As we approach the final weeks of 2023, with the global pandemic now solidly behind us, the fortunes of the auto industry are shifting.
Electric vehicles are a primary reason for auto industry headwinds, with growing concern about EV demand and the eroding profit margins at automakers and dealerships.
A Swift Reversal in the EV Market
Two years ago, legacy car makers began placing big bets on EV development partly due to Wall Street’s infatuation with EV manufacturers like Tesla, who were rewarded with huge valuations. EV sales have continued to grow from 1% of total industry volume in 2019 to nearly 8% this year, according to estimates from Kelley Blue Book.
But the looming question on everyone’s mind is whether the market has reached peak demand for the current EV offerings. Cox Automotive’s latest inventory tracking shows EV days’ supply is near 100 days’ supply vs. 67 for the wider industry. Reluctant consumers remain concerned about charging infrastructure, range, and future resale values.
As a result of this sluggish demand, incentives continue to climb, reaching close to 10% of transaction price in September before retreating some in October, according to Kelley Blue Book. The comparable overall industry level remains below 5%. Tesla, the EV leader in the U.S. market by far, has been hyper-aggressive in dropping prices on their popular models by an average of $16,687 during the past 12 months. And those price cuts are pressuring the entire industry. Ford reported an EBITA loss of $1.3 billion in Q3 in its Model-e business, demonstrating how challenging this transition will be. And Mercedes Benz’s CFO recently commented, “I can hardly imagine the current status quo is fully sustainable for anybody.”
These shifting winds are causing OEMs to reshape their EV ambitions. GM announced it is abandoning its goal of producing 400,000 EVs by mid-2024. They are also postponing a $4 billion EV truck plant project in Michigan. Ford recently announced they are postponing $12 billion worth of planned EV investment due to “tremendous downward pressure on prices.” Honda just announced they are canceling their partnership with GM to produce a range of less expensive EVs. And lastly, VW just postponed their flagship Trinity EV plant development in Germany to 2030.
Jack Hollis, the head of sales at Toyota, said, “It took us 25 years, and we (the industry) are still not at 10% hybrid; the consumer is not demanding EVs at that level.” Toyota continues to advocate for a broad range of fuel types to meet environmental and consumer needs instead of solely focusing on EVs.
Bottom line: The EV transition is going to be a drag on the U.S. auto market for years to come.
Brian Finkelmeyer is the senior director of new car solutions at Cox Automotive.