What Effect Will COVID-19 Have on the EV Industry?

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【Summary】A quick look at how the COVID-19 crisis might affect the global EV industry.

Manish Kharinta    May 19, 2020 3:00 PM PT
What Effect Will COVID-19 Have on the EV Industry?

As we know by now, the shelter-in-place mandate following the COVID-19 outbreak has severely impacted business operations worldwide, which has stunned virtually all economical growth across the globe, including in the auto industry.

China, on the other hand, is already slowly beginning to recover from the global coronavirus pandemic, which bodes well for its electric vehicle makers, as the country is the world's largest electric vehicle (EV) market. 

However, it might not be the time for celebrations just yet for China's EV manufacturers, as the global automotive industry is facing a huge downturn.

Auto Makers Disconnect from the Market

Recently, the North American International Auto show held each year in Detroit was canceled to tackle the COVID-19 spread. It was announced that the Federal Emergency Management Agency (FEMA) will likely repurpose Detroit's TCF Center where the event was to be held for use as a temporary field hospital.

Michigan, the home to the U.S. auto industry, has 23,993 confirmed cases of COVID-19, which resulted in 1,392 deaths so far.

Understandably, the canceling of an auto show seems quite reasonable, or even insignificant in these trying times, but the implication of the same can be quite significant for automakers that rely on major industry events to market themselves. 

Auto expos are not just a platform for global automakers to pat themselves on the back, they also allow companies to showcase their upcoming models, technology and future vision, while at the same time gauging market reaction and demand for concept models.

This means carmakers will have to work extra hard to promote their concepts and gather feedback, which will be a time-consuming process and will likely delay products from reaching the production stage.

EV Startups Burn Through Capital

Chinese electric vehicle startup NIO, which is often referred to as the "Tesla of China", took a major hit in the wake of the coronavirus crisis. The company's shares were down by 27.1% last month. Not only was the production and deliveries of NIO electric vehicles suspended due to the outbreak, the Chinese government also put an end to all-electric vehicle subsidies, which weakened demand.

NIO went on record to express concerns about its future. In an official statement, the company disclosed that its cash balance as of December last year was just $151.7 million, which is not enough liquidity or working capital for the company to stay operational over for the rest of the year.

Many budding EV startups in Silicon Valley and around the globe are facing similar issues with their capital resources.

In Europe, the construction of Tesla's new Gigafactory 4 in Germany has also been suspended. 

Hindered EV Adoption

As with any emergency, a recovering market will be cash sensitive and even though electric cars cost less to own in the long run, most of them come with a much steeper price tag as compared to their gasoline-powered models. 

As optimistic as auto industry analysts would like to be, the adoption of EVs will face a serious setback in the wake of the global coronavirus crisis. The overall demand for cars (both electric and conventional) is also expected to take a major hit for the remainder of the year.

The mass-volume EV adoption will also be affected by the fact that major battery manufacturers have also closed up shop during the pandemic. 

Industry analysts reason that COVID-19 might have cost China 26 GWh of battery production in 2020. In addition, the recently closed Tesla Gigafactory in Nevada will probably lose 0.5 GWh per week in terms of battery production.

In addition, with rising unemployment and uncertainty about the global economy as a result of the pandemic, car buyers are not likely to flood dealer showrooms to purchase new models, either electric or conventional. Therefore, global automakers building electric cars are facing a bleak 2020.

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