- Major automobile companies are starting to back off of their ambitious electric vehicle (EV) production and spending targets, according to numerous reports.
- Renegotiated labor contracts, higher interest rates, questionable consumer demand, production costs and sticker prices appear to be driving the trend, which could jeopardize the ambitious plans of the Biden administration and the European Union to have EVs dominate roadways in the coming decades.
- “I can hardly imagine the current status quo is fully sustainable for everybody,” Harald Wilhelm, CFO of Mercedes-Benz, said on a recent call with analysts, according to Reuters.
Auto executives and their companies are starting to back off of ambitious electric vehicle (EV) targets, according to numerous reports.
Numerous major manufacturers are backing away from some key EV goals as labor unrest, softer consumer demand and a generally unfavorable economy have placed some of the most ambitious near-term spending and manufacturing targets out of reach. In the past week, General Motors (GM), Ford, Mercedes-Benz and Honda have all signaled, with words and actions, that the EV transition may not be financially sustainable at its current pace and trajectory, and Tesla, the rare manufacturer that currently turns a profit on each EV it sells, has not made it through recent weeks unscathed, either.
EVs are costing manufacturers considerable amounts of money, even though the Biden administration has spent billions of taxpayer dollars to subsidize their production while also regulating the market aggressively to induce a phase out of internal combustion engine vehicles. The European Union (EU) has also rolled out its own mandate for all new vehicles to be zero-emissions by 2035, according to Reuters, as well as allocated funds to subsidize the production and purchase of EVs, according to a separate Reuters report.
These developments are occurring at a time when consumer demand for EVs is slowing down dramatically, thanks in large part to high interest rates that make financing EVs less appealing to consumers, according to Reuters. Less than 20% of Americans consider themselves very or extremely likely to purchase an EV when they next look to buy a car, according to an April poll conducted by the Energy Policy Institute at the University of Chicago and the Associated Press-NORC Center for Public Affairs Research.
Mercedes-Benz CFO Harald Wilhelm called the market for EVs, which are more expensive to produce and purchase than internal combustion engine vehicles, a “pretty brutal space” on a third quarter earnings call with analysts, according to Reuters. “I can hardly imagine the current status quo is fully sustainable for everybody,” he reportedly said on the call.
Ford announced that it would postpone a $12 billion investment in a Kentucky battery plant on Thursday, according to The Verge, just one day after it reached a tentative agreement with the striking United Auto Workers (UAW) to end the weeks-long labor dispute. Despite the company’s own projections that it will lose about $4 billion on EVs this year alone and concerns regarding tepid consumer demand, it is still forging ahead with its longer-term EV production goals.
Cumulatively, the UAW strike cost the “Big Three” billions of dollars, and the tentative deals they have reached with the union could jack up sticker prices for yet-to-be-produced EVs as the companies pass on increased labor costs to consumers, according to Reuters.
GM recently announced that it has dropped a goal to produce 400,000 EVs by the middle of next year, citing profitability and demand concerns, though it is standing by its aim to be able to produce 1 million EVs by the end of 2025 and other longer-term targets, according to Axios. Honda and GM jointly announced that they are nixing their $5 billion plan to build a shared factory to try to make their vehicles more competitive with Tesla’s prices, according to Reuters.
Tesla is different from its competitors in that it exclusively produces EVs, meaning that it does not have commitments to altering its production systems to back away from in the same way that other major manufacturers do. However, the company’s stock price has fallen by 20% in recent weeks, according to Bloomberg News, and CEO Elon Musk has expressed his concerns that higher interest rates are dissuading consumers from buying his company’s EVs by driving up the cost of borrowing to finance purchases, according to Nasdaq.
The combination of companies backing away from major commitments and soft consumer demand could spell trouble for the Biden administration’s stated goal of having 50% of new car sales be EVs by 2030, as the next few years will be pivotal to building out the charging and manufacturing infrastructure needed to accommodate the reshaped car market of the future, according to CNBC.
Neither the White House nor any of the manufacturers mentioned this story responded immediately to requests for comment.
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