In a surprising turn of events, US carmakers are putting a pause on their plans to expand their electric vehicle (EV) manufacturing capacity. This decision comes as consumers are buying battery-powered cars and trucks at a slower rate than initially expected.
Leading car manufacturers such as Ford, General Motors (GM), and Tesla have all decided to pump the brakes on their EV production capacity expansion in recent weeks. GM, for instance, has delayed the construction of electrified versions of its Chevrolet Silverado and GMC Sierra pick-up trucks at a Michigan plant until 2025, instead of the initially planned date of next year. Meanwhile, Tesla CEO Elon Musk announced that the company is studying macroeconomic conditions before proceeding “full tilt” to open a factory in Mexico.
Ford, which experienced a $1.3 billion loss in its electric vehicle division in the third quarter, is now taking a cautious approach. The company is waiting to invest around $12 billion in building out its EV production capacity. This includes cutting some production of the Mustang Mach-E and postponing the construction of one of the two joint-venture battery plants planned in Kentucky.
Ford’s Chief Financial Officer, John Lawler, addressed the situation, saying, “The narrative has taken over that EVs aren’t growing. They’re growing… It’s just growing at a slower pace than the industry, and quite frankly, we expected.” Lawler explained that softer demand means Ford currently needs less capacity in certain areas. As a result, the investment in additional capacity will be postponed until the demand requires it.
Interestingly, Tesla, originally founded as an EV company, has set ambitious goals for the future. The company aims to sell a staggering 20 million vehicles per year by 2030, indicating a more than tenfold increase in output. GM also has plans to sell 1 million EVs annually by the end of 2025, while Ford has set a target of 600,000 EVs by 2024.
Concerns over EV manufacturing have featured prominently in contract talks with the United Auto Workers union. The union recently went on strike against Ford, GM, and Stellantis, ultimately reaching a tentative deal with Ford this week. The anxieties stem from the fact that EV manufacturing requires fewer workers compared to traditional internal combustion cars.
Data from Cox Automotive, a leading research company, shows that a record 313,000 electric vehicles were sold in the US during the third quarter. Electric cars accounted for 7.9% of total industry sales in the same period, up from 6.1% a year ago. However, the rate of growth is slowing down. Year-on-year sales growth for the third quarters of 2021 and 2022 was approximately 75%. In comparison, this year’s increase was a cooler 50%, according to Kelley Blue Book.
Another factor causing concern is the increasing amount of time that electric vehicles spend sitting on dealership lots. Dealers are taking 88 days to sell their entire supply of electrified cars and trucks, compared to only 39 days in October 2022. In contrast, petrol-powered vehicles are selling in 60 days.
According to a survey conducted by Yahoo Finance/Ipsos, only one-third of US consumers say their next car or truck is likely to be electric. The most common concerns cited were charging infrastructure, driving range, and the expense of EVs compared to traditional combustion engine cars.
Pricing plays a significant role in consumer behavior as well. The Inflation Reduction Act implemented by the Biden administration aimed to stimulate domestic EV production. However, this act has narrowed the number of EVs eligible for a $7,500 tax credit to models that meet specific thresholds for assembly and component sourcing in the US. The tax credit is designed to make EVs more affordable, and starting next year, buyers will be able to receive it at the point of sale instead of waiting to file their tax returns.
Historically, electric vehicles have been more expensive than their traditional counterparts. Nonetheless, price cuts by Tesla earlier this year have had a positive impact, as Kelley Blue Book noted that the average transaction price for a new vehicle in recent months was around $47,900, while the average price for an electric vehicle stood at $50,700, down 22% from the previous year.
However, Tesla’s CEO, Elon Musk, pointed out that high interest rates are affecting demand for the company’s cars, as they result in larger monthly car payments for owners. As a result, the company delivered fewer vehicles in the third quarter than expected by Wall Street.
Currently, there are approximately 50 electric models available in the US market, with only 14 qualifying for the full tax credit. These vehicles are priced similarly, without any apparent distinction between mainstream or luxury, car or truck, according to Tyson Jominy, JD Power’s Vice President of Data and Analytics. Additionally, around 30 more electric models are scheduled to enter the market next year, leading to increased competition in the segment.
GM’s CEO, Mary Barra, recently stated that a more moderate pace of EV acceleration would enable the company to maintain strong pricing. Meanwhile, Ford executives expressed their belief that the premium commanded by EVs would gradually fade away. Lawler pointed out that there is currently tremendous pricing pressure in the electric vehicle market and that “going forward, it’s really a cost game in EVs.”
While the national rate of EV sales may be slowing down, it is crucial to note that the adoption of new technologies often experiences plateaus. Certain states, like Colorado, have not witnessed any slowdown in this regard. Nick Nigro, the founder of consultancy Atlas Public Policy, explains that slowing sales are not necessarily an indicator of a struggling market. Instead, the industry is emphasizing the need for greater consumer demand in order to ramp up production again.
In conclusion, the current pause in expanding EV manufacturing capacity by US carmakers has raised questions about the pace of consumer adoption. While sales growth has slowed down, record-breaking EV sales have still been achieved. Concerns such as charging infrastructure availability, driving range, and high EV prices persist among consumers. The industry is banking on increased demand in the near future to reignite expansion plans. Only time will tell if EVs will be able to win over mainstream consumers and drive a higher rate of adoption.