As sale of EVs decrease, automotive firms slash technology spend

After a post-pandemic surge, global automotive companies have started showing weakness this year. This is majorly because of sluggishness in EV (electric vehicle) sales, whereas last year saw an f EV boom. Consumers across the world purchased EV vehicles both in four-wheeler and two-wheeler segments in big numbers. This prompted automobile companies to come up with many new launches and splurge on research and development activities. But, the euphoria around EVs seems to be undergoing a sobering effect. Of course, there are many reasons for this. According to Goldman Sachs, there are concerns with regard to capital costs of EVs. It pointed out that used EVs were not able to realise much price in the market place. This has raised questions over return on capital on buyer’s mind. Secondly, consumers and investors are keenly looking at the policy norms coming out from different governments with regard to EVs. In an election year in the US and European economies, key stakeholders are waiting important policy announcements with regard to EVs such as subsidies and duties, among others. In the absence of that clarity, buyers are in a wait and watch mode. Thirdly, as EVs see higher adoption, there is now tangible deficit of charging infrastructure.

Without the support of such critical facilities, buyers are holding back their purchases. This holds true for both developed and developing economies like India. Against this backdrop, now EV sales are falling for most segments across nations. For instance, sales in India plummeted by a sharp 14 per cent in June at 106,081 units as against May’s figure. This also marked the lowest monthly sale in the current calendar year. Last year, EV sales in the country declined due to the Centre’s decision to reduce the maximum subsidy for electric two-wheelers from approximately Rs. 60,000 to around Rs. 22,500. This move led to an increase of more than 20 per cent in the average price of two-wheelers. Experts also are of the opinion that consumers are giving preference to hybrid vehicles over EVs. As the sales figures dip, EV makers are now also holding back their investment plans. Many are reducing headcount, some are slashing spend on R&D. This spending cut is gradually impacting IT and engineering services companies across the world.

Globally, automotive firms were betting big on EVs and that was the reason that technology firms had benefitted from higher technology spends. Today the spending cut is leading to loss of projects or ramp downs in the technology world. The market has already started to witness this factor playing out in the first quarter of FY25. Most engineering firms and even IT companies have not been to see much growth in this segment during Q1, mostly because the volume of work has come down. Most analysts don’t see the spend coming back till sales recovery in the EV space. This has forced IT and engineering services firms to go back to the drawing board and devise new plans for navigating through this evolving situation.