The buzz around electric vehicles is wearing off.
For years, the automotive industry has been in a state of EV euphoria. Automakers trotted out optimistic sales forecasts for electric models and announced ambitious targets for EV growth. Wall Street boosted valuations for legacy automakers and startup entrants alike, based in part on their visions for an EV future.
Now the hype is dwindling, and companies are again cheering consumer choice. Automakers from Ford Motor and General Motors to Mercedes-Benz, Volkswagen, Jaguar Land Rover and Aston Martin are scaling back or delaying their electric vehicle plans.
Even US EV leader Tesla, which is estimated to have accounted for 55 per cent of EV sales in the country in 2023, is bracing for what “may be a notably lower” rate of growth, chief executive Elon Musk said in late January.
A grim sales prediction from a key Tesla analyst on Wednesday was shocking. There will be zero growth in sales volumes for Tesla this year, Wells Fargo’s Colin Langan said. And in 2025, it’ll be worse yet: volumes will drop.
The company still trades at a multiple that is significantly higher than other mega-cap high-flyers, yet the pace of expansion in its revenue and profit have slowed markedly since last year.
The broad return to a more mixed offering of vehicles — with line-ups of petrol-powered vehicles alongside hybrids and fully-electric options — still assumes an all-electric future, eventually, but at a much slower pace of adoption than previously expected.
“What we saw in ’21 and ’22 was a temporary market spike where the demand for EVs really took off,” said Marin Gjaja, chief operating officer for Ford’s EV unit, during a recent interview with CNBC. “It’s still growing but not nearly at the rate we thought it might have in ’21, ’22.”
Ford is significantly increasing its production and sales of hybrid models, which can help ease the transition to electrified vehicles for drivers who may not be ready for fully electric models. They can also help companies meet tighter federal standards for carbon emissions.
GM, which was the first traditional automaker to go all in on EVs, plans to roll out plug-in hybrid electric vehicles for consumers alongside EVs and gas cars. Others, such as Hyundai Motor, Kia, Toyota Motor and, potentially, Volkswagen, plan to offer different levels of electrification across their lineups.
“I think the balanced approach is the best way,” VW of America chief executive Pablo Di Si told CNBC last month, adding he is in discussions to bring hybrid vehicles to the US. The automaker currently sells hybrid vehicles in Europe, but none stateside.
“These technologies exist within the VW group, whether it’s hybrids or plug-in hybrids,” he said. “I think it’s just a matter of time until we bring it here.”
To be clear, although consumer demand for EVs hasn’t shown up in the way executives had expected, sales of the vehicles are still predicted to increase in the years to come.
US EV sales were a record 1.2 million units last year, representing 7.6 per cent of the overall national market, Cox Automotive estimates. That share is expected to increase to between 30 per cent and 39 per cent by the end of the decade, according to analyst forecasts.
“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. “Moving on to less tech-savvy buyers will slow the EV market share growth over the next few years.”
Electric cars made up almost one in 10 new vehicles sold in Australia, according to data released last week, in the best result for the low-emission technology to date.
But the popularity of diesel utes also soared by 26 per cent during February, according to the Federal Chamber of Automotive Industries’ report, and made up two in every five vehicles sold.
EV targets
As ESG investing — or investing geared toward environmental, social and governance principles — emerged in recent years and as Tesla rose from niche EV player to the most valued automaker by market cap globally in 2020, the automotive industry largely took note and began plotting its path forward in EVs.
Automakers wanted to emulate Tesla’s success, with some promising to exclusively offer EVs in the not-too-distant future.
Among those targets: Stellantis-owned Alfa Romeo said its vehicle line-up would be all-electric by 2027. Jaguar Land Rover and Volvo said the same but by 2030. GM said it would offer only electric consumer vehicles by 2035, with its brands Buick and Cadillac aiming to exclusively offer EVs five years sooner. Honda Motor set its target to exclusively sell EVs and fuel-cell-powered vehicles in North America by 2040. Other, more specialised brands such as Lotus and Bentley have also announced EV-exclusive targets.
While none of those automakers has officially announced changes to its long-term goals, there’s been a notable shift in tone and messaging around their goals. Companies are monitoring consumer adoption, global emissions regulations and EV charging infrastructure to determine future plans, officials have said.
Since first adopting an all-electric deadline, of sorts, in January 2021, GM chief executive Mary Barra and other executives have more recently said customer demand will steer its efforts. They maintain that the 2035 goal remains its guiding plan. Cadillac now says it will offer a full line-up of EVs, but not necessarily end production of all petrol-powered models by 2030.
“We have the best of both worlds right now,” Cadillac vice-president John Roth said last month during an interview. “We’ll see where it heads here in the future, but we are still committed to offering a full EV portfolio by the end of the decade.”
Ford, for its part, has never stated plans to exclusively offer EVs globally, but it did set targets to be all-electric in Europe by 2030, for 50 per cent of its sales in North America to be electric by that same year and to achieve an 8 per cent EV profit margin by 2026. It has since backed off many targets and is cranking out hybrids — specifically trucks — along with EVs and plug-in hybrid electric vehicles for the U.S.
“We’ve always had a freedom-of-choice kind of approach,” Mr Gjaja said. “Some of that was to protect ourselves against going too far in one direction, because the market right now, as we’ve seen, is very uncertain.”
Chief executive Oliver Blume during Porsche’s annual media event Tuesday said the German sports carmaker is “in a flexible position” regarding its vehicle manufacturing. He said the company is monitoring EV adoption and regulations but still has a goal of EVs making up 80 per cent of its global sales by 2030.
“We have to keep tabs on it ... although the ramp-up is slower than planned last year, we are always in a position to respond flexibly,” he said, adding the company will “have to see in 2026 and 2027” regarding its plans to significantly reduce spending on petrol-powered vehicles.
The widespread shift in sentiment brings more automakers closer to the ethos of Toyota. Led by chairman and former chief executive Akio Toyoda, the world’s top-selling automaker has argued for years that a diversified line-up was the right strategy to meet all customer needs and reach its goal of being carbon-neutral by 2050.
The Japanese automaker is now expected to reap the benefits of its strategy, which includes hybrids, plug-in hybrids, EVs and hydrogen fuel cells.
“Toyota is almost completely absent from the [battery electric vehicle] market yet will gain more US market share than any other car company this year. Let that sink in,” Morgan Stanley analyst Adam Jonas wrote in an investor note last week. “EVs may be ‘the future’ but are struggling in the present. Hybrid sales are growing 5x faster than EVs in the US.”
What happened?
After significant interest from early EV adopters — bolstered by low interest rates and Tesla’s rise — interest rates skyrocketed, raw materials costs surged and the vehicles became much more expensive compared with their traditional counterparts.
It’s also become clear that the automotive industry and the Biden administration, which set its own target for half of new US vehicle sales to be electric by 2030, overestimated the willingness of consumers to adopt a new technology without a reliable and prevalent charging infrastructure.
The adoption curve of EVs rapidly went through first adopters and some “EV curious” consumers, but has been a tougher sell with mainstream buyers.
“The expectations for EV growth in the US market have shifted from ‘rosy to reality’ as sales increase, but customer acceptance of EVs isn’t keeping pace,” Cox Automotive said in its 2024 forecast report.
The available inventory of EVs in the US, measured in days’ supply, has ballooned to 136 days, according to Cox. That compares to the overall US industry at a 78 days’ supply of new vehicles. The data excludes Tesla, Rivian and other automakers that sell directly to consumers rather than through franchised dealers.
“A few years ago, there were wildly ambitious ideas of how EV sales would go and it seemed like nobody was thinking about bumps in this road,” said Michelle Krebs, an executive analyst at Cox. “Now they’re here, and so reality has set in.”
The slower adoption of EVs has led to price cuts or discounts on several models such as the Ford Mustang Mach-E, Tesla Model Y and, most recently, the Nissan Ariya.
Trisha Jung, senior director of Nissan US EV strategy and transformation, said the cuts of up to $US6000 ($9000) will “improve the model’s competitiveness and ensure we are delivering maximum value to our customers”.
What’s next?
Industry strategy with regard to EVs may shift even more drastically in the months ahead, depending on political pressures, including the finalisation of US Environmental Protection Agency fuel economy and emissions standards.
A driving force behind the rollout of EVs by traditional automakers, particularly the so-called Detroit Three, was the need to meet federal vehicle emissions and fuel economy requirements to avoid costly penalties.
Proposals currently under review by the Biden administration to hike fuel economy standards through 2032 could cost automakers more than $US14 billion in fines based on the fuel efficiencies of their current fleets, according to the Alliance for Automotive Innovation, which represents the largest automakers operating in the US.
A separate letter to federal regulators last year by the American Automotive Policy Council estimated such regulations would cost GM $US6.5b in fines and Jeep parent Stellantis $US3b. The council, which represents the Detroit automakers, said Ford’s penalties would total about $US1b.
Shifting strategy comes with its own costs: Automakers that invested heavily in EV infrastructure and have since changed course could face write-downs or higher capital needs to shore up different production lines. But without consumer sales, they’re left with little option.
It’s unclear how much hybrids and plug-in hybrids would help automakers to meet the potential regulations, given the standards were crafted with a fast EV adoption in mind. But the automakers’ product mix will need to satisfy federal guidelines to remain a viable path forward.
Automakers’ fuel economies are based on a fleetwide mix of vehicles sold. The better fuel economy and fewer emissions a vehicle produces, the better it is for the automaker’s overall score.
“It all depends on what the final regulation looks like,” said Matt Blunt, president of the American Automotive Policy Council.
Mr Blunt said the trade group hopes the Biden administration listens to the industry’s concerns and “understands that a part of transitioning to electric vehicles is having a reasonable fuel economy regulation in place.”
President Joe Biden is reportedly expected to dial back certain targets amid the slower-than-expected pace of EV adoption, which was a major piece of his plans to combat climate change.
Looming in the distance, too, is the US presidential election in November. If former president Donald Trump is re-elected, he’s expected to scale back or remove the fuel economy mandates, as he did during his first term in office.
A reversal of those standards come January could pave the way for an even longer era of petrol-powered and hybrid models.
Automakers operating in Europe face stricter governmental EV regulations, which currently aim to ban sales of traditional, fossil-fuel vehicles by 2035. However, changes have already been made to the regulations and conservative groups such as the European People’s Party have called for dropping the ban.
CNBC