What to Make of the EV Market’s Topsy Turvy Year

If you take the transcripts of auto industry executives’ comments about their finances this month and read them all in one sitting (don’t do this, by the way), you would come away with a sense that the transition to electric vehicles is sputtering.

Ford said it is delaying billions of dollars of investment in battery plants to allow for more time for EV demand to grow; General Motors said it was abandoning its target to produce 400,000 EVs by mid-2024; and Tesla sought to lower sales and profit expectations of its long-awaited Cybertruck.

“A great product is not enough in the EV business anymore. We have to be totally competitive on cost,” said Ford CEO Jim Farley in a conference call last week.

I know from having covered the auto industry that the accumulation of discouraging news can have an amplifying effect that exceeds its actual significance. But I don’t want to downplay what may be serious issues about the pace and financial health of the EV market.

I reached out to three analysts to ask how they would explain our current moment. They agree on the big picture, but disagree on the extent to which this shows long-term problems with the transition to clean transportation.

To set the table, I would summarize the situation as one in which EV sales are continuing to rise, but the supply exceeds demand on some models and automakers are struggling to sell EVs at a profit.

“This is a crazy year,” Stephanie Brinley, an analyst for S&P Global Mobility.

She means this in several ways as it relates to auto sales. The industry is in a growth mode, having come through the post-Covid shortages of many parts. But it is struggling to deal with increases in many costs, including for borrowing money.

One result is that automakers are seeing a decrease in their profit margins, which adds to the pressure to cut costs.

This is not unusual in an industry used to volatility. The shift to EVs adds to uncertainty because automakers don’t know how quickly demand for the vehicles will increase, so they have to make educated guesses about ramping up production.

“It can be a bumpy ride the next few years, for sure,” she said. “Probably after 2030, probably after 2029, you should see it start to settle out a little bit.”

Those years will cover a period when EVs go from the margins of the market to the mainstream.

Karl Brauer, executive analyst for iSeeCars.com, was not surprised to see evidence of a slowing of automakers’ enthusiasm for EVs this month.

“The reason that we’re not all going to be driving EVs next week or next month, or maybe not for another decade, is that there’s been an overassessment of their positives and a total downplay of their negatives,” he said.

Among the negatives is the wait time needed for charging on long trips, and the lack of access to charging stations in much of the country.

He sees the challenges in the EV market as a vindication for Toyota, which had received widespread criticism for going slow on developing all-electric vehicles. He thinks Toyota looks smart for being cautious about selling models that do not have a clear market. (At the same time, Toyota is stepping up its investment in EVs, as shown by its announcement this week that it is increasing its investment in a North Carolina battery plant by $8 billion.)

“The only thing worse than producing cars with razor thin or no profit motive is producing cars with razor thin or no profit motive that are never sold when they get to the lot,” Brauer said.

To illustrate this point, automakers had an average 88 days’ supply of electric models in September, which was more than the 60 days’ supply for all models, according to Cox Automotive. This number indicates an oversupply of some EVs, although it’s improved from June when there was 111 days’ supply of EVs compared to 54 days’ supply for all models.

Brauer views Hyundai and Kia as the best examples of automakers that are successfully managing the expansion of their EV lineups while still maintaining an attractive selection of gasoline vehicles.

If you’re looking for a more optimistic view about the business of selling EVs, Ed Kim makes a case for why we shouldn’t overreact to short-term concerns. He is president and chief analyst at AutoPacific.

“EV adoption is still growing, and it’s still growing at a very healthy clip. But I think many automakers are finding that, in some of the segments, EV demand isn’t growing as fast as they had internally planned for,” he said. “It’s kind of creating all these headlines that really make it sound like EVs are tripping and falling on their face.”

He thinks it’s an “overly simplistic view” to look at the last few months of data and draw long-term conclusions about the financial viability of making and selling EVs.

He’s not downplaying that substantial challenges exist, but those things fall into the category of normal issues that are going to happen in an industry-wide introduction of new products.

“EV rollout plans sort of exceed the rate of growth right now,” he said. “So there’s a little bit of pullback. There is some signaling from automakers that, whether it’s through delays or a renewed emphasis on hybrids or whatever it may be, there’s some pullback.”

Asked what he sees as the greatest area of concern in the EV market, he said that a bubble may be developing in electric pickup trucks. Customers can already choose between the Ford F-150 Lightning, Chevrolet Silverado EV and all of Rivian’s lineup, to name just a few. New models are coming, including the Cybertruck.

“There are so many more electric pickups on the way, and they’re all going to be expensive, and I don’t think they’re all going to find buyers without heavy discounting,” Kim said.

I would describe Brauer’s view as pessimistic, Kim’s as optimistic and Brinley’s as close to the middle.

My view is closest to Kim’s, but I realize that may be influenced by the fact that I spend a lot of time talkingabout the benefits of EVs with people who believe in the inevitability of a shift to electric transportation.

I would place my bets on the idea that by 2030, and probably sooner, we will be in a transformed market. But I also expect that there will be times between now and then when progress looks wobbly.

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Orsted Cancels Plans for New Jersey Offshore Wind Projects: Orsted, the Danish wind energy company, announced it was scrapping plans for Ocean Wind 1 and Ocean Wind 2 in New Jersey. Orsted said the projects have faced rising costs from inflation and because of a long wait for federal permits under the Trump administration, as Stanley Reed reports for The New York Times. The cancellation is a blow to New Jersey officials who had scrambled to try to salvage Ocean Wind 1 by revising its contract. Orsted had made it clear that it was uncomfortable with the financial risk associated with several U.S. projects.

Why the U.S. Offshore Wind Industry Is in the Doldrums: High interest rates and inflation are imperiling U.S. offshore wind projects on the East Coast. The projects receive substantial government aid, but it’s not enough to make up for the recent increases in costs, as Scott Disavino and Nerijus Adomaitis report for Reuters, a story published a few days before the Orsted news. I wrote in September about some of the challenges for U.S. offshore wind projects.

Massive Virginia Offshore Wind Farm Gains Key Federal Approval: It wasn’t all bad news this week for offshore wind as federal regulators approved a permit for Coastal Virginia Offshore Wind. The 2,600-megawatt project, developed by the utility Dominion Energy, would be the largest in the country, as reported by the Associated Press. Dominion has taken steps to try to reduce its financial risk with the project, but it’s important to specify that Dominion has a lower level of risk than a company like Orsted, since Dominion is a regulated utility that can pass most of its costs on to consumers.

UAW Settles With Big 3 U.S. Automakers, with Implications for EV Transition: The United Auto Workers have ended their six-week strike, coming to agreements with Ford, General Motors and Stellantis, the parent company of Chrysler. The contracts, which still need to be ratified by members, call for pay and benefit increases and include provisions that will allow the union to represent workers at joint venture battery manufacturing plants. The details on the battery plants vary, but the upshot is that the UAW now has better access to the fastest-growing part of the auto sector, as I wrote this week. The new contract will increase the costs to produce vehicles and lead to a competitive disadvantage for the companies compared to nonunion automakers like Tesla, Toyota and Honda. The UAW says its next step is to try to organize plants run by some of those other companies.

Inside Clean Energy is ICN’s weekly bulletin of news and analysis about the energy transition. Send news tips and questions to [email protected].