes that the reason for this is the decline of subsidies for electric vehicles and the expansion of discounts on the sale of gasoline vehicles.
It is worth noting that the majority of respondents in the US, Germany and UK do not consider BEVs to be fully affordable, while the vast majority of Chinese consumers (84%, up 400 bps year-on-year) believe they can afford BEVs. The prices of the main BEV models in the Chinese market are indeed comparable to or lower than those of the same class of combustion engine vehicles. However, the fierce price war is the reason, and there are only a handful of automakers that are profitable in the pure electric vehicle business.
Among respondents from countries other than China, Norway has the highest proportion (17%), followed by South Korea (8%), and Germany, the United Kingdom and the United States (3%~5%). Unsurprisingly, the main motivation for consumers to consider buying a Chinese brand BEV is the value for money, but Chinese brands also receive positive reviews for product quality, technology and connectivity, at least in Western markets.
Conversely, consumers do not consider Chinese brands mainly because of more abstract concerns that are rooted in a lack of awareness ("not knowing much about the model", "worrying about quality or reliability"). For example, Chinese brands are considered new to local European consumers. Another important factor is that such brands do not have a sufficient dealer network in Europe, but Chinese automakers are increasing their investment.
As mentioned earlier, household income is positively correlated with the willingness to buy a pure electric vehicle. Compared to the overall proportion of respondents in the high-income group who are considering buying BEVs, the proportion of respondents considering buying Chinese BEV brands is low, especially in Europe. Chinese BEV brands are more likely to succeed in the Western mass segment.
EV sales changes and forecasts
UBS's global EV market forecast reflects that the European and US markets may enter a plateau in the short term, and there are many reasons behind this.
For example, there is a lack of pure electric vehicle products that truly meet the economic affordability of consumers and can replace fuel vehicles as the first car in the family. Subsidies in Europe (similar risks in the US); EV penetration faces downside risks from political uncertainty more than in previous years; The EU's increase in import tariffs on Chinese-made electric vehicles could affect the pace of entry into the market for affordable products. In addition, it remains to be seen whether the EU will adhere to its already established political framework for carbon neutrality for 2025/2030/2035 after the elections. Among them, the ban on the sale of fuel vehicles in 2035, which has already taken effect in substance, is particularly noteworthy. As for the U.S. market, a lot of factors depend on who wins the election.
UBS expects the short-term demand curve in Europe and the U.S. to become much smoother, with global EV sales growing at a CAGR of 21% in 2023-2026 (previously expected to be 25%), and electrification penetration in the global automotive market is expected to reach 23% in 2025 and 49% in 2030.
It is worth noting that the temporary slowdown in the EV penetration curve in Europe and the United States means that the pace of Chinese automakers to increase their global market share will be slow. Increased political uncertainty over climate and industrial policies in the EU and the US may also be negative for Chinese automakers. However, these factors will not stop the most competitive Chinese automakers from winning the global market.
Towards the end of the media session, Gong Min shared his views on the development prospects of electric vehicles in China. "Our forecast for China's EV market remains unchanged and growth remains solid. The market share of Chinese brands will further increase, from 50% in 2022 to 57% in 2023, to 63% in 2024, and possibly 80% or more in 2030. ”
"We are reluctant to distinguish too much between traditional car companies and new forces, because many new forces are born out of traditional car companies, and the definition of who is the new force and who is the old force is beginning to blur. In the future, the concentration of the electric vehicle industry will increase, and we will also see the exit of some marginal car companies, but UBS still maintains this judgment, and there will still be 10~12 large-scale enterprises in China in 2023. Gong Min said.