Although consumer demand for EVs hasn’t shown up in the best way executives had expected, sales of the vehicles are still predicted to extend in the years to come back.
Andrew Merry | Moment | Getty Images
DETROIT — The excitement 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 corporations 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 U.S. EV leader Tesla, which is estimated to have accounted for 55% of EV sales in the country in 2023, is bracing for what “could also be a notably lower” rate of growth, CEO Elon Musk said in late January.
The broad return to a more mixed offering of vehicles — with lineups of gas-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 brief 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 speed we thought it may need in ’21, ’22.”
Ford is significantly increasing its production and sales of hybrid models, which can assist ease the transition to electrified vehicles for drivers who might not be ready for fully electric models. They also can help firms meet tighter federal standards for carbon emissions.
GM, which was the primary 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, akin to Hyundai Motor, Kia, Toyota Motor and, potentially, Volkswagen, plan to supply different levels of electrification across their lineups.
“I feel the balanced approach is the easiest way,” VW of America CEO Pablo Di Si told CNBC last month, adding he is in discussions to bring hybrid vehicles to the U.S. The automaker currently sells hybrid vehicles in Europe, but none stateside.
A VW ID.BUZZ EV vehicle
Scott Mlyn | CNBC
“These technologies exist inside the VW group, whether it’s hybrids or plug-in hybrids,” he said. “I feel it’s only a matter of time until we bring it here.”
To be clear, although consumer demand for EVs hasn’t shown up in the best way executives had expected, sales of the vehicles are still predicted to extend in the years to come back.
U.S. EV sales were a record 1.2 million units last yr, representing 7.6% of the general national market, Cox Automotive estimates. That share is expected to extend to between 30% and 39% by the tip of the last decade, in line with 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 chairman of world vehicle forecasting at AutoForecast Solutions. “Moving on to less tech-savvy buyers will slow the EV market share growth over the subsequent few years.”
EV targets
As ESG investing — or investing geared toward environmental, social and governance principles — emerged in recent years and as Tesla rose from area of interest EV player to essentially the most valued automaker by market cap globally in 2020, the automotive industry largely took note and started plotting its path forward in EVs.
Automakers desired to emulate Tesla’s success, with some promising to exclusively offer EVs in the not-too-distant future.
Five-year stock comparison between Tesla and the “Big Three” automakers.
Amongst those targets: Stellantis-owned Alfa Romeo said its vehicle lineup can be all-electric by 2027. Jaguar Land Rover and Volvo said the identical but by 2030. GM said it will 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 goal to exclusively sell EVs and fuel-cell-powered vehicles in North America by 2040. Other, more specialized brands akin to 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. Firms are monitoring consumer adoption, global emissions regulations and EV charging infrastructure to find out future plans, officials have said.
Since first adopting an all-electric deadline, of sorts, in January 2021, GM CEO Mary Barra and other executives have more recently said customer demand will steer its efforts. They maintain that the 2035 goal stays its guiding plan. Cadillac now says it’s going to offer a full lineup of EVs, but not necessarily end production of all gas-powered models by 2030.
“We’ve the most effective of each worlds right away,” Cadillac Vice President John Roth said last month during an interview. “We’ll see where it heads here in the longer term, but we’re still committed to offering a full EV portfolio by the tip of the last decade.”
Ford, for its part, has never stated plans to exclusively offer EVs globally, nevertheless it did set targets to be all-electric in Europe by 2030, for 50% of its sales in North America to be electric by that very same yr and to realize an 8% EV profit margin by 2026. It has since backed off many targets and is cranking out hybrids — specifically trucks — together with EVs and plug-in hybrid electric vehicles for the U.S.
“We have at all times had a freedom-of-choice sort of approach,” Gjaja said. “A few of that was to guard ourselves against going too far in one direction, since the market right away, as we have seen, is very uncertain.”
Ford Motor Co., CEO Jim Farley gives the thumbs up sign before announcing Ford Motor will partner with Chinese-based, Amperex Technology, to construct an all-electric vehicle battery plant in Marshall, Michigan, during a press conference in Romulus, Michigan February 13, 2023.
Rebecca Cook | Reuters
CEO Oliver Blume during Porsche’s annual media event Tuesday said the German sports carmaker is “in a versatile position” regarding its vehicle manufacturing. He said the corporate is monitoring EV adoption and regulations but still has a goal of EVs making up 80% of its global sales by 2030.
“We’ve to maintain tabs on it … although the ramp-up is slower than planned last yr, we’re at all times in a position to reply flexibly,” he said, adding the corporate will “must see in 2026 and 2027” regarding its plans to significantly reduce spending on gas-powered vehicles.
The widespread shift in sentiment brings more automakers closer to the ethos of Toyota. Led by Chairman and former CEO Akio Toyoda, the world’s top-selling automaker has argued for years that a diversified lineup was the suitable strategy to satisfy all customer needs and reach its goal of being carbon-neutral by 2050.
The Japanese automaker is now expected to reap the advantages of its strategy, which incorporates hybrids, plug-in hybrids, EVs and hydrogen fuel cells.
“Toyota is almost completely absent from the [battery electric vehicle] market yet will gain more U.S. market share than another automotive company this yr. Let that sink in,” Morgan Stanley analyst Adam Jonas wrote in an investor note last week. “EVs could also be ‘the longer term’ but are struggling in the current. Hybrid sales are growing 5x faster than EVs in the US.”
What happened?
After significant interest from early EV adopters — bolstered by low rates of interest and Tesla’s rise — rates of interest skyrocketed, raw materials costs surged and the vehicles became far more expensive compared with their traditional counterparts.
It is also change into clear that the automotive industry and the Biden administration, which set its own goal for half of latest U.S. vehicle sales to be electric by 2030, overestimated the willingness of consumers to adopt a recent technology with out a reliable and prevalent charging infrastructure.
U.S. President Joe Biden gestures after driving a Hummer EV during a tour on the General Motors ‘Factory ZERO’ electric vehicle assembly plant in Detroit, Michigan, November 17, 2021.
Jonathan Ernst | Reuters
The adoption curve of EVs rapidly went through first adopters and a few “EV curious” consumers, but has been a tougher sell with mainstream buyers.
“The expectations for EV growth in the U.S. market have shifted from ‘rosy to reality’ as sales increase, but customer acceptance of EVs is not keeping pace,” Cox Automotive said in its 2024 forecast report.
The available inventory of EVs in the U.S., measured in days’ supply, has ballooned to 136 days, in line with Cox. That compares to the general U.S. industry at a 78 days’ supply of latest vehicles. The information excludes Tesla, Rivian and other automakers that sell on to consumers slightly than through franchised dealers.
“A couple of years ago, there have been wildly ambitious ideas of how EV sales would go and it gave the impression of no one was fascinated 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 cost cuts or discounts on several models akin to the Ford Mustang Mach-E, Tesla Model Y and, most recently, the Nissan Ariya.
Trisha Jung, senior director of Nissan U.S. EV strategy and transformation, said the cuts of as much as $6,000 will “improve the model’s competitiveness and ensure we’re delivering maximum value to our customers.”
What’s next?
Industry strategy with regard to EVs may shift much more drastically in the months ahead, depending on political pressures, including the finalization of U.S. 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 necessity to satisfy 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 greater than $14 billion in fines based on the fuel efficiencies of their current fleets, in line with the Alliance for Automotive Innovation, which represents the most important automakers operating in the U.S.
Cars make their way in traffic on a Los Angeles freeway on January 25, 2024.
Frederic J. Brown | AFP | Getty Images
A separate letter to federal regulators last yr by the American Automotive Policy Council estimated such regulations would cost GM $6.5 billion in fines and Jeep parent Stellantis $3 billion. The council, which represents the Detroit automakers, said Ford’s penalties would total about $1 billion.
Shifting strategy comes with its own costs: Automakers that invested heavily in EV infrastructure and have since modified course could face write-downs or higher capital must 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 satisfy the potential regulations, given the standards were crafted with a quick EV adoption in mind. However the automakers’ product mix might want to satisfy federal guidelines to stay a viable path forward.
Automakers’ fuel economies are based on a fleetwide mixture of vehicles sold. The higher fuel economy and fewer emissions a vehicle produces, the higher it is for the automaker’s overall rating.
“All of it is dependent upon what the ultimate regulation looks like,” said Matt Blunt, president of the American Automotive Policy Council.
Blunt said the trade group hopes the Biden administration listens to the industry’s concerns and “understands that a component of transitioning to electric vehicles is having an inexpensive fuel economy regulation in place.”
Biden is reportedly expected to dial back certain targets amid the slower-than-expected pace of EV adoption, which was a significant piece of his plans to combat climate change.
Looming in the gap, too, is the U.S. presidential election in November. If former President Donald Trump is reelected, he’s expected to cut 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 best way for a fair longer era of gas-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. Nevertheless, changes have already been made to the regulations and conservative groups akin to the European People’s Party have called for dropping the ban.