Cooling electric car sales force Tesla, Ford, and GM to rethink investments
Tesla chief executive Elon Musk has said that his company has to make electric cars more affordable. Picture: Matt Rourke/AP
After years of pumping cash into the sizzling electric-vehicle (EV) market, Tesla and other major car makers are facing a new dilemma: What to do when demand chills.
While the battery-powered vehicle market is still expanding, the pace of growth has slowed considerably.
As a result, Tesla, the world’s electric vehicle leader, and legacy car makers that had been spending at breakneck speeds to build their electric car businesses, are now taking a more cautious approach to investments.
Companies have collectively committed about $100bn (€94bn) across North America to create electric cars that don’t just appeal to luxury buyers and early adopters, but to the mass market.
But high inflation and interest rates are making vehicle purchases difficult for everyday people, meaning it’s hard for electric vehicle makers to win their business.
“A large number of people are living pay-cheque to pay-cheque, and with a lot of debt, they have got credit card debt, mortgage debt,” Tesla chief executive Elon Musk said last month.
“We have to make our cars more affordable.”
Consider what US consumers are seeing. A Ford F-150 Lightning starts at about $50,000 (€46,620), before federal tax credits of $7,500 (€6,995). A base model petrol-powered version starts at less than $37,000 (€34,500).
General Motors’ Chevrolet Blazer starts at around $37,000, but the electric version costs a minimum $56,000 (€52,225) before tax credits.
The batteries that power electric vehicles are more expensive than internal combustion engines, and it will be at least another three years before these prices are comparable.
This makes it hard for even Tesla, the only US car maker with a profitable electric business, to make its vehicles cheaper.
It cut prices drastically this year, in some cases as much as 30%, pushing others to try to keep pace.
In September, the average price paid for an electric vehicle in the US was $50,683 (€47,265), down from $52,212 (€52,212) in August and much lower than the $65,000 companies charged a year ago.
Those discounts eat into companies’ bottom lines. Mr Musk said he may put off plans for a new $1bn plant in Mexico — a stark turnaround from its March investor day when he bragged about last year’s 50% growth rate.
GM has delayed plans to expand its electric pickup truck production at a plant in suburban Detroit.
That factory, located in Orion Township, was supposed to start making the electric version of the Chevrolet Silverado and GMC Sierra pickups next year. Now it won’t start until late 2025.
GM will make the two trucks alongside its electric Hummer at a plant in Detroit, but the company said it won’t expand production until it gets a better read on EV demand and makes changes to the truck that will lower manufacturing costs.
Ford Motor has already said it will delay $12bn (€11.2bn) of its planned $15bn (€14bn) in EV-related investments.
Chief financial officer John Lawler said last month the company is pushing back a second battery plant in Kentucky with South Korean partner SK On.
Ford also is reducing production of the electric Mustang Mach-E at a plant in Mexico that was expanded earlier this year.
Ford’s struggles in its nascent EV unit, known as Model e, resulted in an operating loss of $1.3bn (€1.2bn) in the last quarter and more than $4bn (€3.73bn) this year.
The car maker projects it will lose $4.5bn (€4.2bn) on EVs this year.
“While Ford and GM’s move to adjust production plans to lower demand and save capital are pragmatically positive for margins and free cash flow in the short-term, they also raise deeper concerns around their ability to make a successful transition to EV longer term,” Deutsche Bank said.
The slower pace of EV deliveries is also impacting a number of other global car makers, including Mercedes-Benz and Sweden’s Volvo , and rippling through the auto parts supply chain.
Lithium-ion battery maker LG Energy Solution chief financial officer Chang Sil Lee has lamented lower sales expectations next year.
To be sure, there’s not yet evidence for an actual market meltdown. Sales in the US are up almost 50% in the first nine months of the year over last year but the pace of growth is declining.
- Bloomberg
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