The mood swing in electrification

Shifting sentiment surrounding electrification has further exacerbated market pressures. The Battery Electric Vehicle (BEV) achieved a breakthrough moment following “Dieselgate” in 2015. Since then, all major vehicle makers have developed equal or greater numbers of new BEVs as traditional or hybrid powertrains. Even luxury and premium brands like Volvo, Porsche, Mercedes and Jaguar announced plans to create a fully electric lineup in coming decades.

However, beginning in late 2023 and continuing throughout 2024, macroeconomic trends began shifting. In December 2023, Germany’s federal climate and economy ministry abruptly ended electric vehicle subsidies amidst a national budget crisis. In the U.S. and EU, 2024 elections resulted in the re-emergence of support for internal combustion engines and gas-powered vehicles. Critics of BEVs have cited anecdotal evidence about range anxiety, charging coverage issues and power grid uncertainties, contributing to sluggish global adoption.

Stranded capital leads to uncertainty for future investments

While much of the automotive sector remains committed to a long-term shift toward BEVs, many major automakers have adjusted their manufacturing infrastructure and R&D planning to support the continued production of combustion-engine and hybrid vehicles. As a result, capital structures and investment strategies have been reassessed across the automotive landscape.

As of mid-2024, automakers and EV battery manufacturers had globally committed approximately $1.2 trillion to the EV transition. Many businesses positioned themselves for accelerated BEV adoption; however, the extension of transition timelines, delays or cancellations of BEV launches, and the redirection of capital toward combustion-engine modernization have had devastating effects on these companies.

Several European OEMs, including Lightyear, Sono and Fisker, have declared bankruptcy, leaving billions of euros and dollars in stranded investments. For suppliers, some battery manufacturing ventures have been put on ice or fully ended, such as the halted Automative Cells Company joint venture (JV) between Stellantis, Mercedes and TotalEnergies.

Some consequences for positioning E-Mobility suppliers before an exit or M&A transaction

Suppliers across the entire BEV supply chain, including battery management software, cells, assembly, testing, connectivity and high voltage technology, will need to adapt to a longer adoption runway, reflecting extended timelines for market growth amid times of uncertainty. To address these challenges, companies can consider the following strategies and tactics as part of their approach.