[2023 Electric Vehicle Outlook] Hesitant David, Counterattacking Goliath... The Era of Warlords Begins in Earnest

Easing Semiconductor Supply Shortage and Production Normalization
Economic Recession and Interest Rate Hikes Reduce Purchasing Power
Electric Vehicles Continue Growth Trend This Year and Next
Established Automakers Launch New Models One After Another
China Accelerates Overseas Market Expansion for Electric Vehicles
Negative Factors Include IRA and Subsidy Reductions

Tesla electric car exhibited at last year's Shanghai Auto Show

[Asia Economy Reporter Choi Dae-yeol] "Until now, production was the issue, but going forward, demand will become the problem."

The automotive industry has faced difficulties in production, such as vehicle semiconductor supply shortages, due to the COVID-19 pandemic and the Russia-Ukraine war. However, now there is a growing possibility of challenges arising from demand contraction. Concerns about a global economic recession have spread worldwide, and major countries have raised benchmark interest rates to combat inflation, causing purchasing power to plummet sharply. While the supply of vehicle semiconductors is gradually normalizing and production is back on track, there are worries that consumer purchasing power is declining, leading to demand shrinkage.

Signs of demand contraction are detected in various places, but the situation is different for electric vehicles (EVs). China, the world's largest automobile production and sales market, is expected to continue its EV-focused drive through this year and into next year. Additionally, the United States, considered one of the Big Three automakers, is expected to accelerate its electrification trend from next year, moving away from its previously cautious stance. With public support and a variety of new models being launched by manufacturers, the range of purchasing options is expected to expand.

According to a recent forecast shared internally by Hyundai Motor Group's Management Research Institute, global automobile demand is expected to reach 80.72 million units next year. This represents about a 6% increase compared to this year's forecast of 75.9 million units, which faced supply constraints, but the industry expects it will still not recover to the pre-COVID-19 level of 86.45 million units in 2019.

Global electric vehicle sales are expected to surpass 10 million units for the first time ever. With this year's annual sales at 9.89 million units, a more than 50% increase from last year, the institute forecasts nearly a 30% increase next year to about 12.8 million units. Professor Kim Pil-su of Daelim University explained, "The transition to electrification is inevitable; it's only a matter of whether it happens quickly or slowly," adding, "Improvements in infrastructure such as charging and enhancements in product features like driving range have lowered the purchase barrier, which is a positive factor."

U.S. President Joe Biden attended the Detroit Motor Show held in September this year and test drove the Chevrolet electric pickup truck Silverado EV. Next to him is Mary Barra, GM Chairwoman.

End of Tesla's Solo Run, Intensified Competition for Leadership

As the electric vehicle market rapidly expands, Tesla's 'solo dominance' is fading. Until 2020, one out of every two pure electric vehicles sold worldwide was a Tesla, but recently, other manufacturers have significantly increased their sales, narrowing the gap. This year, Tesla was even surpassed by China's BYD.

Tesla, which had been raising prices in major global markets, has recently shown a different approach by lowering prices or offering promotional discounts, a change attributed by industry analysts to this competitive environment. In South Korea, inventory has accumulated, leading to discounts of about 6 to 10 million KRW per model. In China, where Tesla has factories, prices were cut by up to 9% in October depending on the model, and additional subsidies such as insurance support have been provided.

Competition for market leadership among manufacturers is expected to intensify further next year. Volkswagen, which competed for first and second place globally in internal combustion engine vehicles, along with Hyundai Motor and Kia, have received favorable reviews for launching new electric vehicles based on dedicated EV platforms. Other manufacturers that had been somewhat passive, such as Toyota, Honda, and Stellantis, have also announced plans to introduce new EV models starting next year. According to industry sources, the number of pure electric vehicle models from existing automakers is expected to increase from 42 this year to 49 next year and 52 the year after.

Strengthened Chinese Makers Accelerate Overseas Expansion

Chinese automakers are expected to accelerate their overseas expansion. While internal combustion engine vehicles were considered challenging, they now believe electric vehicles are a viable opportunity. Analyzing the scale of electric vehicle exports from major automobile-exporting countries, China's export value from January to August this year reached $11.2 billion, surpassing the United States' $7.4 billion to rank second globally. This is due to major automakers like Tesla, BMW, and Volvo selling EVs produced in their Chinese factories overseas, as well as local EV companies such as BYD, Nio, Xiaopeng, and Li Auto expanding their sales channels across Europe, Southeast Asia, and South America.

According to market research firm IHS, China's automobile exports were less than 160,000 units in 2017 but increased more than sixfold to about 960,000 units last year. One-third of these exported vehicles are electrified. An industry insider said, "Electric vehicles do not reveal technological gaps between makers or countries as clearly as internal combustion engine vehicles do, and China has established a major parts ecosystem with a high cost ratio, such as batteries, giving it price competitiveness."

The first dedicated electric vehicle Ioniq 5 produced at Hyundai Motor Company's Ulsan plant

IRA and Subsidy Cuts... Negative Factors Also Abound

It is not all rosy. In the United States, under the Inflation Reduction Act (IRA), which aims to foster a domestic EV ecosystem, electric vehicles produced outside North America are not eligible for tax credit benefits. Next year, this standard will be expanded to include battery origin. Some European countries, including Germany, have decided to reduce or eliminate purchase subsidies.

Although many view electric vehicles as the core of future mobility, experts warn that since the industry has not yet fully established self-sustainability, it remains vulnerable to policy changes. Junseong Kim, a researcher at Meritz Securities, said, "There are various negative factors affecting consumer purchasing power, such as asset price declines and interest cost burdens due to rate hikes, and in China's case, whether EV subsidies are provided will also have a significant impact."

While the supply of vehicle semiconductors has eased, concerns over battery supply remain. Rapid short-term demand growth may make it difficult for automakers to secure batteries. Additionally, the sharp rise in raw material prices from late last year through the first half of this year has been gradually reflected in new vehicle prices, maintaining upward pressure that could further dampen demand.

This content was produced with the assistance of AI translation services.