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We have analyzed Q4CY23 earnings calls of key global auto original equipment manufacturers (OEM), such as Tesla, Ford, General Motors (GM), Mercedes, Stellantis, Toyota,  Suzuki, Rivian, to gain insight on the current global PV market and electrification trends. The key takeaways were: 1) impending threat of Chinese OEM in EV and their better cost and scale advantage, 2) the slowing pace of EV adoption in the past few months (although penetration continues to increase) and better growth for hybrids, 3) EV price wars and profitability cause for concern for legacy OEM and would be forced to undertake sharp cost reduction & innovative ways to manufacturing, and 4) slowing global PV growth.  

EV penetration levels continue to expand albeit at a slower pace

While global EV penetration and volume continue to rise to 11.1% (H1CY23 global EV penetration at 10.0% vs 9.5% in CY22), the pace of increase is slowing along with pressure on profitability. Total battery electric vehicle (BEV)+plug-in hybrid EV (PHEV) penetration was 15.8% of global light vehicle sales in CY23 vs 13.0% in CY22 and 8% in CY21. The share of PHEV has increased to 29.6% of overall EV+PHEV sales in CY23 vs 27% in CY22.  In CY23, the EU registration of EV+PHEV was up 17% YoY, excluding Germany, up 32%. China sales rose 36% while sales in North America was up 46%. The stock price movement of global EV companies in the past six months has underperformed significantly against legacy OEM, owing to derating, given the cut in EV projections.

Global PV production growth outlook flat in CY24

Most companies have a cautious growth outlook for PV in CY24, given volatile global geopolitical issues and good growth that was witnessed in CY23. As per S&P Global Mobility’s mid-January projection, global light vehicle production is expected to drop 1% YoY in CY24 post 11% growth in CY23. Region-wise, North America would grow by 1% while the EU and Japan & South Korea are expected to drop by 2% and 4%, respectively. China’s production growth is likely to remain flat.

Focus on EV launches remains with better cost metrics

The common thread across OEM remains that they are aggressively focused on improving cost for the EV portfolio, due to ongoing sharp losses they face in the EV vertical. President & CEO of Ford, Jim Farley and even Elon Musk also said companies have to focus on cost and efficiency for EV to compete with China’s automakers. Despite troubled financials in the EV portfolio, firms continue to commit to expanding their BEV portfolio and long-term electrification goals.

Read-through for India listed companies under our coverage

The commentary of improved outlook toward hybrids bodes well for Maruti Suzuki. While slowing global PV growth is cause for concern for companies, such as SAMIL and Sona BLW, among our coverage universe, inorganic expansion (SAMIL) and order wins from EV (Sona BLW) should aid them in significantly outperforming the industry. Further, as highlighted in the LACE Effect 2.0, they continue to be beneficiaries of the key megatrends for the long term.

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