Carmakers take a second look at electric vehicle strategies

Detroit — This was the year the motor industry’s race towards an all-electric future took a detour.

Heading into 2023, carmakers were gearing up to invest $1.2-trillion by 2030 to move electric vehicles (EVs) from being niche products to mass-market models — many with batteries and software developed in-house, according to a Reuters analysis.

As the year closes, legacy carmakers as well as Tesla, Rivian and other EV start-ups are throttling back investments and reworking product strategies. Legacy carmakers are appealing to policymakers for more help to offset the high costs of the transition, on top of billions of dollars already pumped into EV subsidies.

Consumer demand for EVs is growing worldwide. But adoption is not happening as fast or as profitably as industry executives anticipated, especially in the US.

High interest rates have pushed many EVs out of reach for middle-income consumers. Lack of charging infrastructure is a deal-breaker for buyers used to topping up with hundreds of kilometres of petrol driving range in just a few minutes.

“EVs are going to be the future of the passenger automobile business,” said Jeff Parent, COO of AutoNation, a US car dealership chain. But because of consumer concerns about price and charging, he said, “the next three to four years, things are going to be bumpy”.

Industry CEOs are amplifying hedges on their goals of shifting to all-electric fleets by the middle of the next decade.

“We’ll adjust to where the customer is,” General Motors CEO Mary Barra told the Detroit Automotive Press Association earlier in December when asked if the company still aims to be all-electric by 2035.

Backtracking

Ford’s F-150 Lightning electric truck shows how bullish forecasts got corralled. Buoyed by enthusiastic early demand for the Lightning, Ford in August added a third work crew at its Rouge assembly complex in Dearborn, Michigan, to triple the production rate of the electric pickup truck to 150,000 vehicles a year.

But in October, Ford cancelled the third shift, conceding that demand for electric F-150s was not enough to sustain the planned production pace. About 700 workers were furloughed.

In China, Europe and the US, EV demand is still growing faster than demand for vehicles overall.

Global EV production is on track to triple by 2030 to 33.4-million vehicles, about a third of total production, according to AutoForecast Solutions. Much of that growth will happen in China, where government subsidies and a price war led by Chinese EV market leader BYD and Tesla are making EVs more affordable than combustion vehicles, according to an analysis by Jato Dynamics.

In North America, production of battery EVs could increase sixfold to nearly 7-million vehicles by 2030, according to AutoForecast Solutions. That is equivalent to roughly 40% of the projected US market — but well short of the Biden administration’s goals.

Lobbying

Industry executives are lobbying the Biden administration to back away from emissions rules that effectively require EVs to account for two-thirds of US new-vehicle sales by 2032.

Looking ahead, industry executives raise two concerns about the challenge of expanding the EV market beyond adventurous early adopters of technology: affordability and access to charging.

The slow pace of charging infrastructure development forced major legacy carmakers to cut deals in 2023 with Tesla to allow buyers of their EVs to use Tesla’s Supercharger network — a competitive coup for Tesla.

“The automakers’ capitulation to the [Tesla] standard is a clear signal that they are realising that demand is held back by fears on charging,” said Mark Wakefield, co-leader of consultancy AlixPartners’ automotive practice.

“Affordability” is industry code for convincing mainstream, middle-income consumers to pay enough for an EV to cover higher production costs and still yield a profit. For most legacy carmakers, that has so far proved impossible.

Even Tesla, which makes money on EVs, has been forced to cut prices to keep assembly lines running at full speed in China and the US.

“If our car cost the same as a [Toyota] RAV4, no-one would buy a RAV4 or, at least, they would be very unlikely to,” Tesla CEO Elon Musk told analysts in October. “Our car is still much more expensive than a RAV4.”

RAV4 models start at $28,475. A Tesla Model Y starts at $43,990, and until December 31 comes with $7,500 tax credits. Tesla has warned those credits could be reduced as tougher domestic content rules kick in.

Reuters