The U.S. automotive industry is navigating a new era for electric vehicles, marked by a significant dose of realism. After a period of fervent optimism in the early 2020s, the anticipated surge in EV demand has not materialized as strongly as projected. Automakers, having invested billions in capital and facing a cooling market, are now recalibrating their strategies. This pivot includes a renewed focus on profitable, gas-guzzling trucks and SUVs, with many executives acknowledging that regulatory mandates, rather than pure consumer desire, were the primary drivers of initial EV adoption.
“We have to make the investments to get to… the regulatory environment they set. We’ve seen a complete change in that. One way, 180 degrees. One way, 180 degrees back. That’s the world CEOs of automakers are living in,” stated Mary Barra, CEO and Chair of General Motors, at a recent New York Times DealBook conference. The coming year will be crucial in determining the trajectory of EVs in the U.S. as companies like GM, which have heavily committed to the segment, adjust their plans.
Barra indicated that it’s premature to definitively assess true consumer demand for EVs, especially following the expiration of federal tax credits of up to $7,500 in September. She anticipates that the market will find its natural equilibrium over the next six months. In response to these shifts, GM is reassessing its EV roadmap, already accounting for a $1.6 billion financial impact from its pullback in related investments, with further write-downs anticipated. Similarly, Ford Motor recently announced it expects to record approximately $19.5 billion in special charges stemming from a strategic restructuring and a reduction in its all-electric vehicle investments.
“We evaluated the market, and we made the call. We’re following customers to where the market is, not where people thought it was going to be,” Jim Farley, CEO of Ford, remarked in a recent interview.
U.S. EV sales reached their peak in September, just before the federal incentives concluded, capturing 10.3% of the new vehicle market, according to Cox Automotive data. However, preliminary estimates suggest this figure dropped to 5.2% in the fourth quarter.
“The long-term direction toward electrification remains clear: The future is electric. However, the timeline is being recalibrated,” commented Stephanie Valdez Streaty, Cox’s director of industry insights. “In the near term, automakers will continue to adjust their strategies and significantly expand hybrid offerings to meet consumers where they are today.”
Industry experts, including those at PwC, do not foresee the demise of EVs but rather a more grounded and realistic market outlook. PwC projects that the EV sector will gain momentum towards the end of the decade, with EVs expected to constitute 19% of the U.S. automotive market by 2030.
“As several of the U.S. [automakers] have announced, there’s some level of charges, and we got out in front of the customer demand and likely the infrastructure that’s otherwise available here in the U.S.,” C.J. Finn, U.S. automotive industry leader for PwC, shared.
**”What is the Normal State of EVs?”**
The projected market share for EVs by 2030 does not adequately justify the substantial billions of dollars invested by manufacturers in research, development, and production. Consequently, automakers are significantly revising their strategies to offer consumers a broader spectrum of choices, including all-electric vehicles, hybrids, and traditional internal combustion engine models.
“If you think back a few years ago, it was like, ‘If you’re not all-in on EV, you’re going to eventually go out of business. Your terminal value is zero,'” said Lenny LaRocca, a partner and U.S. automotive leader at KPMG. “Now I think that multi-propulsion technology approach is what’s panning out to work out well. We used to call it the ‘mosaic of powertrains.'”
These strategic adjustments are manifesting in various ways for companies that have already made significant EV investments. GM, a leading investor in the U.S. EV space, plans to continue offering its current electric models but has largely halted future expansion plans in the segment. Instead, some of its allocated production capacity will be redirected towards higher-volume manufacturing of large trucks and SUVs. The automaker has also indicated plans to introduce plug-in hybrid vehicles in the coming years, though specific details remain scarce.
Ford is sharpening its focus on hybrid vehicles, including plug-in variants, over pure EVs. The company has also opted to cancel the next generation of its large all-electric trucks in favor of developing smaller, more affordable EVs, while rebalancing its investments toward its core truck and SUV segments. Stellantis is also de-prioritizing EVs, including for its prominent Jeep brand, as it seeks to revitalize its U.S. sales performance.
“All of us are waiting to see what the demand is, how it’s going to continue to shake out,” Bob Broderdorf, CEO of Jeep, commented. “The [EV] industry will slide. It’s going to slow down. And then what is the normal state of EVs?”
Hyundai, which has also invested billions in electric vehicles, is adopting a more nuanced approach. Similar to GM, it intends to maintain its current EV offerings while also planning for new models. Concurrently, like Ford, Hyundai is increasing its emphasis on hybrids and has allocated production at its new $7.6 billion plant in Georgia, which will also serve Kia vehicles.
Other manufacturers, including Honda, Nissan, Porsche, Volvo, and Jaguar, have either canceled or significantly scaled back their previously ambitious EV plans. GM, too, has backtracked on its commitment to offer only EVs by 2035, with several of its brands expected to transition away from that goal before the stipulated timeframe.
**The Tesla Effect**
A confluence of factors has shaped the current EV market landscape, encompassing industry dynamics and external influences such as pressure from Wall Street and fluctuating political policies from the Trump and Biden administrations.
“No doubt the policy had a big impact on customer demand. The net-net is the market’s changed,” Farley stated recently.
The initial enthusiasm for EVs was largely ignited by the ascent of Tesla. The company, which continues to dominate U.S. EV sales by a considerable margin, saw significant boosts in both sales and market valuation, fueled by Wall Street analysts at the beginning of the decade. This success prompted other automakers to pursue similar strategies, attempting to replicate Tesla’s achievements. However, many executives underestimated a crucial distinction: consumers were buying Teslas, not just any EV.
“Tesla wasn’t creating a battery-electric vehicle market. They created a market for the Tesla brand,” explained Stephanie Brinley, associate director in AutoIntelligence at S&P Global Mobility. Brinley characterizes Tesla vehicles as “tech-buys” – software-first products that happened to be EVs. The company’s proprietary charging network and its cultivation of a tech-savvy, loyal customer base, who often overlooked quality control and developmental issues, further solidified its unique market position.
This success spurred Wall Street’s search for the “next Tesla,” leading to an unsustainable proliferation of new EV companies. Between 2019 and 2022, nearly a dozen EV manufacturers went public, alongside numerous related businesses. Many of these ventures have since faced bankruptcy due to federal investigations, corporate scandals, and executive instability.
“The attention that Tesla got woke everyone else up. But now there’s competition, and there’s competition from trusted, known and respected brands,” Brinley added.
The widespread euphoria surrounding EVs began to dissipate as companies struggled to achieve profitability despite substantial spending, and as established “legacy” automakers entered the market, investing heavily in bringing initially unprofitable electric models to consumers. Hopes for profitable EV operations were further challenged by political shifts, including the reversal or rollback of many Biden administration policies supporting EV sales and production under former President Donald Trump.
The most significant impact came in September with the termination of federal incentives for EV purchases. “The end of federal incentives came to an abrupt stop at the end of Q3, driving a lot of demand and sales for the new and used market,” said Jeremy Robb, Cox’s interim chief economist. “Since then, we’ve seen the slowdown in both the pace of sales as well as the growth of new vehicle production. Next year will be pivotal for EVs.”
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