The end of EVs is here: Fact or fiction?

We’re talking about the adoption of electric cars in the four-wheeler passenger vehicle (PV) market.

Elon Musk reignited the EV frenzy with Tesla, though even Tesla took more than a decade to make EV production cost-efficient. In India, Tata Motors led the charge with the Tata Nexon EV, launched in January 2020. Since then, Tata Motors’ share price has surged 485%. While EVs weren’t the sole driver of this rally, they played a crucial role in boosting sales and securing Tata Motors' leadership in the four-wheeler EV space, commanding over 68% market share.

Slowdown in EV demand

However, the EV boom that swept through the market in 2021 is losing momentum. The first wave of sales to tech enthusiasts and environmental advocates—less concerned with price—has passed. Now, EV manufacturers globally are struggling to appeal to cost-conscious consumers.

In India, automakers reported their weakest EV sales in September. Tata Motors' EV sales fell 17.4% from August, MG Motor India dropped 32%, and BYD India fell by 27%, according to data from the central government's Vahan dashboard.

This trend isn’t unique to India. Globally, EV sales are facing headwinds. U.S. EV startup Fisker filed for bankruptcy protection in June after burning cash trying to ramp up production of its Ocean SUVs. Other startups, including Proterra, Lordstown, and Electric Last Mile Solutions, have also filed for bankruptcy over the past two years, citing softening demand, fundraising challenges, and supply chain issues.

In response, EV makers have turned to price cuts to stay competitive. Lucid Motors, an American luxury EV maker, has cut prices three times in the last seven months amid sluggish sales growth in several markets. Its Air Pure model, for example, now starts at $71,400, down from $83,900 in August.

Tesla’s deliveries for the July-September period missed analysts’ expectations, impacted by increased consumer interest in hybrids, the expiration of European subsidies, and fierce competition in China.

In India, automakers are following suit. Tata Motors has slashed the prices of its Nexon EV (by ₹3 lakh), Punch EV (by ₹1.20 lakh), and Tiago EV (by ₹40,000) until 31 October 2024. It is also offering six months of free charging at Tata Power stations across the country. Meanwhile, MG Motor India has launched a Battery-as-a-Service (BaaS) programme, allowing customers to rent batteries and pay based on usage instead of purchasing them outright.

Automakers scale back

As the EV boom unfolded, automakers like General Motors (GM), Volvo, Jaguar Land Rover (JLR), Lotus, and Bentley unveiled ambitious plans to launch all-electric lineups over the next two decades. But the anticipated surge in demand hasn't materialized as expected. As a result, companies such as Ford, GM, Mercedes-Benz, Volkswagen, JLR, and Aston Martin are tempering their electric vehicle strategies. While they still aim for an all-electric future, they are now adopting a more cautious approach, contingent on factors like consumer adoption, global emissions regulations, and the expansion of EV charging infrastructure.

For more such analysis, read Profit Pulse.

Is the EV wave receding? Are we seeing another existential crisis for electric vehicles, similar to the ones in the early 1900s and 1970s?

Are EVs facing an existential crisis?

The same fundamental challenges persist for automakers and consumers alike:

• Higher prices driven by supply chain constraints
• Limited usability, mainly confined to urban areas
• Ongoing product issues, particularly with batteries
• Advances in alternative fuels competing with EV technology

Though these challenges remain, their nature has evolved over the years.

In the early 1910s, EVs gained popularity because they solved the problems associated with steam and gasoline engines. They were easy to drive, pollution-free, and accessible as electricity became more widely available. Perfect for short city trips, EVs were quickly adopted for use in taxis, ambulances, and luxury passenger vehicles. At their peak, EVs made up 38% of vehicles on the road. Charging stations and battery-swapping services were common.

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Recognizing the potential, innovators like Ferdinand Porsche, Thomas Edison, and Henry Ford sought to push EV technology forward, looking for ways to make these vehicles more efficient and practical.

Sounds familiar?

No car is without its problems, and EVs are no exception. They’ve always been expensive, and their price tag kept climbing. In the 1910s, an EV cost around $1,700, compared to just $300-$400 for a gasoline car. Battery performance and long recharge times were significant challenges back then—and they still are today. Henry Ford himself spent $135 million trying to make EVs commercially viable.

What has changed is the scale of the challenge.

Today, there are far more car owners than there were in the 20th century, and government subsidies and global competition are playing a key role in driving EV adoption. In the past, EVs were largely confined to the West and Japan, but now China has emerged as a dominant force. Chinese automaker BYD has drastically lowered the cost of EVs, helping China’s market share of global EV sales soar to 51.05% in July, according to the China Passenger Car Association (CPCA).

The China angle

BYD’s entry-level EV, the Seagull, starts at around $10,000 and even features a rotating, iPad-like touch screen. By comparison, the base models of Tesla or Ford start at around $30,000. China has achieved these lower costs through its robust domestic supply chain, particularly its near-monopoly on key raw materials like lithium and cobalt.

The country controls more than 70% of the world’s battery production capacity, and Chinese automakers benefit from significant government subsidies and locally sourced batteries. In contrast, countries like India rely heavily on Chinese battery imports.

China’s EV makers—BYD, NIO, and Xpeng—are also gaining ground in Europe by offering high-quality products at competitive prices. While reduced costs benefit consumers, China’s dominance is a threat to other automakers. Ford, for instance, sees this as an existential crisis, as European manufacturers struggle to lower costs. In response, many countries have imposed tariffs on Chinese-made EVs: up to 45% in the European Union, 40% in Turkiye, and 100% in both Canada and the US

Yet, despite China’s success in cutting costs and achieving over 50% EV adoption, electric vehicles still have their limitations.

Oil’s lingering influence

The 2006 documentary Who Killed the Electric Car? showed how electric vehicles, despite gaining traction in the 1910s, eventually faded away by the 1930s.

A key factor was the discovery of cheap oil in Texas, which made gasoline-powered cars more affordable. Similarly, the EV revival of the 1970s, driven by the oil crisis, fizzled out once oil became readily available again.

Even today, what happens on the roads of China affects oil markets. From 1994 to 2024, about 15% of the growth in global oil demand came from China, according to a Wall Street Journal report citing S&P Global Commodity Insights.

As the world grapples with oil dependency and rising carbon dioxide emissions, environmentally-friendly transportation has become more of a necessity than ever.

Down but not out

Electric vehicles have become a common sight globally, but they still represent a minority share of the market, accounting for just 18% of new-vehicle sales in 2023, according to the International Energy Agency (IEA).

The challenges that plagued EVs in the early 1900s continue to persist today, though in a different form. However, with more players, heightened competition, and government subsidies, the landscape has shifted. EVs are carving out their niche, particularly in the two-wheeler and three-wheeler segments, and have become the go-to option in urban markets, suggesting that electric vehicles may ultimately coexist alongside traditional internal combustion engines (ICEs).

What’s happening in India?

Indian automakers are investing in EVs while continuing to develop ICE-powered vehicles. As a result, the recent slowdown in EV sales hasn't significantly impacted the share prices of major players like Tata Motors and Mahindra & Mahindra. In fact, some manufacturers, like Maruti Suzuki, are in no rush to jump on the EV bandwagon.

Maruti has announced its plans to enter the EV market, but no models will be available before FY25. Similarly, M&M is expected to launch its new range of EVs in 2025.

Companies such as Tata Motors and M&M have even spun off their EV businesses into separate entities, raising external capital to fund these ventures.

While the initial wave of EV enthusiasm has cooled, electric vehicles are unlikely to disappear unless a disruptive technology emerges that addresses all of their current limitations—making transportation both affordable and environmentally friendly.

Automakers are actively investing in research and development to explore alternatives, such as hydrogen fuel cells. Toyota, for instance, has made progress with ammonia engines, which offer an environmentally friendly and potentially cost-effective alternative. The race is on to see which technology will meet the critical cost and adoption benchmarks for mass-market success.

The road ahead

Though the case for EVs remains strong, significant hurdles must be overcome before mass adoption becomes a reality. For now, internal combustion vehicles still dominate the market.

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Recently, Mahindra & Mahindra opened bookings for its latest model, the Thar Roxx, receiving over 176,000 bookings within the first hour. This overwhelming demand highlights the latent appetite for cars and SUVs, with internal combustion vehicles still commanding the lion's share of interest. Whether EVs can overcome their cost and range limitations to catch up with their gasoline-powered counterparts remains to be seen.

Perhaps, after two previous attempts, the third time will indeed be the charm for EVs.

Note: Throughout this article, we have relied primarily on data from www.Screener.in. In cases where this data was unavailable, we have turned to other widely used and accepted sources.

The purpose of this article is to present interesting charts, data points, and thought-provoking opinions. It is not a recommendation. If you are considering an investment, we strongly advise you to consult a financial advisor. This article is intended for educational purposes only.

About the author: Puja Tayal is a seasoned financial writer with over 17 years of experience in fundamental research. Her articles provide well-researched and insightful analysis of companies' performance.

Disclosure: The writer and their dependents do not hold any positions in the stocks discussed in this article.here