Reason Begins To Reassert Itself in EV Space

• EV-makers are adapting their EV strategies as they notice that despite record sales volumes, profits are lagging behind.
• Battery costs are still quite high, pushing the total price tag for an EV too high for most drivers.
• Ford is making big plans for the hybrid space, along with delaying big EV production target increases like every other carmaker.

During the latest financial reporting season, the car manufacturing industry did not have a lot of good news to report to their shareholders regarding their EV ventures. Sure, sales hit a record, but they were leading to no profits. In fact, GM and Ford kept losing money on every EV they produced.

It was a cold shower, and it had a sobering effect. Slowly but surely, carmakers are beginning to rearrange their priorities in the electric transport space, revising manufacturing targets and even sealing joint venture deals with Chinese EV makers. The revolution is over. It’s time to go the natural way, with evolution.

“What we saw in ’21 and ’22 was a temporary market spike where the demand for EVs really took off,” Marin Gjaja, chief operating officer for Ford’s EV unit, told CNBC in an interview. “It’s still growing but not nearly at the rate we thought it might have in ’21, ’22.”

Sales might never return to the rates seen in 2021 and 2022 as subsidies are being phased out in key markets such as Germany and, in the U.S., tied to certain local content requirements that would make ineligible EVs unaffordable for most of the population.

GM encountered this problem recently. It lost eligibility for federal EV incentives for 20,000 cars due to the sourcing of their materials. Per the IRA, battery materials must be sourced at home, but GM could not do that, so its 20,000 EVs turned out to be ineligible. The company had to offer its own incentive to make people buy them.

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On the other hand, Ford reported much stronger EV sales last month, suggesting not all is lost in that space. The company said its plug-in EV sales for the month were up 81% from a year ago, with hybrid sales up by 32%. Compared to these, the uptick in internal combustion engine cars was really modest, at 7.5%. The twist: ICE cars constituted the great majority of vehicles Ford sold in February. They accounted for 89.5% of all sales, with EVs and hybrids making up the remainder.

There is clearly an interest in EVs, limited as it is. Last year’s record sales provided quite a clear sign that subsidies could make EVs more attractive for drivers but they could not enable them to displace the internal combustion engine, not without a serious reworking of market rules.

Carmakers are naturally the most acutely aware of this, so they are taking steps to position themselves better in a market that refuses to let go of market rules. Ford, for instance, is making big plans for the hybrid space, along with delaying big EV production target increases like every other carmaker.

Aston Martin, the luxury brand, has thrown in the towel for now, delaying its entry into the EV market to 2026. The company’s chief executive admitted earlier this month that drivers simply don’t want EVs, at least in the space where Aston Martin shines. What drivers want, Lawrence Stroll told The Telegraph, was “the sports car smell, feel and noise”.

European carmakers, for the most part, adjusted their production targets downwards, meanwhile, Stellantis made an original move. It tapped a Chinese company as partner in the world of electrified transport. Earlier this month, the owner of Jeep, Dodge, and Chrysler, inked a deal with Chinese EV maker Leapmotor to manufacture its cars outside China, including in North America.

Stellantis bought a 21% interest in the Chinese company last year, gaining access to the world’s largest—and most competitive EV market. But the acquisition also opened the door to a joint venture, in which Stellantis holds 51%, and which is its vehicle to producing low-cost Chinese EVs outside of China and sell them in other markets.

Carmakers, then, seem to be adjusting to the reality that has been knocking on their door for at least a year. Yes, EV sales hit records, but that was a surge from a really low starting point, and it was a surge that was never going to last, not in the current industry context. None of the major challenges in EVs has been overcome yet, and new challeneges are emerging.

Battery costs are still quite high, pushing the total price tag for an EV too high for most drivers, too, even with incentives. The charging infrastructure is not expanding anywhere near fast enough to motivate more EV purchases, and on top of all that, insurance premiums are rising as insurers get scarred by EV writeoffs due to the impossibility of repairing the battery or even diagnosing a potential problem with it following a crash.

“The market was never going to make a smooth transition to EVs, and we expected a slowdown in this shift as early adopters were satisfied,” said Sam Fiorani, vice president of global vehicle forecasting at AutoForecast Solutions, told CNBC. “Moving on to less tech-savvy buyers will slow the EV market share growth over the next few years.”

Those bombastic EV sales forecasts that saw millions upon millions of sales every year until everyone started driving EVs were never going to materialize. It is a positive thing that the industry has realized this sooner rather than later. Evolution may be slower, but it gets you there in the end.

By Irina Slav for Oilprice.com

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