Global EV momentum is cooling as hybrids and plug-in hybrids prove more competitive than many observers anticipated. In a recent deep-dive, Goldman Sachs Research analyst Kota Yuzawa outlines a bear case gaining traction for EV sales in 2024 while still highlighting pockets of opportunity for automakers with strong balance sheets and a diversified powertrain strategy. The team expects demand for EVs to eventually resume its ascent as the world advances toward carbon neutrality, but stresses that the road ahead is shaped by a trio of headwinds that are already weighing on the near-term outlook. This analysis delves into those headwinds, the evolving role of HEVs and PHEVs, China’s pivotal influence on the global EV landscape, and the strategic implications for investors seeking to position themselves ahead of a broader shift toward electrified transportation.
Headwinds shaping the EV market
Three principal factors are blunting EV penetration at this stage, according to the Goldman Sachs researchers. First, there is growing concern about the capital costs associated with EV ownership, which is magnified by softer prices for used EVs. Across Europe and the United Kingdom, for example, used EV values have declined sharply in recent months, complicating the total cost of ownership narrative for potential buyers and undermining near-term demand. The second factor relates to policy visibility. With several elections on the horizon in multiple key markets this year, the likelihood of policy changes affecting incentives, subsidies, and regulatory support for EVs has risen, creating uncertainty that can dampen immediate investment and purchase decisions. The third factor centers on infrastructure—specifically, the shortage of rapid-charging stations. As EV penetration accelerates, the bottleneck in charging capacity becomes a tangible hurdle, with ongoing concerns about driving range and charging accessibility weighing on consumer confidence. Automakers have acknowledged these anxieties, reinforcing the view that charging infrastructure adequacy remains a material constraint that could nudge some consumers toward delaying or reconsidering an EV purchase.
These three negative dynamics are not isolated; they intersect with broader market realities that influence both consumer behavior and corporate strategy. The decline in used EV prices directly affects the perceived payback period and total ownership costs, which can deter some buyers who might otherwise be early adopters. The policy uncertainty can alter the expected return on investment for automakers and utility partners, influencing decisions on where to allocate capital for R&D, manufacturing capacity, and charging networks. Finally, the charging gap raises practical questions about the practicality of daily EV use, particularly for households with limited access to home charging or for buyers living in urban areas where charging infrastructure remains patchy. In this context, the market’s trajectory becomes highly conditioned on how quickly charging networks expand, how effectively governments and regulators respond to evolving needs, and how resilient vehicle pricing remains in the face of shifting subsidies and incentives.
The implications of these headwinds extend into forecast revisions and strategic planning. The research team notes that their bear scenario—envisioning a year-over-year decline in EV sales volume in 2024—has become more plausible in light of the three adverse factors described above. While acknowledging that EV penetration could vary materially under different conditions, the team maintains a nuanced view of the baseline trajectory, which still anticipates a meaningful uptrend in EV volumes in the medium term. In particular, the base-case scenario projects a 21% year-over-year increase in EV sales volume for 2024, underscoring a still-positive trajectory even as near-term momentum slows. However, under the bear case, EV sales could retreat by 2% year over year, a development that would likely lead to oversupply dynamics across the EV supply chain if demand fails to materialize as quickly as expected. This tension—between a still-positive longer-term outlook and a weaker near-term demand environment—highlights the fragility of the transition and the need for strategic actions that can counterbalance headwinds while preserving optionality for future growth.
The broader macro context also matters. Policymaking dynamics, consumer confidence, and technological breakthroughs all interact with these three headwinds to shape the market’s path. Policymakers in major regions continue to debate support mechanisms, with some jurisdictions refining their subsidy regimes or introducing new standards for incentives linked to local production, battery sourcing, or domestic supply chain resilience. This evolving landscape can add friction in the short run, even as it provides a more robust foundation for long-term electrification. Meanwhile, consumer sentiment toward new technology, energy prices, and vehicle depreciation rates collectively influence EV demand. Taken together, these elements create a complex risk-reward profile for automakers, investors, and other stakeholders in the EV ecosystem.
In sum, the three main headwinds—rising perceptions of capital costs amid weak used EV pricing, policy uncertainty due to upcoming elections, and the persistent gap in rapid-charging infrastructure—form a coherent thesis for why EV demand could stall in the near term. Yet the strategic response from automakers—accelerating investment in core EV technologies, expanding powertrain diversification, and strengthening balance sheets to support longer-term scale-up—remains central to navigating the transition. The research team emphasizes that the path to carbon neutrality will require substantial investment and decisive moves in the coming years, in which robust financial footing and a diversified line-up with multiple powertrains will be crucial to capturing the opportunities ahead.
Forecasts and their implications for automakers
The bear scenario—that EV sales decline 2% year over year in 2024—reflects the potential severity of the headwinds if they converge and endure. It underscores a scenario in which supply chain dynamics, inventory adjustments, and consumer hesitation combine to reduce demand. In such a world, automakers with aggressive overhangs in EV inventories or those who rely too heavily on a single propulsion type for their revenue mix could face pronounced pressure on margins, capital allocation efficiency, and overall profitability. By contrast, the base-case scenario remains constructive, with EV volumes still set to rise by about 21% year over year in 2024, implying a moderate rebound and continued market expansion as structural drivers—such as stringently rising emissions standards, improved consumer awareness of total cost of ownership, and the growth of commercial EV adoption—begin to manifest more clearly.
Crucially, even in a softer near-term environment, the team anticipates a longer-term upcycle for EV demand as carbon neutrality policies intensify and consumer familiarity with EV technology grows. This expectation hinges on a combination of factors: ongoing reductions in battery costs and improved energy density, expansion of charging infrastructure, the emergence of more affordable and diverse vehicle offerings, and the continued refinement of supporting ecosystems such as charging networks, vehicle-to-grid integration, and maintenance networks. The multi-year horizon remains favorable to automakers that invest now to secure core EV technologies—batteries, power semiconductors, motors, and related components—and to those that build resilient financial foundations to sustain capital expenditure cycles during the transition. The bear case serves as a cautionary counterweight to the optimism of the base case, highlighting the downside risks that could intensify if policy support wanes, used EV depreciation accelerates, and charging infrastructure fails to keep pace with demand.
In practical terms, what this means for the near term is a need for disciplined capital allocation and a focus on the most credible levers of margin expansion and market share growth. Automakers with strong balance sheets, proven cash flow generation from existing operations, and diversified product lineups that include both BEVs and PHEVs/HEVs are better positioned to weather the headwinds. These firms can simultaneously invest in scalable EV platforms and maintain profitability from traditional internal combustion engine (ICE) businesses or hybrid variants while the transition unfolds. In other words, the current moment is characterized by a strategic bifurcation: the best-capitalized players with a credible, multi-powertrain roadmap can navigate the near-term softness while laying the groundwork for a stronger EV-led growth trajectory as market conditions improve and incentive structures stabilize.
Hybrid sales: a rising force as EV momentum softens
In the face of softer EV demand, HEVs and PHEVs have shown notable resilience, with sales momentum accelerating in several markets, including the United States. The shift toward hybrids appears to be outpacing pure battery electric vehicle adoption in the current cycle, driven by a combination of factors that make hybrids appear more attractive on a total-cost-of-ownership basis and in terms of driving experience. The global trajectory of HEV and PHEV sales may be higher than earlier projections, with the Goldman Sachs team estimating that total HEV sales could exceed the outlook by as much as 1 to 2 million vehicles. This potential upside underscores a broader strategic dynamic: while BEV adoption remains central to decarbonization goals, HEVs are likely to play a critical transitional role, helping to reduce CO2 emissions while automakers continue to invest in full EV capabilities and ramp up BEV volumes over time.
The perception of HEVs as transitional technology is well grounded in the cost and performance calculus. The payback period for HEVs—assessed around a little over three years when considering annual fuel savings—is a persuasive factor for many buyers, particularly those weighing the feasibility of shifting to electrified propulsion without sacrificing performance or reliability. The long-term history of HEV prices, extending back to the introduction of the first HEVs in 1997, provides a high degree of confidence in used-HEV pricing stability. This track record offers a predictable backdrop for manufacturers and lenders, helping to anchor depreciation expectations and residual values in a way that reduces investment risk and supports favorable financing terms for HEV platforms. The pricing stability in the used-HEV market helps reassure buyers and adds a layer of stability to the overall economics of hybrid adoption, even as market attention remains heavily focused on the development of BEV technology.
Performance considerations also contribute to the appeal of HEVs. Hybrids often deliver higher horsepower and more robust acceleration than conventional gasoline-powered vehicles, thanks to motor assistance during starts and accelerations. This can translate to an enhanced driving experience—especially during merges or rapid highway acceleration—providing a tangible psychological and practical incentive for buyers who might otherwise remain hesitant about electrification. As gasoline engines continue to shrink in size and boost efficiency, the performance delta offered by HEVs can become a distinguishing factor that keeps consumers engaged during the transition. This dynamic implies a potential shift in consumer attention toward hybrids as a viable, lower-risk bridge to full electrification, particularly in markets where charging infrastructure remains constrained or where vehicle depreciation concerns influence buying behavior.
Nevertheless, the analysis emphasizes that the relative attractiveness of HEVs hinges on cost trajectories for EVs. If, by 2030, EVs achieve significant cost reductions—driven by breakthroughs in battery chemistry, production scale, and supply-chain efficiencies—the comparative advantages of HEVs could diminish. In such a scenario, the market could re-center around BEVs as the primary instrument for decarbonization, with hybrids serving primarily in niche segments, commercial applications, or regions with persistent charging gaps. The key takeaway is that hybrids will likely play a substantial and enduring role in the near to mid-term, supporting CO2 reductions and providing automakers with a more flexible investment profile as the industry transitions toward widespread electrification.
From an investor perspective, the hybrid segment presents a compelling opportunity to diversify exposure to powertrain technologies while maintaining a degree of resilience against BEV demand volatility. As automakers accelerate the development of HEV and PHEV platforms, there is potential for stronger free cash flow generation and more predictable earnings in the near term, supported by robust demand in regions where hybrids are well established. The hybrid-led strategy may also help balance the capital expenditure requirements for BEV ramp-ups, enabling automakers to maintain profitability and pursue strategic initiatives such as vertical integration and in-house control of critical components.
A final consideration concerns the broader implications for the energy transition. The persistence of HEVs and PHEVs as a meaningful portion of the global mix suggests that the move toward carbon neutrality will be incremental rather than instantaneous. A staged approach, in which hybrids continue to deliver meaningful CO2 reductions while BEVs scale up on a global basis, could maximize environmental impact while aligning with the practical realities of charging infrastructure, electricity pricing, and consumer adaptation. In that context, hybrids are not merely a fallback option; they are a strategic element of a measured, commercially viable path to decarbonization that takes into account existing economic and logistical constraints. As the market evolves, the attention paid to HEV performance, residual values, and the total cost of ownership will continue to influence buying decisions and corporate investments in powertrain technology.
The payback logic and market confidence for HEVs
The financial attractiveness of HEVs is reinforced by the payback dynamics relative to BEVs. Even as BEVs gain ground on total cost of ownership, HEVs’ payback period remains a critical differentiator for consumers weighing the switch to electrified propulsion. The estimated payback period for HEVs—slightly over three years on the premise of annual fuel savings—reflects a confluence of factors: more efficient combustion engines than older ICE models, regenerative braking, and the supplementary torque supplied by electric motors during acceleration. These components work in tandem to deliver tangible savings for households and businesses alike, supporting faster recovery of a vehicle’s upfront cost and a shorter horizon to profitability for drivers who consider total ownership costs.
The historical context of HEVs, dating back to their introduction in 1997, contributes to a robust confidence level in the stability of used-HEV valuations. This long track record reduces the risk of abrupt depreciation shocks that could undermine buyer confidence and financing terms for HEV platforms. It also makes it easier for automotive manufacturers to forecast residual values and plan production and refurbishment cycles with a high degree of confidence. The combination of a proven depreciation trajectory and solid payback economics strengthens the case for continued HEV deployment during the transition period, particularly in markets where charging infrastructure remains imperfect or where consumer concerns about EV range persist.
On the other hand, the analysis recognizes that the HEV advantage is not guaranteed to persist in perpetuity. Should EVs become markedly less expensive by 2030 due to breakthroughs in battery technology and manufacturing scale, the comparative appeal of HEVs could wane. In such a scenario, the region of greatest risk for HEV leadership would be the erosion of the economic rationale that has underpinned their widespread adoption. The potential for lower EV costs to shift consumer attention back toward fully electric propulsion would reframe competitive dynamics, potentially favoring automakers that produce compelling BEV offerings at affordable price points. This pivot would require automakers to recalibrate investment priorities, accelerate BEV production, and ensure that supply chains remain agile enough to deliver high-quality, cost-effective BEVs to diverse markets.
In sum, HEVs currently stand as a crucial element of the broader market ecosystem during the current transitional period. They deliver meaningful short- and medium-term CO2 reductions, provide an accessible entry point for a broader segment of consumers, and help diversify revenue streams for automakers as they invest in more advanced BEV platforms. The question for stakeholders will be whether the BEV path will remain the primary long-term strategy or whether hybrids will maintain a sustained, multi-decade presence in the global vehicle fleet. The answer will hinge on evolving economics, policy support, charging infrastructure development, and the rate at which BEV price parity with ICE vehicles and hybrids is achieved across multiple regions. Investors should monitor these dynamics closely, as they will shape both the risk-reward profile and the strategic choices of automakers moving forward.
China’s role: capacity, competition, and a shifting global supply chain
China’s role in the global EV market remains singular in its scale and influence. The country currently operates with excess production capacity in the ballpark of more than 5 million vehicles, underscoring its ambition to expand domestic EV uptake while exporting a growing share of vehicles to overseas markets. A combination of domestic production efficiencies, cost advantages, and a concentrated supply chain—especially in the battery segment—positions Chinese manufacturers as leaders in several key EV components, with lithium iron phosphate (LFP) batteries forming a core competitive edge in many cases. This advantage underpins the broader Chinese capacity to price-competitively while maintaining robust margins, reinforcing the country’s pivotal status in the global EV ecosystem.
From a policy perspective, a number of governments—most notably the United States, members of the European Union, and India—are pursuing protective measures designed to limit foreign EVs entering their supply chains. These measures aim to preserve domestic production capacity, safeguard critical technologies, and reduce exposure to external risk factors. In this environment, China’s ongoing export push faces structural headwinds as external markets implement screening mechanisms and stricter localization standards. The broader implication is that the external demand for Chinese-made EVs may remain constrained in certain regions, even as global demand continues to grow. The dynamics create a nuanced landscape where Chinese automakers must navigate not only domestic growth but also the regulatory and competitive pressures of international markets.
Given that demand outside China remains strongly concentrated in a few regions—the United States, Europe, and parts of Asia—the surplus capacity in China does not simply evaporate. Rather, it reshapes competitive dynamics, intensifying competition among manufacturers in a way that rewards efficiency, scale, and the ability to offer compelling total cost of ownership. The persistent surplus capacity incentivizes Chinese players to pursue strategic wins through exports, domestic optimization, and continuous improvement across the value chain. It also underscores the importance of market diversification, product breadth, and the ability to tailor offerings to the needs and preferences of different consumer segments across regions.
Chinese EV manufacturers, leveraging their scale and cost advantages, pose a notable threat to established brands in other markets—especially in Southeast Asia, where Chinese EVs have already secured a foothold as a major export destination since 2023. The competitive pressure from Chinese producers in these markets is prompting traditional automakers to accelerate localization, innovate faster in battery technology, and pursue more aggressive pricing and financing strategies to defend or expand their presence. For investors, this dynamic creates an opportunity to identify winners and losers within the Chinese EV sector and to monitor how policy shifts in major import markets influence the trajectory of Chinese-based platforms. Continued attention to the evolving policy framework, exchange rate movements, and regional demand patterns will be essential for assessing the relative competitiveness of different manufacturers and business models within a rapidly changing global landscape.
China’s impact on the global EV market extends beyond pure volume and price considerations. It also shapes the strategic decisions of Japanese brands and other regional incumbents that have historically enjoyed strong footholds in Southeast Asia and other export corridors. The surge of Chinese EVs into these markets has created heightened competitive pressure for non-Chinese players, highlighting the need for differentiating factors such as battery technology, vehicle performance, aftersales support, and overall lifecycle costs. In response, automakers outside China may intensify collaborations with domestic suppliers, accelerate their own battery and powertrain development programs, and rethink their regional manufacturing footprints to preserve competitiveness. This international dynamic underscores the importance of robust supply chain resilience, diversified sourcing strategies, and proactive portfolio optimization as the market evolves toward higher EV penetration.
The policy and geopolitical backdrop
The policy environment surrounding EVs remains highly consequential for China’s ability to capture global demand. While the country benefits from a tightly integrated EV supply chain and cost advantages, external policies that restrict imports or favor domestic production can materially affect where and how Chinese EVs compete abroad. The balance between export-led growth and domestic policy support will influence the trajectory of China’s market share in key regions, particularly as the global economy absorbs the effects of elevated capital costs, infrastructure gaps, and shifting consumer preferences. The geopolitical dimension adds another layer of complexity, as tensions among major economies can impact trade flows, technology transfer, and collaborative innovation in critical domains like batteries, semiconductors, and charging ecosystems. Stakeholders must remain vigilant about these cross-cutting forces as they position themselves in a market that is simultaneously global in scale and highly localized in its regulatory contours.
What this means for investors: opportunities and strategic priorities
Now is the moment for upfront investment in vertical integration. The strategic logic is straightforward: as demand ultimately shifts toward EVs to achieve carbon neutrality, automakers will need to accelerate their development of core EV technologies—batteries, power semiconductors, motors, and other essential components. Building in-house capabilities in these areas can yield advantages in cost control, supply security, and speed-to-market, all of which are critical in a capital-intensive transition. Investors should look for automakers that simultaneously demonstrate balance-sheet strength and the ability to generate free cash flow from their existing operations. This combination is essential to supporting sustained investment in EV programs while maintaining financial stability through the transition.
The team’s current stance is bullish on automakers that possess robust balance sheets and diversified lineups that include multiple powertrains, such as HEVs. These characteristics are seen as enabling more disciplined capital allocation and greater resilience in the face of near-term demand fluctuations. Companies with strong cash flow generation and prudent debt management are better positioned to weather potential downturns in EV sales and to fund critical investments in EV platforms and charging infrastructure.
Strategic priorities for portfolio builders
- Prioritize players with diversified powertrain portfolios: Automakers offering BEVs, HEVs, and PHEVs are better insulated against demand swings in any single segment. This diversification can help stabilize earnings and provide multiple levers for profitability as market dynamics evolve.
- Emphasize balance-sheet strength and free cash flow: Firms that can sustain high levels of cash flow from ongoing operations and maintain conservative debt levels will be better equipped to fund expansion, battery supply chain investments, and vertical integration initiatives without compromising financial stability.
- Focus on core EV technology ownership: Ownership or near-ownership of critical components—batteries, power electronics, and propulsion systems—can yield competitive advantages in cost, performance, and reliability, which are pivotal as the market scales.
- Consider the strategic importance of charging ecosystem investments: While not a direct corporate core, investments in charging infrastructure—whether through partnerships, network development, or platform interoperability—can have outsized effects on consumer adoption and market growth.
- Monitor policy and macro risk factors: The near-term outlook remains sensitive to policy support and regulatory developments. Investors should track subsidy regimes, tariff policies, and incentives that influence the economics of EV adoption in major markets.
The educational disclaimer and its implications for readers
The analysis acknowledges that this article is provided for educational purposes and does not constitute a recommendation from Goldman Sachs to the recipient. It clarifies that Goldman Sachs is not offering financial, economic, legal, investment, accounting, or tax advice in connection with this material, and disclaims responsibility for the accuracy or completeness of its statements. The cautious framing emphasizes that readers should conduct their own due diligence and consider a range of viewpoints when making investment decisions in the EV space. While the forward-looking aspects of the analysis highlight potential outcomes under various scenarios, they do not guarantee any particular result, and readers should treat the insights as one input among many in a comprehensive investment research process.
The practical takeaway for investors
The overall takeaway is that the EV transition will be characterized by phases of acceleration and consolidation, with hybrids helping to bridge gaps during periods when BEV demand faces headwinds. Investors are advised to focus on businesses that can sustain their strategic investments in core EV technologies while maintaining financial robustness. This combination will enable survival through near-term volatility and position for a stronger, longer-term shift toward electrified propulsion as technology costs come down and charging networks expand. The emphasis on vertical integration, diversified powertrain strategies, and disciplined capital allocation should guide the assessment of automaker investments as the market evolves toward greater electrification.
Final take: tying the threads together for a forward-looking view
The evolving EV landscape presents a nuanced picture. While global EV momentum has slowed in the near term, the longer-term trajectory remains favorable as the world advances toward carbon neutrality. The hybrid segment’s resilience, supported by favorable payback economics and established used-vehicle markets, helps mitigate risk and offers a pragmatic route through transitional dynamics. China’s substantial production capacity and strategic position in the battery and broader EV supply chain continue to shape competitive dynamics worldwide, while policy developments in the United States, Europe, and India will influence how quickly and aggressively certain markets embrace electrification. Against this backdrop, the call for prudent yet ambitious investment in automakers that demonstrate financial strength and a diversified powertrain strategy is clear: the path to EV leadership will favor those who can secure critical technologies, optimize capital deployment, and navigate a charging infrastructure landscape that remains a fundamental constraint to rapid adoption.
As the industry progresses, it will be essential to maintain a balanced view of risks and opportunities. The forecasts acknowledge the possibility of a year-over-year decline in EV sales in the near term under a bear scenario, but also highlight a robust base-case pathway that envisions meaningful growth in 2024 and beyond. This dual perspective reinforces the importance of scenario planning, flexible capital allocation, and a focus on profitability as the sector builds scale. Investors who embrace a comprehensive, multi-faceted approach—one that prioritizes core technology ownership, financial discipline, and strategic balance between BEV and hybrid platforms—will be well-positioned to benefit from the eventual normalization of the EV market and the broader shift toward sustainable mobility.
Conclusion
The electric vehicle market sits at a pivotal juncture, facing tangible near-term headwinds that could temper momentum while simultaneously offering substantial longer-term opportunities. Hybrids—HEVs and PHEVs—are stepping in to fill demand gaps created by higher EV costs, policy uncertainty, and charging infrastructure bottlenecks. The hybrid segment’s potential upside, together with favorable payback economics and a proven track record, makes it a meaningful part of the transition strategy for automakers and investors alike. China’s role as a hub of production capacity and battery materials, coupled with competitive export dynamics and a complex policy environment in major markets, further defines the competitive landscape and highlights the need for strategic resilience and diversification.
For investors, the clear takeaway is to prioritize automakers with strong balance sheets, diversified powertrain portfolios, and a credible plan for vertical integration into core EV technologies. Such firms are best positioned to convert near-term volatility into long-term gains as demand gradually moves toward EVs in the pursuit of carbon neutrality. The path requires disciplined capital allocation, proactive management of the charging ecosystem, and an unwavering focus on profitability while ramping up BEV and hybrid platforms. By staying attuned to market signals, policy developments, and technology advances, investors can identify the winners in a market that will continue to evolve rapidly over the coming years. This forward-looking approach aligns with the aim of accelerating the transition to electrified transportation while delivering sustainable returns in a rapidly changing energy and mobility landscape.
