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Concerns About The Declining Market For Electric Cars Are Growing

Concerns About The Declining Market For Electric Cars Are Growing
A warning from a battery manufacturer and the cancellation of a GM-Honda agreement on Wednesday serve as more evidence that high interest rates are impeding the goals of automakers and climate regulators to expedite the transition to electric vehicles.

Although sales of electric vehicles are still rising quickly, they are not meeting the expectations of automakers and other businesses who have made significant financial investments in the EV market. Companies have adjusted their preparations in anticipation of consistently increasing interest rates as they closely monitor 2024.

"EV demand next year could be lower than expectations," Lee Chang-sil, chief financial officer at South Korean battery maker LG Energy Solution (373220.KS) said on Wednesday, due to global economic uncertainty.

A $5 billion agreement to jointly create more affordable EVs was also terminated by Honda and General Motors on Wednesday, less than a year after it was first announced. GM announced on Tuesday that it would prioritise meeting demand over achieving production targets for its near-term electric vehicle ambitions.

"We're taking immediate steps to enhance the profitability of our EV portfolio and adjust to slowing near-term growth," GM CEO Mary Barra told analysts.

Investor reaction to the revised outlook has been mixed. The iShares Self-Driving EV and Tech exchange-traded fund has dropped more than 24% over the past three months, a far larger decline than the 8.3% decline for the MSCI All-World Index,
which is a stand-in for global equities.

But sales of EVs are rising. According to a Cox Automotive report, they exceeded 300,000 units in the US for the first time in the third quarter. In September, they increased by 14.3% in the European Union and 22% in China, which is the largest EV market globally.

When he announced last week that he was delaying plans for a facility in Mexico, Tesla CEO Elon Musk raised the alarm.

"I am worried about the high interest rate environment that we're in," he said on Tesla's earnings conference call. "As I just can't emphasize this enough that the vast majority of people buying a car is about the monthly payment. If interest rates remain high or if they go even higher, it's that much harder for people to buy the car."

Similar warnings have been issued by other automakers.

Volkswagen of Germany reduced its annual profit margin forecast last week, attributing the decline to raw material hedges at the conclusion of the third quarter. EV batteries contain a portion of those components.

Carmakers, like many other industrial companies, hedge against fluctuations in commodity prices. As the demand for EVs declines, raw material prices, particularly those that are highly utilised in batteries, have decreased.

According to Fastmarkets' assessment of spot lithium carbonate pricing, lithium prices have dropped by 67% so far this year. Cobalt metal prices on the CME have dropped by 20% so far this year and by more than half since May of last year.

Ford, a US carmaker, announced earlier this month that it would temporarily eliminate one of the three shifts at the facility
where its electric F-150 Lightning pickup truck is manufactured. In July, the company also paused the ramp-up of its electric vehicle programme, redirecting its resources to hybrid and commercial vehicles.

Tuesday saw the largest drop in Nidec's shares in fifteen years, plunging more than ten percent as investors became increasingly concerned about the motor manufacturer's future in the fiercely competitive Chinese EV industry.

The Japanese automaker had previously predicted a profit at its main e-axle business, but now projects a full-year loss of 15 billion yen ($100 million). Power-control electronics, gears, and motors are combined in the production of an e-axle.

The largest EV battery manufacturer in the world, CATL of China, reported last week that its third-quarter earnings increased by 10.7%, its lowest since the beginning of the year, as a result of sluggish demand and fierce competition.

According to research, the company's market share in China fell in September to its lowest level in almost a year, highlighting the difficulties it faces from smaller competitors and waning demand.


Christopher J. Mitchell

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