The electric vehicle market is experiencing immense growth, however, manufacturers are struggling to keep up with demand.
As petrol and diesel prices soar, more and more motorists are turning to electric alternatives.
Here we take a closer look at what’s currently happening in the electric vehicle (EV) market, the challenges manufacturers are facing, and what the future holds for EVs.
Demand for EVs is on the rise
Both the used and new EV market has experienced unprecedented demand over the past few months, in Irish and global markets.
- DoneDeal’s recent ‘Car Price Index’ report states that used electric and hybrid vehicle prices have increased by 19% year on year and 25% year on year respectively.
- According to the Society of the Irish Motor Industry (SIMI), in March 2022, 1,930 new EVs were registered in Ireland, compared to 1,034 in March 2021.
- So far this year 6,244 new EVs have been registered, in comparison to just 2,816 in the same period in 2021.
- Schmidt Automotive Research has reported that Western Europe’s battery electric vehicle (BEV) sales more than doubled in 2020, to just under 750,000.
- Sales of BEVs in this region jumped again, to 1,143,000, in 2021.
What’s driving the demand for EVs?
There are multiple reasons why the demand for electric cars has increased:
- Rising fuel prices: Petrol and diesel fuel costs for internal combustion vehicles have skyrocketed since the conflict in Ukraine began.
- Environmental concerns: To offset their carbon footprint, buyers are making more environmentally-conscious decisions.
- Government grants: In Ireland, there’s a range of grants and incentives for those who choose to purchase an EV.
- Cheaper car insurance: Many insurers will offer those with EVs discounted rates on car insurance.
Despite the increased popularity of EVs, manufacturers cannot keep up with the demand.
Volkswagen runs out of EVs
At the beginning of May, Volkswagen announced that it had essentially ‘sold out’ of BEVs for 2022 in Europe and the United States.
Shortage of parts
Like many manufacturers, Volkswagen has been hit by a shortage of semiconductors and wiring harnesses made in Ukraine, due to supply chain bottlenecks.
After Toyota, Volkswagen is the world’s largest manufacturer by volume and usually produces 1,200 vehicles a day in its plants in Ukraine. This has been impacted significantly by the ongoing Russia-Ukraine conflict.
Catching up on the backlog
In the first three months of 2022, Volkswagen sold more than 99,000 EVs worldwide. Contrastingly, market leader Tesla delivered more than three times that number in the same quarter.
Volkswagen has a global target of 700,000 electric vehicle sales for 2022, as the company attempts to catch up with its competitor, Tesla.
However, in Western Europe - which includes Germany, Britain, France, Spain and Italy -
Volkswagen currently has an order backlog of 300,000 EVs.
In China, Volkswagen’s largest market, production has been hampered due to ongoing coronavirus lockdowns.
Consequently, the manufacturer sold just 28,800 electric cars in China in the first quarter of 2022.
According to Volkswagen CEO, Herbert Diess, customers now placing orders in Europe and the US will not get their EVs until 2023.
What’s causing manufacturing delays?
This problem extends past Volkswagen, as many manufacturers struggle to meet demand.
When it comes to pinpointing the cause of supply chain issues for EVs, it seems as though there’s a cumulation of factors that are having an adverse effect on EV manufacturing.
1. Supply chain bottlenecks
Supply chain problems have plagued manufacturers since the pandemic began. Many had to shut down for periods of time, resulting in vehicle shortages.
A major challenge has been the shortage of semiconductor computer chips, which aid vehicle electrification. In 2021, the chip shortage curtailed production for most manufacturers.
Due to a lack of new cars, consumers turned to the used car market, pushing the demand for second-hand vehicles up.
The shortage of semiconductor chips, paired with the difficulty in securing other vital components, has shrunk production, slowed deliveries, and caused prices for both new and used EVs to soar.
You can learn more about the semiconductor chip shortage in our blog on why used cars are increasing in price.
2. Rising battery costs
The auto industry’s bet on electric vehicles proving successful was built on a single premise: that batteries would carry on getting cheaper.
While the costs for EV batteries declined at first, as demand has increased, the price of lithium-ion batteries has surged. Last year, the average cost of lithium-ion battery cells was $105 (€97) per kilowatt-hour.
However, in the first quarter of this year, this has increased to an estimated $160 (€148) per kilowatt-hour.
This has occurred due to supply chain disruptions and sanctions on Russian metals.
3. Conflict in Ukraine
A recent factor, the Russia-Ukraine crisis, is worsening supply chain challenges that manufacturers are facing. Input costs have increased, particularly for EVs.
Over the past decade, manufacturers and companies that produce parts for cars have invested heavily in Ukrainian factories, to cut down costs and gain proximity to European plants.
However, due to the ongoing conflict, several issues have emerged, with shortages of materials coming from both Ukraine and Russia.
Components from Ukraine
- According to Wells Fargo, 10% to 15% of essential electrical wiring harnesses that supply vehicle production in most of the EU is made in Ukraine. These harnesses are bundles of wires and connectors that are unique to each car model.
- This has slowed down production in Germany, Poland, and the Czech Republic, reducing exports.
- Ukraine is also the world’s largest exporter of neon, a gas used in lasers that etch circuit designs into silicon wafers to create computer chips.
Components from Russia
- Russia supplies one-third of the world’s palladium, which is used in pollution-reducing catalytic converters.
- Russia also produces 10% of the world’s nickel, an essential component in EV batteries.
- The country produces a large amount of aluminium, and a source of pig iron, which makes steel.
- Sanctions imposed against Russia will impact the cost and ability to manufacture EVs. Britain, for example, announced last week that it’s increasing tariffs on platinum and palladium imports from Russia.
4. Lockdowns in China
Due to an increase in coronavirus cases, China has recently imposed new lockdown measures.
Leading manufacturers Toyota and Tesla have experienced major setbacks.
Tesla has reportedly halted most of its production in Shanghai due to issues in securing parts for its EVs. The factory had previously been shut for 22 days in April due to the city-wide lockdowns.
Tesla partially resumed production on April 19th, under a “closed-loop” system, whereby workers live on-site at the factory to reduce the risk of Covid-19 infection.
The manufacturer had hoped the system would enable it to produce 2,600 cars daily by mid-May. However, reportedly the factory is only managing to churn out around 200 units some days.
Supply issues to continue for the foreseeable
With buyer demand high, materials scarce, and the conflict in Ukraine causing new disruptions, EV prices are expected to increase even more. This trend is set to continue well into next year.
There will likely be a further tightening supply of materials coming from Russia and Ukraine, which will exacerbate production delays.
Regardless of price increases, motorists aren’t being deterred from going electric.
According to Fitch Ratings, manufacturers remain committed to their long-term EV targets and will invest in EV platforms and infrastructure to cope with consumer demand.
Schmidt Automotive expects battery electric vehicle (BEV) sales to reach a market share of 60% in Western Europe by 2030.
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If you’re in the market for an EV, you’ll probably end up looking for car insurance too.
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Take a look at our Quickstart Guide on how to find the best value car insurance.
Check out our other EV articles
If you found this article informative, why not look at our other EV articles?
- Here are 10 things to consider when purchasing an electric vehicle.
- Discover the answers to all your EV-related questions in our guide on common electric vehicle questions answered.
- This guide will explain how to charge an electric vehicle.
- Read all about the grants and incentives available here.
Let’s hear from you
donedeal.ie, euronews.com, fitchratings.com, irishtimes.com, reuters.com, schmidtmatthias.de, simi.ie.