Goldman Sachs sees traction in hybrid vehicles amid slowdown in EVs

In a recent report titled "Electric Vehicles: What's Next," global investment bank Goldman Sachs highlights a shifting landscape in the automobile industry, as hybrid vehicles (HEVs) and plug-in hybrids (PHEVs) gain prominence amid a slowdown in electric vehicle (EV) sales.

EV Sales Decline: Realistic Bear Case Scenario

Goldman Sachs acknowledges that its bear case scenario for an annual decline in EV sales has become more realistic. Europe, previously a driving force in EV growth, has exhibited signs of stagnation since the onset of 2024. Concerns regarding EV capital costs, ambiguity in government policies, and a dearth of rapid-charging infrastructure have contributed to this slowdown. Consequently, Goldman Sachs revises its preference towards HEVs and PHEVs under these circumstances.

Hybrid Vehicles: Accelerating Sales

While EV sales face headwinds, HEVs and PHEVs are witnessing accelerated adoption rates among consumers. Factors such as range, infrastructure development, and total cost of ownership (TCO) have bolstered the appeal of hybrid vehicles. Particularly, features like motor assistance during acceleration enhance performance, thus driving the popularity of HEVs. Goldman Sachs predicts a positive trajectory for manufacturers offering diverse powertrain options, including hybrid models.

China's Export Ambitions and ASEAN Market Dynamics

In China, where excess production capacity surpasses 5 million vehicles, competition in the EV sector is expected to intensify. Chinese manufacturers benefit from cost advantages attributed to the country's concentrated EV supply chain, especially in lithium iron phosphate (LFP) batteries. However, challenges arise from governmental policies aimed at safeguarding domestic EV markets in regions like the US, Europe and India. Consequently, the battle for dominance in the ASEAN EV market is set to escalate.

Investment Imperatives for Automakers

Goldman Sachs stresses on the importance of upfront investment in vertical integration for automakers anticipating a shift towards EVs in alignment with carbon neutrality goals. Accumulating core EV technologies, including batteries and power semiconductors, is crucial in this transition. Furthermore, the bank reflects the significance of strong balance sheets and the ability to generate free cash flow to support ongoing investments. Goldman Sachs remains bullish on automakers with robust financial positions and diversified powertrain portfolios, particularly those offering HEVs.

Amid the slowdown in EV sales, the ascent of hybrid vehicles reflects a transitional phase towards sustainable mobility solutions. With China eyeing export opportunities and the ASEAN market emerging as a battleground, the automotive landscape is set for continued transformation.