Automakers to generate low returns on electric cars for years to come
Sales are expected to surge over the next decade, but tight margins on EVs are going nowhere quickly, Moody's says
MONTREAL—Moody’s Investors Service says global automakers, aside from Tesla, will generate low returns on battery electric vehicles even though sales will surge by 2030.
The rating’s service estimates that electric vehicles will account for about seven to eight per cent of global auto sales by 2025, rising to 17 to 19 per cent by the end of the decade.
However, producing zero or low emission vehicles requires lots of capital investment, which pushes returns below the low profit margins on traditional internal combustion engine vehicles.
At the same time, the industry is investing in other technologies, including autonomous driving, connectivity and ride sharing.
Moody’s estimates that manufacturers lose between US$7,000 to more than US$10,000 per electric vehicle sold in the United States.
It expects these cars will remain unprofitable into the early 2020s.
Profitability will depend on reduction in battery costs, technical improvements that lead to longer driving ranges and increased scale of production.
The U.S. Department of Energy estimates that the current US$250 per kilowatt hour cost of electric vehicle batteries will be cut by about half by 2022.
Driving ranges are also expected to increase 17 per cent to 563 km by the early 2020s.
Tesla’s higher prices allow it to profitably produce electric vehicles, Moody’s wrote in a report.
Moody’s expects Tesla will sell about 200,000 Model 3 vehicles around the world this year and up to 300,000 Model S, X and 3 vehicles in the U.S.
Electric vehicles account for less than one per cent of the more than 90 million light vehicles sold annually.
Although there are 1.2 million of these low emission vehicles on the road, that’s just 0.1 per cent of the 1.2 billion vehicles in operation worldwide.
That penetration is expected reach about two per cent by mid-2020s and five per cent by the end of the decade.