Subsidy Drop Will Hit EV Sales But Hyundai Sees Rebound

By Ryan Fisher, Head of EV Charging Infrastructure, BloombergNEF

A slowdown in the European auto market will ripple through to electric vehicles, particularly due to the removal of subsidies for EVs across the region, according to Michael Cole, chief executive of Hyundai Europe. Still, he predicts strength coming back to the market in 2025 due to new EU emission limits.

Overall, electric vehicle manufacturers in Europe are concerned about slowing demand and a shifting regulatory environment. The tussles over rules include the European Commission facing off with both China and the UK on EV tariffs, and the UK pushing back its target for the phase-out of internal combustion engines.

The “woeful infrastructure” in parts of Europe is among Hyundai’s concerns as the company looks to expand in the bloc, Cole said in an interview with BloombergNEF. EV adoption must spread beyond key markets to all of Europe for the industry to be hitting two thirds of car sales being electric by around 2030, he said.

Resolving current legislative disputes in the sector will require more certainty and openness, Cole said. Hyundai dislikes the confusion that can arise with changes such as the UK pushing back its target for internal-combustion-engine cars, or ICEs, and what he sees as protectionist programs such as the Inflation Reduction Act in the US. “Competition is what we all live for,” he said. Hyundai doesn’t see a competitive benchmark in the industry, in large part because technology is moving so quickly. In this respect the company has had success switching to 800V platforms for its Ioniq range, which enables faster charging in its mass market vehicles, and it is experimenting with EV technologies such as so-called vehicle-to-grid, and also more specialized areas like urban air mobility and robotics.

The company acquired Boston Dynamics in 2021 and this is enabling the manufacturer to branch into more product categories. The company might be competing with Tesla to produce personal robots in future and not just EVs. Musk unveiled the Optimus robot at Tesla’s AI Day in 2022. Still, leadership in the car industry is not all about technology, according to Cole. He cites Hyundai’s dealer and service network as an example of this. EVs have enabled Hyundai to gain market share at a higher rate than before, especially from premium brands. Now the company wants to keep those customers but doing so is hard in a world where motor technicians “are the hardest resource” to come across, Cole said. Another resource that is causing issues is battery metals. Here high costs have been squeezing margins for BEVs, Cole said.

Hyundai’s new service Mocean offers a monthly subscription including insurance, maintenance, and an ability to switch cars every six months. This enables Hyundai to cycle the car through first, second and third owners, controlling residual values by setting when vehicles come to market.

Competitors might slash upfront costs but Hyundai’s monthly price will be very competitive.

The following interview has been edited for length and sense.

Q: Volkswagen has said there was not as much demand as they expected for EVs. In your case, at Hyundai, are the orders coming through as you expected?

A: What we see generally in the whole market is a bit of a slowdown. The economy is quite challenging now.

All of the industry has been recovering, partially because of the supply constraints we had last year, but the industry is still somewhere around 15% lower than it was pre-Covid. So we’re not exactly in a buoyant market. We’re in a market that’s recovered after a difficult period. It’s the strongest year since 2019, but it’s still not back to pre-Covid levels.

Now, within that, EVs are a very different picture. They have gone from probably 3% in 2019, to now 15% of the market. It is very important to watch what happens next year. Across Europe the pace of growth will slow down. Some of that is because of changes in taxation systems, incentive systems in key markets. Norway doesn’t have the strength of benefits it did before. Germany again has reduced any support for fleet customers and they are reducing the private customer benefit.

In markets like France, they will almost certainly adopt the green industry law, which means that not all brands will benefit from the support they had previously. So some of these factors that caused very rapid growth in electrification will be slightly dampened.

If you take the European Union, 2025 is important because it’s when the EU’s CO2 emissions limit drops again. So we’ll see a return to some fairly strong growth.

We’re still taking orders at a good level. We’ve actually seen in the last quarter a bit of a slowdown overall because we’ve run out of the previous car model and Kona is our biggest selling EV. So with the new second-generation Kona EV I’m confident we’ll see growth again in our orders, taking us through to next year.

Q: How do you feel about how the dealerships are doing? Are they embracing EVs?

A: This is one of the strengths for Hyundai, and we’ve put in a lot of effort in Europe, a lot of training in terms of sales to be able to explain the technology, the features, the benefits. Then on the technician side, we’ve put them through skilled electrical training. But there is a shortage of technicians generally around the world. I want to say in Europe motor technicians are just about the hardest resource to come across. It’s one of the things we’re able to give our technicians, that additional skillset they need to be able to work on electrified products.

Q: And can you source the parts you need? Some people are saying it takes ages to mend EVs because the workshops can’t get the parts, and they are really expensive.

A: The industry went through some difficult challenges. We have in-house parts distribution service Mobis as a group company. They do a great job. We’re now back to high levels of service, including on the EVs. It’s an area we focus on.

Every customer deserves to have a great experience. We have a higher ratio of conquest for customers buying electrified vehicles from more premium brands. And we say, look, these customers expect a very high level of service.

Q: Is charging still the biggest hurdle to why people aren’t going EV? Or do you think there are others?

A: Range anxiety I would say is largely a thing of the past. What people want to know now is that there is sufficient infrastructure. Some people have nervousness about being able to charge. There may be a charging point, but can I get on to it when I get there?

Still, when you get to other markets, there’s even the fear about whether the infrastructure is in place. If you go to some of the central, eastern and southern European markets, there are woeful levels of infrastructure. This is one of the pressure-points we’re applying in our discussions with the European Commission. We have very ambitious but very necessary goals to de-carbonize and to become emissions free, but we need all the enabling factors. Arguably, the biggest factor is infrastructure.

It needs to accelerate at a very significant pace if we’re to achieve the 2030 targets. We need the industry to be selling two-thirds of cars as EVs in 2030. If you want to be at two-thirds in Europe, it’s all very well-being 100% in Norway and 70%-80% in some major markets, but if you’ve got some smaller markets lagging behind, if they only get to 30%-40%, it makes it very difficult for us to achieve Europe’s 65% goal.

The European Commission has responded well. They introduced the alternative fuel infrastructure as a regulation, rather than as a directive. So there are targets that each EU member state has about what infrastructure they must create to support the fit-for-55 program. A set of proposals to revise and update EU legislation to meet the EU’s target of reducing net greenhouse gas emissions by at least 55% by 2030.

We need to reassure customers. I’m confident that we can produce the technology that customers say meets their requirements, it’s got sufficient range, it’s got sufficient charging capacity. Everything else about the car, we’re very confident with. But you need customers to be happy they can find sufficient charging network.

Q: How are your margins at the moment? Can you sell an EV and make a profit on it? If not, when do you think that’s coming?

A: It is challenging, of course, because costs are always high. Raw materials can be a pretty critical factor, as they did through the second half of last year with prices increasing very rapidly, particularly for batteries. It’s not easy to make margins in battery electric vehicles. A key focus for us is how we work on that cost structure. That’s one reason why the European Commission introduced the Critical Raw Material Act. We need to have access to more raw materials from other markets, rather than being reliant on one market – China.

Q: Companies like Tesla are lowering prices. Are you feeling the squeeze in terms of pricing?

A: It is competitive in the market, whether it’s through Tesla or the Chinese. But we’re proving with the right product we can get to monthly payments that customers are happy to pay and maybe more.

Q: And if you switch to monthly subscription payments, with Mocean, does that mean if the residual values plummet, then Hyundai is taking the risk?

A: It depends how you structure that business and which partners you work with. With the Mocean program we can multi-cycle the car. This means there’ll be a first user and there’ll be a second. So yes, effectively we’re retaining title to the vehicle and therefore we have the risk, but we don’t see that as an unreasonable risk. We are usually able to remarket the vehicles in a better way, so it helps us protect the residual value. We’re putting them into the market at the time that is optimal for us.

Q: Hyundai isn’t selling ICE cars in Norway anymore. Do you see the roll-back of ICE sales occurring across other European markets?

A: It’s too early to say. We’re purely an electric brand in Norway now – the country is unique in terms of the size of the market for EVs. There is non-EV business to be had there, but we felt it was a strong proposition for us to go EV-only, given the strength we have there and the product offering. In other markets we’re still some way off that, like in the Netherlands, where around 30% of the market is EVs.

The biggest EV market in Europe is Germany, and it was still only at 17% last year. We’re still a long way from saying we start to turn off ICE sales.

We have a very strong commitment for decarbonizing across our whole business, but we also want to make sure we serve our customers, and there is still a big customer base for cleaner internal combustion. We’re continuing to develop the internal combustion engine to reduce emissions. And there’s still a good opportunity to replace the aging vehicle park. We still see the opportunity, particularly southern, European, Central, Eastern Europe, for the older, more polluting cars getting customers in for the next 10 years. We have to focus on selling more cleaner internal combustion, hybrid, or even plug-in.

Q: The EU is going to investigate China around EV subsidies. Are Chinese cars flooding the market? Are they underpricing everybody else?

A: I have no doubt the Chinese brands are growing their presence in Europe – we’ve seen that they have a stronger share. They’re at about 8% of the EV market, but competition is what we all live for, and it wasn’t that many years ago when Hyundai wasn’t an established brand in Europe. You have to win your customers and gain your share based on the quality of product. Of course, there is a time when you might do it through cost, and when you’ve established a position you start to move towards quality and product and service levels. We’ve done that and we’re now very well established, our reputation, our image is good. The Chinese just become another competitor to us, whether it’s a competitor from the US, a competitor from Japan, or from elsewhere in Europe. We are always open to competition. We don’t believe in protectionism. We don’t like what’s happened in the US with the Inflation Reduction Act. That’s not favorable to us today, when we we’re building further plants there. Of course, we’ll be able to overcome that, but we do believe in open trade.

Q: Five or six years ago Hyundai had Toyota as a benchmark. Who is the benchmark today for you?

A: In terms of the way technology is going to change, I don’t think there is a benchmark, because everything’s changing so quickly. When we entered the European market, we were seen as a challenger brand, we were a bit of a disruptor, then we became a fast follower. We’re now in a position where we are leading the way in many areas. So, to be honest, I don’t think we’re looking at any other brand and saying that’s where we need to be.

We’re trying to make our own way and be a leader, and that doesn’t just apply to electrification. It’s also in areas like smart mobility. Take the extreme, Urban Air mobility. I’m not aware of any other automotive brand that is making the investment and putting the effort and the foresight into thinking about how we could offer mobility to people with urban air solutions.

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