Uneasy Coexistence Ahead for ICE, BEV Vehicles: Report

Cars, trucks, and crossovers with internal-combustion engines are gaining sales in North America, but battery-electric vehicles continue to reshape the product plans of global automakers, who are making difficult choices about future products, according to a new analysis by Bank of America.

“We do expect (BEV) price points to come down,” John Murphy, Bank of America’s top automotive analyst, says while presenting the bank’s annual “Car Wars” report to members of Detroit’s Automotive Press Assn.

Murphy adds the Chinese automotive industry, with its excess capacity and ability to export vehicles around the world, is now a major force in the automotive business. He suggests Detroit’s three legacy automakers would be smart to sell their assets (vague – what assets?) in China and focus on what they do best: building trucks and SUVs.

“The unprecedented EV head-fake over the last three years has wreaked havoc on product planning,” the “Car Wars 2025-2028” study observes. “The prior acceleration in EV launches is doing a U-turn in favor of extending ICE programs and new hybrids. However, while there is a lot of talk about hybrids, there isn’t much action,” it notes.

BEVs will still account for 8% of all new vehicles sold in the U.S. this year but could account for 25% of the new vehicles sold in the U.S. in 2028 even as some BEV programs are delayed, Murphy says.

“Nevertheless, it is still clear from our analysis that the advent of alternative powertrain vehicles is here, but at a slower pace than many have been anticipating,” according to the report, which notes 60% of the new vehicles introduced between 2025 and 2028 will have alternative powertrains.

Additionally, the coming mix of models is “overweight” toward CUVs and “underweight” for light trucks and passenger cars. CUVs will account for 53% of the new vehicles making their debut in 2025-2028, while trucks will account for 28%. Small cars will account for 9% of the impending mix, while midsize/large and luxury cars will account for 10%, the study says.

The biggest Japanese manufacturers – Toyota, Honda, and Nissan – have an “uncharacteristically” volatile product cadence, the Bank of America report says. Replacement rates are spread around the average, with Honda above and Toyota and Nissan below as they commit to fewer new models.

Replacement rate is the percentage of an automaker’'s sales volume being replaced with new or next-generation models.

The Detroit Three have varying replacement rates with Ford best at bringing out new models, while Stellantis is just below average and General Motors is in the worst position as its commitment to EV launches weighs it down, the report says.

Product launches from European makers Volkswagen, BMW and Mercedes are dominated by CUVs, alternative powertrains and luxury cars. Replacement rates by BMW and VW in the next four years are relatively high, while Mercedes’s rate will be on the low side, according to the report.

“Hyundai’s and Kia’s cumulative replacement rate is just below average, but accelerates meaningfully in model year 2027,” the report notes.

Tesla leads in percentage of replacement rates, according to the study. But Murphy describes future Teslas as “derivatives” of the Tesla Model 3 and Tesla Model Y (pictured, below).

Tesla’s share of the BEV market is under assault from rivals. Going forward, though, any automaker building EVs must figure out how to overcome the substantial cost advantage of anywhere from $10,000 to $17,000 per vehicle enjoyed by Tesla and Chinese BEV manufacturersbuilders. Some of the cost advantage is tied up in the battery, but Tesla and the Chinese also have found ways to make their vehicles less expensive to build, according to Murphy.

New platforms under development at companies such as Ford could help eliminate the cost gap.

Murphy suggests the best strategy for companies like GM and Ford is to de-emphasize building volume and focus on their strengths, such as building trucks. But they also must find new ways to bring in new revenue by selling parts and services and finding ways to monetize new technology such as autonomous vehicles.