Eurozone Flash PMI: Business activity decreases for first time in seven months

The seasonally adjusted HCOB Flash Eurozone Composite PMI Output Index, based on approximately 85% of usual survey responses and compiled by S&P Global, dropped below the 50.0 no-change mark for the first time in seven months during September, posting 48.9 from a reading of 51.0 in August. Latest data signalled a modest reduction in eurozone business activity during the month.

The downturn in eurozone manufacturing output extended to an eighteenth consecutive month, and showed signs of deepening in September. Production decreased at a marked pace that was the sharpest in 2024 so far. Reductions in manufacturing output were particularly marked in Germany and France, but the rest of the eurozone also posted a fall.

Meanwhile, the eurozone service sector managed to eke out some growth in activity at the end of the third quarter, but the latest expansion was only marginal and the slowest since February. A renewed decline in France contrasted with continued services growth in Germany and the rest of the euro area.

Eurozone business activity fell on the back of a fourth consecutive monthly reduction in new business. Moreover, the latest decline in new orders was solid and the most pronounced since the opening month of the year. Services new business decreased for the first time in seven months, alongside a further contraction of manufacturing new orders. In fact, the rate of decline in manufacturing quickened for the fourth successive month.

New export orders (including intra-eurozone trade) also fell in September, extending the current sequence of reduction to 31 months. Furthermore, the latest contraction was the sharpest in the year-to-date.

Business confidence continued to wane, dropping for the fourth consecutive month to the lowest since November last year. Sentiment was also weaker than the series average. Sentiment was particularly lacking among manufacturers. Euro area confidence was dragged down by a pessimistic outlook in Germany, where companies predicted a fall in output for the first time in a year. Sentiment ticked slightly higher in both France and the rest of the eurozone.

Alongside falling new orders, companies also signalled a further decrease in backlogs of work at the end of the third quarter. Outstanding business has fallen continuously throughout the past year-and-a-half, with the latest reduction the fastest in ten months.

Steeper reductions in new orders and backlogs of work, plus waning confidence in the outlook led companies to reduce employment again in September, the second month running in which this has been the case. Although modest, the drop in staffing levels was the sharpest since December 2020. Manufacturing workforce numbers were scaled back to the greatest extent in just over four years. Meanwhile, services employment continued to rise, but at the slowest pace since August 2023.

As well as cutting employment, eurozone manufacturers also reduced their purchasing activity and holdings of both inputs and finished products during the month. In fact, all three fell more quickly in September than in August. Suppliers’ delivery times shortened for the eighth consecutive month, but only marginally and to the least extent in the current sequence of quickening deliveries.

A weakening demand environment contributed to softer inflationary pressures in September. The rate of input cost inflation slowed sharply, easing to the lowest since November 2020. Manufacturing input prices decreased for the first time in four months, while service providers posted the weakest rise in their cost burdens for three-and-a-half years.

In turn, output prices increased only slightly, and to the least extent since February 2021 when the current sequence of inflation began. A slower rise in services charges was accompanied by a renewed fall in manufacturing selling prices. Slower increases in output prices were seen in Germany and the rest of the eurozone, while charges in France decreased for the first time since February 2021.

Euro zone exporters facing persistent competitiveness struggle, ECB says

Euro zone exporters will continue to struggle for years to come as high energy cost and poor labour productivity growth will weigh on their competitiveness, a European Central Bank study argued on Monday.

Euro area exporters have steadily lost global market share and their difficulties have become even more acute in recent years as surging energy costs ate deep into margins and dragged much of the bloc’s vast industrial sector deep into recession. (…)

Productivity growth in the broader euro zone economy has trailed the United States, and the gap between the two economic blocs has even widened in recent years.

Between 1995 and 2019, U.S. labour productivity per hour worked increased by about 50% or 2.1% a year while in the euro zone it only rose by 28% or 1% a year.

This gap has widened sharply since the start of the pandemic, initially due to job retention schemes, then to the energy price shock, primarily caused by Russia’s war.

Between the fourth quarter of 2019 and the second quarter of 2024, productivity in the euro zone rose just 0.9% while in the U.S. it increased by 6.7%, the ECB added. (…)

The Fed Is Flying Blind. Investors Don’t Seem to Care.

(…) Just this year the median policymaker’s rate forecast has swung from predicting three (normal quarter-point) rate cuts by the end of this year, down to one in its dot plot three months ago, and now back up to four, including last week’s double. Why should investors think this particular prediction is the right one?

It’s even worse if you try to look further out. Much of what matters when assessing how the Fed will react to any given economic development is where it thinks rates will eventually land in a balanced economy—what economists call the neutral rate, or r-star. Unfortunately policymakers are showing their confusion about where it lies, with their estimates ranging from 2.4% to 3.8%, and much higher than before the pandemic. (…)

What Mr. Powell and other policymakers say they expect to do usually has a strong influence on bond yields and so borrowing costs, affecting the economy. If they get their communications right, the market will do their work for them—meaning the Fed itself may end up not needing to do what it planned.

That isn’t the case this time, though. Investors have decided that the Fed will be much more dovish than it says. And the effect is to push down the cost of short-term borrowing as traders anticipate lower rates, while pushing up the cost of longer-term borrowing as investors prepare for the resulting stronger economy to pressure inflation. (…)

Meanwhile, as I expected a few weeks back, surprises are about to turn positive. The bond market should take note as Ed Yardeni shows:

Friday we get the Personal Income and Outlays report, likely to confirm strong consumer demand in both goods and services. Nominal expenditures probably rose 4.5-5.0% YoY in August as labor income jumped 0.8% MoM last month and is up 4.6% annualized in the last 3 months against a 1.7% advance in the core PCE. Average gasoline prices are down 17% YoY and 14% since their spring peak, freeing much disposable income.

EARNINGS WATCH

JP Morgan Asset Management shows the effect of margins in 2024 earnings growth amid rather slow revenue gains.

But JPM must be seeing quite a slowdown in the seconds half. Consensus revenue growth is +4.6% in 2024. Q1 and Q2 were up 3.9% and 5.5% respectively. Analysts expect higher margins in 2025 which would take them above trend.

Goldman reckons that “slowing labor cost growth bodes well for corporate profit margins. S&P 500 EBIT margins typically expand when prices charged outpace labor costs. While core PCE inflation has slowed, US unit labor costs rose by only 0.3% year/year vs. 2Q 2023. These trends support our forecast for modest profit margin expansion in 2025.”

Core PCE inflation is at 2.6% vs ULC at 0.3%.

Here’s the relationship between economy-wide profit margins and relative growth of selling prices vs ULC:

But the relationship between growth in selling prices and ULC has strong mean-reverting characteristics, the differential oscillating between –2.5% and +2.5%. We are at +2.3% and it only gets higher post recessions. The odds suggest more limited margin expansion, if any, going forward.

That’s not what analysts are currently seeing in their crystal balls:

If slow cost inflation persists thanks to strong productivity gains, inflation could (should?) recede further, perhaps below the Fed’s 2.0% target. That would make the current +5.9% revenue growth forecast for 2025 challenging, not to mention the expected 15.2% jump in EPS.

FYI, from JPMAM:

This next chart on manufacturing wages shows the cost challenge U.S. manufacturers face when deciding on reshoring:

(Apollo Management)

MAGA ain’t happening just yet judging by manufacturing production (black) and employment. The mystery is the relentless above average growth in manufacturing unit labor costs… But can MAGA happen with such a high, and still rising, cost base? Just asking.

AI CORNER: Power Play

While David and I seeked AI/LLMs investment opportunities, one of our main findings is that the world will be hard pressed to supply the amount of energy needed to feed data centers over the next 10 years.

These excerpts from the Electric Power Research Institute May 2024 white paper provide the basic understanding of the challenges (my emphasis):

• In the United States, powering data centers, providing clean energy for manufacturing, supporting industrial onshoring, and electrifying transportation are driving renewed electric load growth. Clusters of new, large point loads are testing the ability of electric companies to keep pace.

• AI models are typically much more energy-intensive than the data retrieval, streaming, and communications applications that drove data center growth over the past two decades. At 2.9 watt-hours per ChatGPT request, AI queries are estimated to require 10x the electricity of traditional Google queries, which use about 0.3 watt-hours each; and emerging, computation-intensive capabilities such as image, audio, and video generation have no precedent.

• Data centers grow to consume 4.6% to 9.1% of U.S. electricity generation annually by 2030 versus an estimated 4% today.
• While the national-level growth estimates are significant, it is even more striking to consider the geographic concentration of the industry and the local challenges this growth can create. Today, fifteen states account for 80% of the national data center load, with data centers estimated to comprise a quarter of Virginia’s electric load in 2023. Concentration of demand is also evident globally, with data centers projected to make up almost one-third of Ireland’s total electricity demand by 2026.
• With the shift to cloud computing and AI, new data centers are growing in size. It is not unusual to see new centers being built with capacities from 100 to 1000 megawatts—roughly equivalent to the load from 80,000 to 800,000 homes. Connection lead times of one to two years, demands for highly reliable power, and requests for power from new, non-emitting generation sources can create local and regional electric supply challenges.

Data centers’ worldwide electricity use in 2022 totaled 300 million megawatt-hours (MMWh), or 1.2% of all load, a 45% increase from 2015. In the United States in 2023, data centers accounted for about 4% of total electricity consumption or 150 MMWh, equivalent to the average annual consumption of 14 million households. (…)

The map depicts the projected data center share of state electricity demand in 2030, calculated by applying the annual U.S. data center growth rates (averaged across the four scenarios) to project state-level data center loads and assuming other loads grow at 1% annually. The potential for a rapidly rising share of data center power demand in many states accentuates the need for customized energy strategies that align with the specific demands and infrastructure capabilities of each state’s grid.

State-level projections also underscore the critical need for innovation in energy management and the optimization of localized infrastructure to accommodate the rising energy demands associated with expanding data center workloads. (…)

As digital services proliferate and demand for computational power intensifies, scalable clean energy supplies are important to avoid increases in greenhouse gas emissions. Corporate commitments to acquire carbon-free electricity on an annual or hourly-matched basis are emerging and can play a significant role in reducing data center emissions impacts. These include:

• Clean electricity procurement from the grid and clean onsite generation: Data center owners have been instrumental in driving the corporate shift towards contracting for renewable energy to provide their power needs. In 2021, (…) Moreover, a growing number of organizations are working towards 24/7 CFE, which entails matching their electricity demand with carbon-free sources in the same region on an hourly basis. This hourly matching will require flexible technologies such as batteries that can shift solar or wind output to times when they are needed as well as firm clean capacity such as nuclear, fossil plants with carbon capture and storage, or geothermal, that typically operate around the clock. (…)

• Cleaner onsite backup power systems: Backup power systems at most existing data centers typically operate for less than 100 hours annually when the grid or primary power supply are unavailable. Accordingly, they constitute only a small portion of a data center’s environmental footprint. Shifting from the most common backup technology, diesel generators, to lower-emitting alternatives, like battery energy storage systems (BESS) or cleaner fuels—such as renewable natural gas, biodiesel, or clean hydrogen or ammonia, especially when the latter are integrated with fuel cells—can reduce backup GHG emissions and, in some instances, allow more frequent operation of these resources, creating the potential for them to serve as a grid resource when/if needed.

• Clean onsite or nearby technologies such as nuclear generation or renewable generation coupled with long duration energy storage that can match the growing size of data centers: With currently proposed data centers reaching 1 GW or more at a single site, the scale of power demand is escalating rapidly. In the near term, uprating, relicensing, or restarting existing nuclear plants near data centers could provide one solution. (…)
Looking forward, small modular reactors (SMRs) offer a scalable power solution that can grow with the demands of a data center. (…)

In the United States, data center power demand growth, coupled with increasing electricity demands from EVs, heat pumps, electrification in industry, and the onshoring of manufacturing incentivized by the CHIPS Act, Inflation Reduction Act (IRA), and Infrastructure Investment and Jobs Act (IIJA), is placing both immediate and sustained pressure on the electric grid to accommodate new loads. (…)

Shifting the data center-grid relationship from the current “passive load” model to a collaborative “shared energy economy”— with grid resources powering data centers and data center backup resources contributing to grid reliability and flexibility— could not only help electric companies contend with the explosive growth of AI but also contribute to affordability and reliability for all electricity users.

This new paradigm of collaboration between data centers and electric companies, which transforms data centers from passive consumers to active participants in maintaining the grid, is crucial for ensuring electric companies are prepared for the explosive growth of AI. (…)

The lead time for constructing and bringing a large data center online is around two to three years, while adding new electric infrastructure (generation, transmission, substations) can take four or many more years. This highlights the need for better forecasting and decision tools to anticipate where and when data center connection requests may appear and characterizing the operational characteristics of that load, especially as the size of interconnection requests grow from hundreds of MW to thousands of MW. (…)

(GS)

More specifically, from our own research

• Energy demand is exploding particularly for clean energy such as electricity, wind, solar and nuclear.
• Goldman Sachs Research estimates that data center power demand will grow 160% by 2030. At present, data centers worldwide consume 1-2% of overall power, but this percentage will likely rise to 3-4% by the end of the decade. In the US and Europe, this increased demand will help drive the kind of electricity growth that hasn’t been seen in a generation. Data centers will use 8% of US power by 2030, compared with 3% in 2022 with a 60/40 split between gas and renewables in meeting new demand growth for this infrastructure.
• The Telegraph last week revealed that “the electricity grid in the West London cluster, home of the biggest collection of data centers outside of the U.S., is at full capacity and unable to connect any new sites.” As a result, 14 of the planned facilities are now on hold, with expansion-minded firms facing a multi-year delay. Access to the so-called Slough Availability Zone, the final site offering current data center connectivity, “is being [bid] on by every operator under the sun, including us,” one tech executive told the Telegraph. (ADG)
• In the U.S., the region (East Coast) that has the most expected load growth also has some of the country’s lowest renewables penetration, likely boosting natural gas demand.
• To keep up with Texas’ soaring energy needs, the state’s grid by 2030 will need to support 152 gigawatts of demand on peak days, almost double what it can currently handle, according to the Electric Reliability Council of Texas. (Bloomberg)
• Governor Abbott in early July said he’d seek to double the size of the Texas Energy Fund, to $10 billion. The program provides low-interest loans and grants for the construction of more natural gas plants. Developers have already expressed interest in applying for $39 billion in funding.
• Between 2023 and 2033, thanks to both the expansion of data centers and an acceleration of electrification, Europe’s power demand could grow by 40% and perhaps even 50%, according to Goldman Sachs Research. At the moment, around 15% of the world’s data centers are located in Europe. (In 2023, 44% of EU electricity was generated by renewables, compared with 21% in the U.S. WSJ)
• The U.S. own energy demand will create competition for natural gas between new electricity demands from data centers and the LNG exports Europe depends on. Factset reckons that “with limited ability to move gas from areas of supply to demand centers, the East Coast competes for the same gas in the Louisiana Gulf Coast that serves LNG exports. With the needs of both areas set to rise, the stage is set for competition between the needs of East Coast data centers and the U.S.’ LNG exports, which has become a core pillar of Europe’s supply.”
• TD Cowen projects that “75-100% of incremental U.S. data center load growth in the near to medium-term will be supported by natural gas”.
• GS analysts expect incremental data center power consumption in the US will drive around 3.3 billion cubic feet per day of new natural gas demand by 2030, which will require new pipeline capacity to be built.
• Utilities in the U.S. East Coast are calling for a combined buildout of 21 GW of new solar facilities over the next five years, which would double the region’s current capacity. If the pace of solar buildout lags, however, more gas will need to be imported into the region. (Factset)
• Recall that over 80% of solar panels in the world are produce in China.
• [Small modular nuclear reactors] won’t be much help on an industrial scale before well into the next decade. “For energy, from now to 2030 is very short-term type of planning,” he says. In the hunt for big blocks of power, “it’s very unlikely that you can solve for that in any other way without some element of gas power.”
• The stationary energy-storage market may be the biggest beneficiary. Crashing battery prices make the economics of adding large-scale energy storage much more attractive. Prices of turnkey energy storage systems are already down 43% from a year ago, and our team at BNEF is watching for that segment to soak up some of the additional supply. Overcapacity isn’t going anywhere anytime soon, but BNEF expects global stationary storage installations to rise to 155 GWh this year, up 61% from last year. (Bloomberg)

NextEra Energy’s (NEE) Q2 earnings presentation discussed the challenges and opportunities facing energy distributors. Lengthy but quite enlightening by this smartly managed company. You might even get an investment idea.

More good reads:

• How much electricity does AI consume?
• Power-Hungry Data Centers Are Gobbling Up Texas Amid AI Boom 
• Who Runs the Power Grid: Humans or Robots? Utilities have a long history of overestimating future energy demand, and regulators should be wary of approving rate hikes tied to the projected growth of AI and data centers.
• Electricity That Costs Nothing—or Even Less? It’s Happening More and More A surge in wind and solar power means many businesses and consumers around Europe can get paid for plugging in. The U.S. could be next.

US Worries Deepen as Adversaries Team Up to Challenge Dominance Tighter ties among Russia, China, Iran, North Korea alarm US

For months, the US has warned Iran not to send ballistic missiles to Russia and told China not to provide military components for Moscow’s war in Ukraine.

But Iran is now doing just what Washington said not to and China is pushing the line. Indeed, the US and its allies are increasingly worried by the speed and intensity with which the three, along with North Korea, are deepening ties to challenge American dominance despite facing some of the most sweeping sanctions the West has ever imposed, according to officials who asked not to be identified discussing matters that are not public. (…)

“US influence is waning, and it’s waning rapidly,” said Martin Kimani, former Kenyan ambassador to the UN and director of NYU’s Center on International Cooperation. “There are rising powers that want to assert themselves more within the multilateral space — from China to others — and the Global South increasingly has a voice.” (…)

More countries are applying to join a group that’s explicitly called for creating an alternative center of global influence, including rivals to the US dollar’s dominance. (…)

At the same time, domestic politics in the US and Europe is pulling capitals away from international commitments, as populist leaders pushing for more isolationist policies find growing support.

Moscow, meanwhile, is deepening relationships as it shares more sensitive military knowhow with Beijing, Tehran and Pyongyang in return for their war aid. That process has accelerated as the Kremlin’s invasion of Ukraine drags toward a fourth year.

“There is a perception in both China and Russia that the United States and the West are in inevitable decline,” said Andrea Kendall-Taylor, a former senior US intelligence official now at the Center for a New American Security. “Now they see the momentum moving in their favor and so they’re willing to lean in and take more risk in order to accelerate that decline.” (…)

A senior US official said sanctions, while not 100% effective, have complicated the adversaries’ efforts to cooperate, adding to the economic cost of defying Washington. And for China, the official said, deeper links between Russia and North Korea are likely to spur closer ties between the US and its allies in the region, something Beijing is unlikely to welcome.

China’s deep integration into the US-dominated global financial system and reliance on international trade may also limit how far it’s willing to go in defying the US. (…)

Ultimately, the US and its allies hope their cooperation, rooted in shared democratic values, can still carry weight around the world.

Russia and China’s alignment with North Korea and Iran “is of a completely profoundly different quality to the type of relationship that we have,” Richard Moore, head of Britain’s MI6 Secret Intelligence Service, said in early September, speaking of British collaboration with the US and Europe.

“The thing that’s driving it – the cooperation between Russia, China, Iran, and North Korea – is not based on shared values,” he said. “It’s on a sort of rather dark and more pragmatic basis.”

Question: does the U.S. has a foreign policy other than an isolationist economic policy?

ECONOMY WATCH

• Initial weekly unemployment claims fell 12,000 in the week ended September 14 to 219,000, much better than the 230k economists were expecting and unchanged from one year ago. Continuing claims also fell by 21,000 to 1.829 million in the week prior, up 2.1% YoY but down 1.0% from its mid-August peak. Prior to previous recessions, these indicators were deteriorating much more significantly.

• The Philly Fed’s Manufacturing PMI moved back into positive territory in September. That followed a spike in the New York Fed’s M-PMI. Ed Yardeni says that “Assuming the other three regional Fed surveys follow suit, this bodes well for September’s national ISM M-PMI. It suggests rate cuts will be an additive force to an already recovering goods-producing sector. Also of note, the Philly Fed’s employment index jumped from -5.7 to 10.7 this month. Meanwhile, the prices paid indexes in both the New York and Philly surveys are climbing again.” However, the new orders index fell 16 points to -1.5.

• The Conference Board Coincident Economic Index increased by 0.3% MoM in August to a new record high. “The CEI’s component indicators—payroll employment, personal income less transfer payments, manufacturing and trade sales, and industrial production—are included among the data used to determine recessions in the US. All components improved in August, with industrial production recovering the most after July’s decline. The CEI is highly correlated with S&P 500 forward earnings, which rose to a record high in August too.” (Ed Yardeni)

• Posted wage growth rose to 3.3% in August, according to the latest data from the Indeed Hiring Lab. This jibes with the stabilization in the Atlanta Fed Wage Growth Tracker between 4.5-5.0%. Let’s hope productivity growth remains strong.

Europe’s EV Sales Plunge Has Carmakers Seeking EU Relief

EV deliveries in the region’s biggest car market fell 69% during August, fueling a 36% drop across the region, the European Automobile Manufacturers’ Association said Thursday. The group urged the European Commission to take urgent relief measures ahead of 2025 fleet-emissions targets that could result in billions of euros in fines for carmakers that fail to meet them.

Europe’s auto industry has struggled with a drop in demand for EVs after governments pulled back financial incentives that had made the relatively expensive cars more affordable. With the battery-car market share shrinking to 14% in August — down from just over 15% last year — auto manufacturers are rethinking their strategies and timelines for shifting away from combustion engines.

The decline has been most pronounced in Germany, which is facing a spate of setbacks in its industrial core. Volkswagen AG, the continent’s biggest automaker, has scrapped a decades-old labor pact and is poised to close domestic factories in Germany for the first time due to lagging demand. BMW AG cut its full-year earnings guidance, partly citing sluggish EV sales. Elsewhere, chipmaker Intel Corp. has pushed back building a planned factory for which the country’s government had earmarked €10 billion ($11.1 billion) in subsidies.

The German economy may already be in recession, the Bundesbank said Thursday in a report. After shrinking slightly in the second quarter, output could stagnate or decline again in the third, according to the central bank. (…)

Across Europe, new-car registrations dropped 16.5% compared to a year ago to 755,717 million units last month with declines also in France and Italy. The UK was the only major market where EV sales rose, gaining 10.8%. (…)

McKinsey recently polled 15,034 individuals in France, Germany, Italy, and Norway:

• Of the car buyers in our survey who have not yet purchased an EV, 38 percent say their next vehicle will be electric. A little less than half of these potential buyers plan to buy a BEV, with the rest opting for plug-in hybrid electric vehicles (PHEVs).
• While almost 80 percent of European car buyers in our survey expect to get an EV in the future, 22 percent remain skeptical about these vehicles. Our survey suggests that the main reasons preventing skeptics from considering EVs involve high purchase prices, the inability to charge at home, and concern about real battery driving range—the actual driving range for a mix of trips and conditions, compared with a vehicle’s advertised cycle range based on the worldwide light-vehicle test procedure (WLTP).
• Among prospective buyers who do not yet own a BEV, the main concerns about EVs are slightly different from those that the EV skeptics have, especially home charging access being less of a concern. High purchase prices topped the list (37 percent), followed by insufficient battery driving range (36 percent), and battery lifetime (35 percent). Many respondents are also concerned about increases in electricity prices and availability of public charging infrastructure (28 percent for both). Overall, sustainability had a minor influence on purchase decisions.
• In our survey, consumers who would consider an EV but have not yet purchased one state that the driving range would need to be about 500 kilometers for them to switch from an internal combustion engine (ICE) vehicle to a fully electric BEV.
• In our survey, only 42 percent of existing BEV owners in Europe are satisfied or very satisfied with their car’s real driving range; for those who would consider switching back to ICE vehicles, this percentage fell to 30 percent. What’s more, most of the dissatisfied respondents indicate that they are likely to switch to an ICE vehicle, rather than search for an EV with a greater driving range.
• While the overall outlook for electrification is positive, our survey reveals that 19 percent of current EV owners in Europe say they are likely or very likely to switch back to a traditional combustion engine at their next purchase because of their current EV ownership experience. This is a reality check, but it must be considered in context. Globally, 29 percent of EV owners in our survey say they are very likely to switch back to an ICE vehicle at their next purchase, so Europeans are less likely to revert to traditional cars than people in other regions.
• Of the EV owners who are considering a switch back to ICE vehicles, 41 percent say that the cost of EV ownership is too high. (Their return to ICE vehicles could occur shortly, since they are closer to buying their next vehicle than other respondents, and 40 percent are planning to purchase a vehicle in 2024.) If they do, they may find that the residual value of their current EV is lower than expected and that demand for used EVs is relatively low compared with that for traditional cars.
• In our survey, 40 percent of current BEV owners in Europe state that the number of public EV charge points is insufficient. Only about 10 percent of BEV owners feel that the current charging infrastructure is ready to meet future demand; an additional 50 percent feel that it can meet current needs but believe that there will not be enough public charging stations if more EVs hit the road.
• Prospective buyers are increasingly considering non-European brands, and our survey shows that EV owners are broadening their considered set of brands for purchase. European brands such as BMW, Mercedes-Benz, Renault, and Volkswagen are still the most popular, with 51 percent of EV owners stating that they are likely to purchase from them. Southeastern Asian brands such as Hyundai, KIA, and Toyota were in second place with 39 percent, followed by American brands such as Cadillac, Rivian, and Tesla (30 percent) and Chinese brands such as BYD, Li Auto, NIO, and Xpeng (27 percent).
• Customers’ willingness to buy an emerging brand differs by country and segment. In the premium-brand segment, for instance, 33 percent of European respondents considering EVs state that they would be open to purchasing a Chinese brand in the future. Given the European Union’s recent decision to impose tariffs on imported EVs from China, it is still uncertain how successful such new EV brands will be in Europe.

• Compared with American brands and other Asian brands, Chinese OEMs have relatively low name recognition in Europe. In our survey, 55 to 80 percent of European respondents had never heard of them.
• Survey respondents tend to be skeptical about product quality and data security for new market entrant brands from China, although they do perceive them as offering good value for the money. The customers we interviewed at car clinics had similar concerns about Chinese brands, but after seeing the vehicles in person, they were also impressed by their innovative features and cutting-edge technologies, such as comfortable interiors, voice assistants’ conversational intelligence, and high-end multimedia offerings with advanced sound and displays.
• In our survey, about half of European respondents say that they would only consider purchasing a Chinese EV if its price was at least 15 percent below that of a similar domestic model. Roughly a quarter of European respondents say they would seek a price advantage of up to 10 percent, and only 25 percent would not require a price advantage.