Beatrice Lang
According to Morgan Stanley, electric vehicles (EVs) will become more affordable in the future. The investment bank attributes this prediction to various factors, including advancements in manufacturing techniques, such as one-piece aluminum casting and unibody design, which reduce weight and costs. Additionally, they anticipate a decrease in the number of parts required for EVs, potentially dropping from 10,000 to 100 or fewer components. This, coupled with increased production and improved designs, leads Morgan Stanley to project a continued decline in EV prices over the next decade. The bank also highlights the role of global alliances, particularly with Chinese EV technology, in overcoming economic and geopolitical challenges to sustain EV momentum.
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What You'll Learn
Electric vehicle prices could drop to $3,000-$5,000
Electric vehicle (EV) prices could drop to between $3,000 and $5,000 in the future, according to analysts at Morgan Stanley. This prediction is based on the expectation that carmakers will achieve higher production volumes, streamline their manufacturing processes, and improve vehicle designs. The number of parts needed for an EV could also decrease significantly, from around 10,000 today to 100 or fewer.
The cost of a new EV has already decreased considerably over the last decade, as batteries have become more affordable and production has scaled up. For example, Tesla's first vehicle, the 2008 Roadster sports car, had a starting price of around $100,000. Today, its lowest-priced Model 3 sedan costs $37,490, which is less than the average price of a new car in the US.
There are already some ultra-low-priced EVs available for sale outside of the US. General Motors sells a small EV for $4,500 in China, and French automaker Citroën offers a $6,600 city car called the Ami in Europe.
However, Morgan Stanley analysts also predict a slowdown in the global adoption of EVs over the next 12-18 months due to economic uncertainties and geopolitical challenges. They suggest that global alliances, especially those involving Chinese EV technology and local market access, will be crucial to overcoming these obstacles and maintaining EV momentum.
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New manufacturing techniques to reduce costs
Electric vehicles (EVs) are expected to become more affordable in the future, according to Morgan Stanley. This prediction is based on several factors, including advancements in manufacturing techniques, increasing popularity, and the impact of strategic alliances.
One significant factor contributing to the potential cost reduction of EVs is the adoption of innovative manufacturing techniques. Automakers are increasingly embracing one-piece aluminium casting and unibody design, as demonstrated by Tesla's successful implementation in the Model Y rear floor in 2020. This approach reduces weight, lowers material costs through fewer parts, and enables higher metal recycling. The unibody construction method, in particular, offers the advantage of reduced part count, which can significantly simplify the manufacturing process and decrease overall production costs.
Asian automakers are also outsourcing specific processes, which could benefit leading parts suppliers. For instance, Wencan has taken the lead in this sector, delivering rear floor parts for NIO's ET5 model and anticipating future projects with Li Auto and Huawei. Additionally, Tuopu, a Zhejiang-based car parts maker, is expected to expand aggressively into unibody manufacturing, potentially increasing its market share.
These advancements in manufacturing techniques showcase the industry's efforts to streamline production processes and enhance cost efficiency. By reducing the number of parts required and improving vehicle designs, automakers can drive down the costs of EVs, making them more accessible to a wider range of consumers.
Furthermore, the cost of batteries, a crucial component in EVs, has been decreasing over time, which has contributed to the overall reduction in EV prices. As production scales up and technological advancements continue, it is expected that battery costs will continue to decline, further driving down the overall price of EVs.
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Outsourcing to parts suppliers
Secondly, Zhejiang-based car parts maker, Tuopu, is expected to aggressively expand into unibody manufacturing, according to the investment bank. Analysts expressed mixed feelings about Tuopu, noting its increased market share but also concerns over cash outflows due to significant spending needs. The bank maintains an "equal-weight" stance on Tuopu's stock.
Thirdly, Morgan Stanley is "equal-weight" on Xusheng, another parts supplier that has recently won orders from BYD and boasts extensive expertise in aluminum casting. This shift towards outsourcing to parts suppliers is part of a broader trend in the electric vehicle (EV) industry, as automakers seek to streamline production processes and reduce costs.
The EV industry has entered a new phase, characterized by global geopolitical tensions, economic uncertainties, and technological disruptions, which has led to a slowdown in global EV adoption. To navigate these challenges, Morgan Stanley emphasizes the importance of strategic alliances, especially with Chinese EV technology and local market access. This collaboration will be crucial in overcoming obstacles and reinvigorating the EV market.
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Global alliances to enhance market share
Morgan Stanley analysts predict a slowdown in the global adoption of electric vehicles (EVs) over the next 12-18 months due to economic uncertainties and geopolitical challenges. However, they believe that global alliances, particularly those involving Chinese EV technology and local market access, will be crucial in overcoming these obstacles and enhancing market share.
The firm foresees a potential $150 billion investment opportunity in localizing Chinese EV production in global markets by 2030. They suggest that future cross-border collaborations could significantly improve the market share and profitability of early movers in the EV industry. To navigate the challenges posed by global geopolitical tensions and China's economic fragility, Morgan Stanley advocates for "strategic tie-ups" between global and Chinese automakers.
The investment bank highlights the benefits of one-piece aluminum casting and unibody design in reducing weight and costs for automakers. This new manufacturing technique, popularized by Tesla, has the potential to make EVs more affordable and attractive to consumers.
Additionally, Morgan Stanley estimates that increased EV adoption among ride-sharing fleets, along with regulation and influence from tech firms, could significantly increase EV penetration. They project that EV sales will surpass combustion engines around 2035, and by mid-century, BEVs could comprise up to 90% of all vehicle sales. This shift will disrupt not only automakers but also various industries throughout the automotive supply chain.
The transition to EVs is reshaping global economies and political alliances. As the EV market continues to grow and evolve, global alliances and strategic partnerships will play a pivotal role in enhancing market share and profitability for early movers in the industry.
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Legacy automakers pivoting to electric
As electric vehicles (EVs) become more popular, legacy automakers are finally shifting towards electric models. Climate change has become the top driver of auto industry fundamentals, and this shift represents a significant opportunity for legacy automakers to reinvent themselves. However, they need to act quickly and demonstrate meaningful change.
According to Morgan Stanley, the global EV market has entered a new phase due to geopolitical tensions, China's economic fragility, and AI tech-driven disruption. As a result, the growth in global battery-electric vehicle (BEV) penetration is expected to slow, with forecasts for 2026 reduced to 17%, down from 20%. To navigate these challenges, global alliances, particularly those involving Chinese EV technology and local market access, will be crucial.
Legacy automakers that can successfully transition to EV stand to attract capital from environmental, social, and governance (ESG) investors, potentially leading to a significant rerating of their stocks. Morgan Stanley's auto and sustainability analysts have developed a framework to compare the leaders and laggards in this regard. This framework focuses on current CO2 exposure and the actual rate of change driven by the percentage of EV sales.
Additionally, advancements in manufacturing techniques, such as one-piece aluminum casting and unibody design, are making EVs more affordable. This new technique reduces weight and costs, with benefits including lower material costs from fewer parts, higher metal recycling, and higher production. This shift towards more affordable EVs is further supported by the expectation that the number of parts needed for an EV will decrease significantly in the future.
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Frequently asked questions
Morgan Stanley predicts that the prices of electric vehicles will continue to fall over the next decade. They believe that carmakers will achieve higher volumes, streamline production processes, and improve vehicle designs, resulting in a significant drop in EV prices.
Morgan Stanley analysts attribute the anticipated price reduction to carmakers' increasing adoption of one-piece aluminum casting and unibody design, which reduces weight and costs. Additionally, they expect the number of parts needed for an EV to decrease significantly, further driving down costs.
Morgan Stanley analysts, led by Adam Jonas, predict that electric vehicles will likely cost between $3,000 and $5,000 in the future. This prediction is based on discussions with OEMs, suppliers, and domain experts in the EV business.
Morgan Stanley acknowledges that the global EV market is facing challenges due to economic uncertainties, geopolitical tensions, and disruptions in China's economy and EV technology. These factors may slow down the growth in global battery-electric vehicle (BEV) penetration in the short term.
