There have been significant cuts to electrification programmes across several global auto Original Equipment Manufacturers (OEMs) in the first half of 2024, as compared to 2023, said a report by Kotak Institutional Equities report.
The Kotak note mentions about the scaling down of electrification programmes, observing that "Most OEMs had initially set aggressive targets on BEV (Battery Electric Vehicle) production to (1) meet evolving customer preferences and (2) adhere to stricter emission norms. However, bottlenecks such as (1) higher battery costs and suboptimal efficiency and (2) limited availability of charging infrastructure resulted in slower than anticipated adoption of BEVs. Further, OEMs are faced with pricing pressures and lower profitability of BEVs due to various factors including sub-scale production."
These factors have lead to a sharp reduction in EV programs of several OEMs, the report added. Research and development (R&D) spend outlook among OEMs and Tier-1 suppliers has also suggested some caution.
While a few OEMs such as JLR, BMW, Volkswagen and Renault continue with elevated R&D spends in H1CY24, there was a significant slowdown in the growth of R&D spends when compared to CY23. "Overall, R&D spends of global passenger car OEMs grew at 6.4% YoY in H1CY24, as compared to 14.3% growth for the cohort in CY23," the report said.
The Kotak report also pointed out that tier-1 suppliers' "tempered outlook and measured R&D spends" is indicative of disruption to the business.
"Most Tier-1 suppliers also indicated challenging market conditions due to general slowdown in automotive volumes for sluggish performance. R&D spends reflected business challenges, growing at a modest low single-digit rate in 1HCY24 at large tier-1 supplier," the report said.
"Most tier-1 suppliers lowered CY2024 guidance while a few also tempered their medium-term aspirations, uncharacteristically, mid-year," according to the Kotak note.
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