The recent strategic shifts by major automotive companies, coupled with innovations from Chinese manufacturers and escalating geopolitical tensions, are poised to reshape the transport sector’s valuations in profound ways. These developments will not only impact the market for electric vehicles (EVs) but also influence the valuations of both new and used transport equipment across the industry.
Volvo Cars, once a trailblazer in the EV market, has recently adjusted its ambitious goal of becoming fully electric by 2030, amid a global slowdown in EV sales growth. The Swedish company, owned by China’s Geely, was one of the first traditional automakers to commit to this all-electric vision. However, changing market dynamics, such as high EV costs and insufficient charging infrastructure, have prompted Volvo to recalibrate its goals.
CEO Jim Rowan acknowledged that while Volvo remains committed to electrification, the market and infrastructure may not support a full transition by 2030. Instead, the company now aims for 90-100% of its global sales to come from electric and plug-in hybrid vehicles by that time. The company will continue to invest in hybrid technology, which is increasingly favored by consumers who are still hesitant to fully embrace EVs due to charging concerns.
This shift aligns with a broader industry trend, as even key players like Ford and General Motors scale back their EV ambitions. With battery-powered cars still costing 20-30% more than petrol vehicles and declining government subsidies in key markets like Europe, the growth trajectory for EVs has slowed. In Germany, for example, EV penetration is expected to decline slightly, with sales down 20% in the first half of 2024.
Ford’s recent decision to scale back its ambitious plans for EVs reflects the challenges and complexities faced by legacy automakers in the rapidly evolving EV landscape. Initially, Ford had positioned itself as a frontrunner in the push towards electrification, with plans to produce two million electric vehicles annually by 2026. However, the company has now opted to scrap plans for a large, three-row, all-electric SUV and postpone the launch of its next electric pickup truck. This shift is driven by “pricing and margin compression,” as noted by Ford’s Chief Financial Officer, John Lawler, underscoring the difficulties in maintaining profitability amid increasing competition and faltering demand.
This strategic pivot is significant, as Ford reduces its annual capital expenditures dedicated to pure EVs from 40% to 30%. The immediate financial repercussions include an estimated $1.9 billion in write-downs and new expenditures. This more cautious approach signals to investors that the road to widespread EV adoption may be slower and more complex than initially anticipated, potentially impacting the company’s market valuation as growth expectations are tempered.