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Electric vehicle industry faces challenges amid lower demand and falling profits

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  • The EV sector faces lower demand, production adjustments, and falling profits
  • Toyota’s CEO suggests offering various alternatives alongside EVs
  • The viability of large-scale electrification strategies is in doubt


Electric Vehicle Industry Faces Challenges Amid Lower Demand And Falling Profits

The electric vehicle sector has received a few jolts in the last few months, upsetting climate regulators’ and policymakers’ ambitious goals.

South Korean battery maker LG Energy Solution, citing global economic uncertainty, predicted that EV demand “could be lower than expectations” in the coming year.

GM, one of the more bullish players in the segment, announced that it has set aside its near-term targets. The automaker was slated to build 100,000 EVs in the second half of this year and another 400,000 by the first six months of 2024. The announcement came soon after Honda and General Motors killed their plans to co-develop sub-$30,000 EVs. The $5 billion project was just a year old.

Ford had slowed its ramp-up and shifted investment to commercial vehicles and hybrids in July. In October, the U.S. automaker temporarily suspended its third shift at the electric F-150 Lightning pickup truck manufacturing plant. The company no longer plans to meet the 2 million EVs by 2026 or the shorter-term 600,000 units per year targets.

The reason for the slowing demand and pared-down targets is primarily the high-interest rates across much of the global markets. As Tesla CEO Elon Musk pointed out:

I just can’t emphasize this enough that the vast majority of people buying a car is about the monthly payment. If interest rates remain high or if they go even higher, it’s that much harder for people to buy the car.

Despite the dire warning, EV sales are booming for now. According to a Cox Automotive report, 300,000 electric vehicles were sold in the United States for the first time in the third quarter. In the world’s largest market for fossil-fuel-free automobiles, China, sales climbed by 22% and in the EU by 14.3% in September.

But a shakeup is likely around the corner. Industry experts weigh in that automakers are slowing production and adjusting targets in response to dealers’ warnings about slowing demands and inventory build-ups at dealerships. While the scenario signals a buyers’ market, car dealers say markdowns and substantial discounts are no longer enough to woo customers. New car buyers are considering infrastructure challenges, replacement costs, and other factors before driving off in an electric vehicle.

Some in the industry, like Toyota CEO Akio Toyoda, have always questioned the overzealous plans to do away with combustion engines entirely. He told the WSJ:

That silent majority is wondering whether EVs are really OK to have as a single option. But they think it’s the trend, so they can’t speak out loudly.

The company, a pioneer and leader in hybrid cars, believes that offering the customer various options, including hybrids, plug-in hybrids, hydrogen-powered models, and EVs, is the best way to cut emissions and the right way forward for the automobile industry.

The tempering of demand for EVs has already been reflected in the raw material markets, especially in lithium, a key component of electric car batteries. Automobile manufacturers hedge against price variations. The depressed demand for EV batteries has caused a 67% fall in spot lithium carbonate prices, and cobalt prices fell 20% this year.

The writing on the war is clear. The near-term viability of multi-billion-dollar electrification strategies rolled out by many heavyweight auto manufacturers is in question. With many auto bosses sounding the alarm at falling demand and dropping profits, policies banning gasoline car sales and unsustainable subsidies seem premature.

The transition to fossil fuel-free vehicles is far from smooth or fail-safe. In GM CEO Mary Barra’s words, the road ahead for electric vehicles “is a bit bumpy.”

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Republished with permission from TIPP Insights

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