The EV Market Paradox: Rising Sales Amidst Profitability Concerns

Why Are EV Sales 'Lagging'? Here Are Two Reasons.

If EV sales are slowing at all -- and the data is deeply inconsistent -- then two types of cars tell us a lot. First, the word "lagging" is in quotes both there and in that headline for a reason. That's because I don't really believe that electric vehicle sales are cratering as hard as many headlines would have you believe. It's an easy and clicky narrative to run with, but the truth is much more nuanced. Still, that's the narrative the entire industry seems to have adopted this year. It's true that EV sales in 2024 aren't proving to be on this predictable, up-and-to-the-right growth curve that automakers and their suppliers hoped for. It's also true that many brands are up on electric sales while others are down, that an upcoming election that could reset emissions rules and incentives is throwing everything into turmoil, that charging networks are taking longer than expected to build out, that most Western and other Asian automakers are getting hammered by homegrown competition in China and that high interest rates are likely to make 2024 a down year for all cars across the board. But the doom-and-gloom is hard to buy when you see that Ford's EV sales were up 31% in July alone, or that Hyundai and Kia are seeing rising sales, or that General Motors has more affordable models in the pipeline. Any of those automakers could hit 100,000 EVs produced this year, something only Tesla has done to date. The truth is that a lot of these doubts seem to come when you consider EV sales in aggregate, particularly in America. And there are two reasons those don't look great. I'll point to this data point from The Detroit Free Press (subscription required), which today had an excellent and in-depth look at uneven EV adoption and what it means for the paper's Big Three hometown automakers. Let's dig in: U.S. EV adoption is growing at a pace more sluggish than most carmakers and experts had predicted. Cox Automotive said in June its full-year forecast puts EV purchases this year at about 1.3 million vehicles, or 8.3% of total new car sales, a slight boost from last year, when EV market share was 7.6%. But Cox had expected EV sales to be closer to 9.5% of total sales for the year. Part of the reason for the reduced forecast was an unexpectedly large sales decline from U.S. EV leader Tesla and the slow launch of affordable EVs by General Motors. I can't, in good faith, pin all of the EV adoption troubles on those two factors. But they have a lot to do with what's going on. Basically, without the Chevrolet Bolt EV and EUV -- the $25,000-ish twins that carried GM's electric sales on their back for years until their discontinuation at the end of 2023 -- you get sales data without a significant player. Since the Bolt duo sold almost 63,000 examples last year, the net effect is almost like saying the SUV segment would be in decline if Ford had stopped making the Expedition. It's not quite that high, but it's in the same galaxy. GM sold nearly as many Bolts alone as Ford sold EVs in 2023. And with the Bolt phased out and nothing to make up for it -- save for whatever remaining Bolts were on dealer lots at the start of this year -- of course, EV sales would be down in aggregate. While GM has high hopes for the affordable Equinox EV, and I do too, it's going to be a long time before it hits Bolt levels of critical mass. If it ever does. Still, things are looking up. GM hit a new quarterly record for EV sales in Q2 of this year. But if it's to break annual records, all Ultium EV models will have to come together to compensate for the lack of the Bolt models -- and then hold the line until a reborn Bolt EUV debuts next year. And then there's Tesla. Let's just put it this way: when the clear, global market leader in EVs fails to keep its lineup of cars updated amid intensifying new competition, focuses on AI and robots instead of selling cars and has a CEO whose antics are pushing people away from the brand, sales are going to drop. And they are. Sales of non-Tesla EVs are surging, and as Bloomberg has reported all year, any EV slowdown seems to be a Tesla slowdown specifically. The Cybertruck won't save the company; some 90% of its sales are of the Model 3 and Model Y duo, and while the Model 3 got a decent update, the worldwide best-selling Model Y is really showing its age. So when the company that made up more than 56% of U.S. EV sales last year starts a hard slump, then yes, it brings all total EV sales down with them. The loss of the Bolt and the decline of Tesla are creating a great deal of uncertainty in the overall market. It's like a basketball team that loses its two best players at once, like the Spurs in the late 1990s if injuries had somehow taken out Duncan and Robinson at the same time. Yet the EV market in America in 2024 is faring far better than that. Incentives and deals still underpin it, and those cannot last forever. And the presidential election could disrupt policies that boost sales and incentivize manufacturing in America. But looked at this way, there's nothing to indicate that the influx of new, affordable EV models -- the Kia EV3, the reborn Bolt, whatever Ford is planning, and so on -- won't be able to juice things again. Plus, automakers are still struggling to make profitable EVs. That's coming sooner than you may think. Sometimes, it's okay if growth isn't some up-and-to-the-right curve all of the time. It's just hard to squeeze that idea into a headline.

Affordable EVs May Not Be Profitable: 'Just Not Realistic'

Massive volumes are critical to make EVs profitable, but getting there is herculean task. Tesla went to great lengths to make the Model 3 profitable. When it finally did, it was a sweet victory. The electric sedan boasted profit margins of 20%, but it was no easy feat -- and it took time to reach that kind of scale. Now, several automakers are attempting to mass-produce even cheaper EVs, betting that they'll succeed. But can they endure the brutal journey it takes to get there? This kicks off the Friday edition of Critical Materials, your daily round-up of news and events shaping up the world of electric cars. Also on today's dance card: how a quiet county in Georgia is experiencing sea change as Hyundai and its suppliers rush to bring its giant $7.6 billion EV factory to life. Plus, we examine why China is disputing Europe's anti-subsidy tariffs on EVs made in China at the World Trade Organization. The first and second waves of early EV adopters are behind us. Those buyers already have their Teslas, Nissan Leafs, and Chevy Bolt EVs. Now, to win over the next wave -- everyday working-class people for whom cost, range, and charging are make-or-break factors -- automakers need to step up their game. Affordable EVs are on their way. General Motors is working on the next-generation Ultium-platform based Bolt EV. Ford's "skunkworks" team, which CEO Jim Farley recently said is no longer an accurate name because it has expanded to over 300 members, is working on the electric successors to the Fiesta. Tesla has promised "several affordable models" from next year onwards. Now the question looms large. These EVs might become a reality, but will they be profitable? Some analysts are bearish about that prospect. Here's what experts told Investor's Business Daily: "Looking at the economics of a lower-cost, mass-market EV," said CFRA Research equity analyst Garrett Nelson, "they are going to be money losers for these companies." Nelson dismissed the idea of an unsubsidized $25,000 electric car that can generate profits. He said it is "just not realistic" given sharp cost inflation after the coronavirus pandemic. "It's about where the sweet spot is for demand," said Dan Ives, an equity analyst for Wedbush Securities. "It's similar to what we are seeing in China, where when you get to these price points, that is where you can drive mass demand, and you can go after a subset of the market that hasn't been (sold) yet on electric vehicles." "It's ultimately going to be around price points and the models and the technology resonating with customers," Ives cautioned. "Cheap in itself is not going to move the needle." One analyst predicted that even Tesla's future budget EV could bleed money. However, Tesla may have a lifeline: Full-Self Driving (FSD) subscriptions, which can generate revenue over time. It might even license the technology to other companies. Add to that Tesla's expanding Supercharger network and booming stationary energy storage business and the company could have plenty to lean on. That's not even counting the big bet on AI, robotaxis and humanoid robots -- but that's a different story. It's true that rivals with far less EV expertise may face a longer and more grueling path to profitability. But I'm not as bearish as the analysts. With lithium prices plummeting, EV costs are expected to drop significantly by the end of the decade. There's a real focus on driving down costs, especially with the looming threat of cheap Chinese EVs entering the U.S. Structural battery packs, giga castings and a more flexible and start-up-like approach to EV manufacturing may reap benefits. Above all, I'm optimistic about the future of range and charging. Range anxiety is already fading and charging infrastructure continues to grow. Those two things will sort themselves out over time, assuming government support continues after the November elections. The real game-changers for these smaller EVs will be software and design. Nail those, and you've got a winner. If not, tough luck. Making EVs was never easy. Fourteen months ago, a vast stretch of land in Bryan County, Georgia -- about the size of 15 football fields -- was just barren land. Now that space is quickly becoming home to the largest economic development project in Georgia's history. This is where Hyundai Motor Group is erecting a $7.6 billion EV factory, what it calls the "Metaplant." For a quaint town with a population of 157, change is coming. And it's coming fast as Hyundai and its suppliers seem on track to hire thousands of people to build assembly lines and parts factories. Here's more from the Atlanta Journal Consitution: Since announcing their projects, the suppliers have been on the clock to build their facilities, hire their workers and meet Hyundai's demanding timeline. Mike Simpson, vice president and business unit leader at KBD Group, said his firm was paid $111 million to build Ajin's 850,000-square-foot facility near Register. During the 13-month construction period, his company had to overcome raw material shortages, like steel and concrete, because so much was being built across Coastal Georgia at the same time. The same applied to labor. "With the Hyundai work being so close to the Hyundai project, it limited people that we could get that would be interested in our job," Simpson said. Hannah Mullins, the executive director of the Candler County Industrial Authority, said her agency held a job fair this summer to find workers for DAS Corp.'s $35 million seat manufacturing plant in Metter. About 750 people showed up. This AJC story is a must-read if you're curious about the impacts of gargantuan, government-backed clean energy programs. The Hyundai factory's first phase spanning 15 million square feet has rattled the quaint rural towns outside of Atlanta. But as the AJC reports, the locals are hungry for jobs. Now there seems to be a chaotic rush to support the influx of workers, build housing for them and upskill them so that at some point in the future, a Hyundai or Kia dealership near you will have a compelling enough electric model that you can drive home and feel good about. Trade tensions between two of the world's biggest trading partners are soaring. In June, the European Union slapped import tariffs of up to 38% on cars made in China. Beijing has been vocally unhappy about it ever since. Now it wants to dispute the EU's decision at the World Trade Organization. "The determination in the preliminary ruling of the European Union lacks a factual and legal basis, seriously violates the rules of the WTO, and undermines the overall situation of global cooperation in the fight against climate change," a spokesperson for China's Ministry Of Commerce said in an official statement. "We urge the EU to immediately correct the wrong practices and jointly maintain China-EU economic and trade cooperation and the stability of the supply chain of the electric vehicle industry chain," the spokesperson added. There are contradictions on multiple levels within the EU's own EV policies. European countries are enticing Chinese automakers for investments to boost local economies, add thousands of jobs and, above all, sell cars that don't cause respiratory and other health hazards. Plus, German automakers are deeply invested in China with JVs and new partnerships in battery manufacturing and self-driving tech. Legacy automakers rely on volume sales of affordable models, along with high-margin SUVs and trucks, to keep their profits flowing. That's as of today. But as the industry shifts away from polluting cars, what will drive future profitability? Will it be subscription models, robotaxis, software licensing, hybrids and PHEVs, fully electric cars -- or a combination of them all? Or is there some other radically different business model? Leave your thoughts in the comments.