Analyst: Is Auto Industry Too Bullish on Electrification?

DULUTH, GA –An analyst is raising caution flags for an industry moving aggressively toward electrification.

“(Battery-electric vehicles) are going to take off. Nevertheless, they still represent only 5% of the market in the U.S,” says Gary Silberg, a partner at the KPMG consultancy, speaking at the Southern Automotive Conference here.:

KPMG says BEV sales in the U.S. totaled 300,000 in 2020; 400,000 in 2021; and are predicted to finish 2022 at 600,000. Sales are predicted to rise every year afterward to 2030. But Silberg says BEV deliveries as a percentage of total sales have stagnated this year because production has fallen amid shortages of raw materials and semiconductors.

The veteran analyst says 160 new models are in the pipeline through 2026: “I’m not talking theoretical models. These are announced models. These are coming. The industry has put billions of dollar bets behind these. They’re building plants. They’re buying batteries. And this is happening right in front of our eyes.”

Gary Silberg KPMG

“Politicians keep talking about this beautiful green revolution – and it will happen over time. But if only 10% of the fleet are (BEVs) in 2030, we’re going to have to live in a world where there’s going to be a multitude or mosaic of powertrains. Most carmakers will have to do both.”

Silberg, who heads KPMG’s global automotive team, says his biggest concern is that OEMs have overestimated the size of the market.

“I love EVs, but the forecasts are overly optimistic,” he says. “If you add up all the projections of where people will be by 2030, annualized sales of (BEVs) globally would be around 72 million vehicles.

“Do you know how many cars (all powertrain types) we’d sell globally in a year if we had a great year? We'd probably be around 90 to 100 million. So basically, if you add up all the OEM forecasts, we’d be at 80% (72 million) of the world being (BEVs),” Silberg notes.

“The OEMs have placed billions of dollars of bets and have said they’re going to sell 72 million (BEVs). Again, this is not theoretical. Most experts say the total is going to be around 30-35 million. Not all these car companies are going to make it. There’s no way.”

The analyst also reports the average BEV price in the U.S. has risen to $66,500, more than 40% higher than the overall industry average for all other vehicles. BEVs listing for more than $66,500 include some or all grades of the Cadillac Lyriq, Ford Mustang Mach-E, GMC Hummer pickup, Rivian R1T, Porsche Taycan and Tesla Model X and Model S.

In the U.S. market, Silberg warns supply-chain disruptions, notably in semiconductors, are likely to keep new-car demand from returning to 2017-2019 peak levels until 2026.

“The industry here is in a state of disequilibrium, what with demand for three consecutive years below 15 million units,” he says.

After peaking at 17.2 million in 2017 and 2018, demand fell to 14.5 million and 14.9 million in 2020 and 2021 during the pandemic. KPMG is predicting sales will bottom out this year at 13.8 million before increasing every year to reach 17.1 million in 2026.

This has had a major impact on both new- and used-car sales and demand, with used-car prices spiking 42% since April 2021, according to Silberg. New-car prices are up 18%.

“Just to put all of this in perspective, “there are over $1 trillion worth of loans out there for these cars. If you bought a car that was 25% overvalued, this could have a profound economic impact for the dealer, for the car industry and for the lenders several years down the road. There could be 30-40 million new and recent cars that are way overvalued.”