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Announcer

Welcome to the EY Advanced Manufacturing and Mobility Business Minute podcast series, where EY professionals explore the critical business issues impacting our industry today.

Moderator

For today's topic, we're going to discuss the recently released EY 2023 Global Light Vehicle Forecast, which was developed using EY Mobility Lens Forecaster model. Here with us today to discuss the findings and analysis are Anil Valsan, EY Global Advanced Manufacturing and Mobility

Knowledge Leader, and Anuj Chandna, EY Global Advanced Manufacturing and Mobility Analyst. Anil, Anuj, thanks for joining us today to share your insights on EY Light Vehicle Forecast and discuss some of the challenges that the auto industry is facing, as they look to transition their motor vehicle fleets from internal combustion powered to electrically powered vehicles.

Anil Valsan

Thanks for having us.

Moderator

Anil, let's start with you, by sharing with our audience some of the background and what makes the EY Mobility Lens Forecaster model so unique.

Valsan

When we looked at the mobility market, we realized that there was a significant gap in terms of a comprehensive view of the demand for mobility. So, we drew up a wish list and went through multiple design iterations. One of the foundational elements was to focus on specific metrics and segmentations that could best articulate the evolution of the market. So, we determined that the most relevant metrics would be annual registrations, population of vehicles and miles traveled. And similarly for segmentation, we determined that it would be relevant to do on driver type, owner type and powertrains.

We also established a need to refresh this view regularly to reflect the evolving regulatory, technological, competitive and consumer trends. And so, the best option, we felt, was to create this artificial intelligence (AI) neural net model that evolves as we feed in new data, so it adjusts its calculations, essentially becoming smarter and more accurate over time. We wanted to provide a short- and long-term view of the market, hence providing an annual forecast going to 2050. We also wanted to be able to generate scenarios to study outcomes, based on different directions in which the influencing factors could evolve.

In summary, the Forecaster is a powerful suite that supports executives across the mobility ecosystem, and their decision-making process, be it product planning, portfolio optimization, partnerships or market entry strategy, for instance.

Moderator

Interesting. So, Anuj, what is the model telling us about the future of electric vehicles (EVs)?

Anuj Chandna

Sure. In summary, I can say the EV future is already here. We are seeing accelerated uptake of EVs across US, China and Europe. The tipping point, where the share of EV sales surpasses non-EVs, has been moving forward with every data update that we have been doing.

Our latest predictions show that the combined EV, which for us is battery EVs (BEVs) and plug-in hybrid EVs (PHEVs) combined, so the combined EV sales in these geographies are likely to outstrip all other powertrain sales by 2030. And the interesting thing is that this is fast-tracked three years from last year's forecast predictions.

When we look at the global light vehicle BEV sales, global for us is US, China and Europe combined, global light BEV sales are expected to make up more than 50% by 2032. And this number is likely to reach over 90% share by 2043.

If we look at the regional scenario, by 2027, EVs will be the dominant powertrain in Europe, a trend that will be repeated in both China and the US by 2032. So, here, Europe is taking a lead. For Europe and China, this is the year faster than previously expected. But for the US, this is, you know, whole four years faster. And this is primarily driven by continued investments in electrification, led by states, such as California, New York, Washington and New Jersey, among others.

Our analysis further shows that by 2040, internal combustion engine (ICE) vehicle sales will shrink to less than 1% of global sales. And this is five years faster than what we had previously anticipated. So, EVs are really gaining momentum here.

Moderator

So, it seems like EVs are breaking through and are really gaining momentum in major markets globally. But many economic forecasts see a recession or at least a significant downturn in economic activity later this year. Anuj, how will this impact EV growth and what other factors could play a role in shaping EV demand?

Chandna

So, in the mid to long term, we do see the accelerated growth story stay intact. However, there are certain challenges to deal with in the short term. Let's look at the regional perspective again. So, in Europe, car sales in general are down. And in particular for EVs, there are cost-related challenges, such as EV battery raw material price increases and supply chain bottlenecks. These are accentuated further by geopolitical issues, charging infrastructure and energy crisis-related challenges.

So, we would expect the move over to EVs to potentially struggle, if the European energy crisis persists. This would, therefore, require more government assistance to maintain the current pace.

Talking about China, there we see a relatively mature EV market, where we saw record EV sales in 2022. However, as the Chinese government removed subsidies this year, we are already seeing a decline in overall car sales, as well as a slight decline in EV sales. Now shifting focus to the US, we see large population states leading the way toward EV sales. So, there remains a cause for optimism in getting close to the 2030 target for 50% of light vehicle sales being electric vehicles. On the other hand, the US needs to deal with supply chain issues and recessionary headwinds, focusing on the charging infrastructure and in-country battery development to really push on with the EVs. And the good news is that, in the US, we are already seeing a push toward establishing the EV supply chain with some of the recent regulatory initiatives. So, things are looking good there.

Moderator

Interesting. So, despite economic headwinds, EY forecast remains bullish on EVs, albeit at a slower pace in the near term. Anil, what's your take on the next 12 to 18 months? How will that play out in the marketplace? How will EV demand be affected?

Valsan

The next 12 to 18 months will definitely continue to see EV adoption increase, but like you said, we will see the pace of acceleration slowing down a bit. So, let me outline a few factors that are driving the growth and others that are challenging the pace of the market. We now have more model choices. There are a number of incentives available for EV consumers. Connectivity and in-vehicle experiences are increasing. Improvements in battery range and charging infrastructure will also make it easier and more favorable for consumers to buy an EV.

We see increased adoption by commercial fleets, and that will, again, ramp up with continued technology enhancements and new business model offerings. On the other hand, we will also continue to see supply side constraints and inflationary pressures, especially in the battery space. And we've actually seen prices go up almost 7% to 8% for the first time last year. Battery raw materials, such as lithium, nickel and others, also saw price increases and significant volatility during the year. So, we anticipate all of these factors to continue to put pressure from a cost perspective on EVs. And overall, while we see the growth in the market, we see the pace slowing down.

Moderator

Clearly, the uncertainty in the global markets has gone up and the industry faces significant pressure from both the supply as well as the demand side. Anil, how does the model address these potential risk factors and uncertainty?

Valsan

I think this is a really difficult, yet exciting time for those in the forecasting business. This is also precisely why we set this up as an AI neural net-based model to be able to regularly feed in data on the ongoing geopolitical tensions, supply chain crises, inflationary pressures, the pace of charging infrastructure rollout and so on, so that we can regularly refresh the model. In addition, we also create alternate potential scenarios to understand the likely spread of demand and penetration of electrification.

Moderator

So, I know that the market consensus over the next 12 to 18 months is that EVs are going to become more widely available, have more range and be lower in price. What about the consumer? What is going to motivate them to move to an EV?

Anil, what does EY research say is the main factor driving consumers to EVs today?

Valsan

One of the components of our Mobility Lens Suite is Consumer Index, an annual study that we conduct on consumer perceptions for mobility. And this study indicates that one of the most important motivators for consumers is sustainability. So, green early adopters, whose main motivators in mind, the key factors are being joined by mainstream car buyers, who are influenced by the “pull effect” or the desire to be seen helping the environment by buying an EV. We are also starting to see more economic drivers of EV purchases with select fleet buyers that recognize strong financial savings, given the lower running costs of EVs.

Moderator

Interesting. So, consumer sentiments are trending toward a strong consideration of an EV purchase. Anuj, what more can automakers do to move consumers from strong consideration to an actual purchase of an EV?

Chandna

To start with, consumer awareness will go a long way. It's about communicating the value of EVs in terms of their green credentials and lower running costs. Our research indicates that EVs are still viewed as expensive, based on the typically higher price, relative to their ICE counterparts. The introduction of more digital features and personalized digital experiences are going to be the important factors to attract first-time buyers. We see that automakers are already investing heavily in connectivity options for EVs. On-demand software-driven features, such as enhanced entertainment, remote parking or advanced driver-assistance system (ADAS) features, they, to my mind, would be the true differentiators.

Other than that, creative leasing models for EVs, that'll be the key in reducing EV sticker price shock for the consumer and get them to try the EV experience first-hand.

Moderator

So, the Mobility Lens Forecaster has certainly generated a lot of interesting insights about where EVs and the vehicle markets are headed. In fact, it seems to generate insights that go beyond a typical forecasting tool.

Anuj, how does EY leverage the power of the Mobility Lens Forecaster tool with clients?

Chandna

That's a great question. That is where, I would say, the real power of our tool, which is its flexibility, scalability and capability to customize forecast for automakers, energy players and others comes into play. We've had multiple instances of our teams leveraging the tool as is with these players. And other instances where we've actually customized the forecast to suit the specific engagement needs. We've seen a variety of use cases that involve either using the Forecaster on its own or together with the other components of Mobility Lens Suite.

We've seen application of our assets in product planning, distribution channel strategy, transaction due diligence, charging infrastructure planning, business model structuring and others — essentially, all the key functions within the organization.

In terms of the industry segment mix, we have leveraged the Forecaster to support automakers. We've done a very large study for a luxury carmaker, startups, auto suppliers, you name it. So, vehicle retail distribution groups, power companies, oil and gas players, private equity companies, among others. So clearly, this has been a focus on the entire ecosystem.

Moderator

Hey, Anil and Anuj, great discussion today. Thanks for joining us and sharing your valuable insights with our audience.

Valsan

Thank you for having us.

Chandna

Thank you for having us.

Announcer

Thanks for listening to today's EY Advanced Manufacturing and Mobility Business Minute podcast. We hope you found it engaging and informative. To listen to other Business Minute podcasts, you can find them at ey.com/ammpodcasts.

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