The Great EV Lie

Welcome to Issue #80 of The German Autopreneur!

The automotive industry is experiencing the biggest transformation in history. But here’s a truth nobody talks about: Nearly every expert got their EV predictions completely wrong.

These miscalculations have massive consequences. Suppliers and manufacturers invested billions based on false assumptions. Plants were rebuilt. Development budgets shifted. People hired or laid off.

What can we learn from these failures? Today I'll examine why EV forecasts went wrong. And which factors really decide between success or failure.

The Extremes of EV Predictions

On one side, we had the pessimists. OPEC expected just 4.7 million battery electric vehicles (BEVs) on roads by 2040. That number was already reached in early 2020. Twenty years ahead of schedule.

On the other side, we have the optimists. Cathie Wood's Ark Invest predicted 17 million BEV sales by 2022. The actual number was under 8 million.

Ark updated their forecast in 2022:

• 40 million BEVs sold by 2026

• 90% electric share of new car sales by 2027

Both predictions look unrealistic today.

Currently, the global share of electric vehicles (BEV and PHEV) is around 25%.

China Booms, Europe Stagnates, US Lags Behind

China: EVs are booming with a 50% market share of new cars. That's 28% BEVs, 15% plug-in hybrids (PHEVs), and 6% range extenders (EREVs). Demand now comes from actual customers. Not just government incentives.

Europe: EV market share is at 21% (14% BEV, 7% PHEV). There's been a decline over the past 18 months. Interesting trend in Germany: It's the only European country where intent to purchase BEVs (30%) exceeds intent to purchase PHEVs (18%).

USA: EV share is just 10% (8% BEV, 2% PHEV). Regional differences are enormous. California shows purchase interest above 50%. But 25 other states don't even reach 20% interest.

Even within countries, huge differences exist. Eastern and western German states show significant differences, with much higher EV interest in the west. In the US, urban EV adoption is more than 2.5x higher than in rural areas (51% vs. 18%).

4 Reasons for Wrong EV Predictions

1. Misreading Early Trends

Many optimistic forecasts emerged during COVID. In some countries EV sales skyrocketed.

But experts missed one thing: Growth rates decline as markets mature. Exponential growth rarely lasts long. Which is exactly what we're seeing now.

2. Underestimating Political Influence

Political influence is often underestimated. European countries saw EV sales spike in 2020 and 2021. The reason? Stricter CO2 regulations.

Many analysts didn't understand the regulatory mechanisms. CO2 targets become stricter every 5 years. This creates sales peaks. Afterwards, growth flattens again.

Politics directly impacts the market. In Germany, demand dropped after the goverment ended purchase incentives in 2023. But it has since recovered.

3. Ignoring Market Differences

Global development isn't uniform. China has already reached the tipping point: More EVs than ICEs are sold there. The US is far from that point.

These different speeds weren't considered in forecasts.

4. Self-Interest

Extreme predictions are often serve specific interests. OPEC and other oil companies tend toward pessimistic EV forecasts. Environmental NGOs and EV startups lean toward overly optimistic predictions.

Who publishes the forecasts often reveals more than the numbers themselves.

Buyer Reality

In the end, consumers decide what happens in the market. McKinsey identified 3 main barriers to EV adoption:

1. Range

43% of respondents cite higher range as the most important factor. On average, buyers expect a minimum range of 500 km. That's an increase of 75 km compared to 2022.

2. Price

35% wouldn't buy an EV if it costs more than a comparable combustion car. In Europe and the US, only a third of respondents are willing to pay more for an EV.

Subsidies work immediately. At equal prices, 55% of customers would buy an EV. If the EV is cheaper than the combustion car, this rises to 63%.

3. Charging Infrastructure

29% of potential buyers demand a charging network equivalent to gas stations. Charging speed is crucial for 24%. About a third of respondents expect charging times under 20 minutes.

4 Action Areas for Automakers

1. Regionalize Product Strategies

A unified global offering no longer works. Different markets require regional strategies.

In China, it makes sense to go all-in on BEVs. In the US, brands need to keep combustion engines and hybrids in their lineup longer.

2. Consider Different Purchase Criteria

EV purchase criteria also vary greatly by region:

In Europe and the US, price, range, and charging speed are priorities.

In China, buyers focus more on performance and safety.

This sounds counterintuitive: You’d expect Western buyers to care more about safety and quality. While actually, they focus more on price and range.

3. Prepare for Lower Brand Loyalty

When switching to EVs, customers are less brand loyal. In China, 65% of EV buyers plan to switch between brands.

This means: Customers first choose a car based on range and charging time. Only then do they consider the brand.

4. Offer Bridging Technologies

In Europe and the US, purchase intent for PHEVs is higher than for BEVs. EREVs (EVs with small ICE as generator) are also gaining importance. In China, they're the fastest-growing segment.

My Take

What the industry is experiencing is called the "Messy Middle." The difficult transition phase between two technologies.

Traditional automakers are hit particularly hard. They must develop conventional cars, hybrids, and EVs in parallel. This ties up enormous resources.

This phase isn't profitable for anyone.

Meanwhile, new players can focus on just one technology. This makes competition harder.

Automakers want to get out of this phase as quickly as possible. But how?

The key is customer adoption.

It's all about convincing customers to buy EVs. That's the only way out of this mess.

The good news? Each customer only needs to be convinced once. Because once a customer buys an EV, they stick with it. Less than 10% of EV owners want to go back to combustion cars.

But here's the catch: When switching to EVs, customers are way less loyal to the brand. They select cars based on features and capabilities first. Only then do they care about the brand.

So it's a battle for first-time buyers.

How do you convince these buyers? The formula is actually quite simple:

• You need ranges over 650km

• Charging times under 20 minutes

• And all at the best price

But this is exactly where Chinese manufacturers have advantages. Their production costs are 30-50% below those of German car manufacturers.

The challenge for traditional automakers is now: Convince first-time buyers. Without the traditional brand advantage. Against competitors with massive cost advantages.

The alternative? Getting left behind in the Messy Middle.

Each additional year will be even more difficult.

So transformation must accelerate. To achieve this, automakers need to offer the right product at the right price. It's that simple.

🔗 McKinsey | Bloomberg

That's all for today.

Feel free to reply to this email with your thoughts.

Until next week,
— Philipp

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