I was hanging out with a friend who works as an automotive consultant, and I introduced him to a colleague as someone involved with autonomous vehicle companies. He quickly corrected me “Actually, more aerospace now.” It was a very telling correction. Just a few years ago, everyone was talking about autonomous cars and now the hype has died. Are electric cars the next hype bubble?
The risk with a morning news roundup like The Morning Dump is that as conflicting data assaults us from multiple sides, we get lost in the cannon fire—the fog of war. Our goal here is not to describe the sounds of battle as much as it is to explain what the battle means and where it’s headed. Ideally, the data builds upon other data to create a clearer and fuller picture. I think a lot of the last month of these TMDs has been thesis clashing with antithesis and it’s probably time for a little bit of synthesis.
Recriminations and I-told-you-so reactions are coming fast in the electric vehicle space. Is that fair? There are a few data points I want to look at that I hope will better position us to understand what is and isn’t possible in the electric vehicle revolution. And then I want to look at labor because, guess what, that’s related as well.
Then a look at 0% financing, which isn’t a thing so much anymore.
EVs Are Dead, EVs Are Alive, WTF Is Going On?
The big stories from the Japan Mobility Show were the re-ascendance of the Japanese auto industry after years of mediocre performance and mixed feelings about electrification. Everyone is losing their minds about electrification. We’ve talked at length about this and about GM’s slowing of its electrification plans.
Here’s a fun stat: Ford lost $36,000 per every electric vehicle it sold in the third quarter of 2023. That number comes via InsideEVs, which notes that:
Despite the higher volume, EV losses continued to rise in the third quarter, with the company posting an operating loss of $1.3 billion, up from $1.1 billion in the previous quarter and more than double its loss from Q3 2022.
This means that Ford lost around $36,000 for every electric vehicle it sold in the quarter, surpassing its estimated $32,350 loss per EV in the second quarter. For the entire year, the carmaker expects a full-year loss of $4.5 billion for its EV unit. Why is that, though?
Ford said the Q3 loss is “attributable to continued investment in next-generation EVs and challenging market dynamics.” Regarding the latter, the carmaker noted that “many North American customers interested in buying EVs are unwilling to pay premiums for them over gas or hybrid vehicles.” This puts pressure on EV prices and profitability, according to Ford.
This is a fun way to look at the numbers, though it’s not a perfect one-to-one. Investments in EVs do not perfectly track sales because there’s a huge lag time between investment and production for a company like Ford. The first F-150 of every generation sold, for instance, likely loses hundreds of millions of dollars until those investments are recouped as more copies of that original truck are sold. Still, the gap for EV investment is getting worse for the company.
Toyota has been resistant to electrification, stating that electric cars are further out than “the media would like us to believe” as Akio Toyoda said last year. Was he correct all this time? There’s a piece in Automotive News today with the headline “Japan’s slow walk to EVs starts to look wise.” Here’s the gist of it:
Toyota CEO Koji Sato echoed the zeitgeist. Carmakers shouldn’t rush EVs if the products aren’t ready and demand isn’t sustainable, he said. Japan should step up its game in EVs — but electrics are just one arrow in a quiver of technologies that will help rein in carbon emissions, he said.
“Battery EVs are the missing piece,” Sato said. “But we are not going to launch something imperfect just because there’s a deadline. We will ensure they are developed to perfection.”
There were a lot of EVs at the Tokyo show, but not much that was going to be on sale this year. Or, likely, even next year.
Here’s some weird conflicting data: Battery electric vehicles (that is, full EVs) are projected by S&P Mobility to have reached a 47% year-over-year increase in sales in October.
Continued development of battery-electric vehicle (BEV) sales remains a constant assumption for 2023 although some month-to-month volatility is expected. October 2023 BEV share is expected to reach 7.5% and bringing year-to-date BEV sales growth to an estimated 47%. Looking at the remainder of the year, beyond potential future pricing developments by Tesla, the launch of several new BEVs is expected to produce incremental sales gains as the year comes to a close.
That’s a lot of cars. Here’s a quote from analyst Lee Hyun-soo in The Korea Times this weekend talking about Hyundai I think sums it up pretty well:
“Even if the EV market is exhibiting double-digit growth, its pace is slowing down,” the analyst said. “Price competition is also getting tougher. Sales for EVs account for only a slim portion out of total auto sales, the change in market circumstance bodes ill for the automakers’ valuation.”
Alright Georg-y boy, let’s synthesize a bit.
Most automakers have at least one sports car for sale, with some automakers offering multiple sports cars. If you combine the sales of all Challengers, Camaros, and Mustangs last year you get about 127,000 vehicles sold in the United States. Through the first nine months of 2023, there have been 873,000 battery electric vehicle sales in the U.S., and the market will almost certainly reach over 1 million. That’s a lot of vehicles, though spread across a lot of models (or, more accurately, spread across two models from Tesla and then everything else).
The conundrum here for automakers is that Tesla has such a lead in cost and branding that it’ll take a gargantuan effort to catch up, and every one of those automakers will lack the advantages that Tesla had as a first mover (lack of competition, high-income buyers willing to pay a premium, government incentives in the form of carbon offset credits). But to make that investment means to spend so much money with no promise that, as an automaker, the market or the customers will be there.
So was Toyota right to slow-play EVs? I don’t think so.
If GM, Ford or Toyota could have seen the opportunity and built a true Tesla-fighter, any one of those companies absolutely would have. The EV market will continue to grow, though perhaps not at a fast enough pace to absorb all these new EV models. The problem is that GM, and Ford, and Toyota were too late. GM was the closest with the Bolt and I’ve already complained enough about that.
But it is convenient for Toyota that, given that it was late to the party, it can be more strategic with how it catches up with Tesla and BYD. The medicine has to be swallowed eventually, however, because government mandates and Tesla/BYD lowering costs mean that automakers risk being left behind at some point, even if it’s not clear when that point is.
I see three ways out for traditional automakers:
- A huge technological breakthrough, like solid-state batteries, massively lowers battery costs and improves performance.
- An automaker finds a niche that isn’t well filled by Tesla products (Ford’s T3 truck could be one).
- Automakers suck it up and spend until they can reach price parity and use their advantages (name rec/customer loyalty/dealerships) to soak up on-the-fence buyers.
It’s not easy, but it’s not impossible.
BYD Reported Record Quarterly Profit In Q3
Chinese electric automaker BYD is that country’s answer to Tesla (although some Teslas actually use BYD batteries). Once known mostly as a prominent maker of cell phone batteries, BYD has fought its way to becoming the biggest maker of electrified automobiles (i.e. hybrids and BEVs) in the world.
The company is also printing money, making a record $1.42 billion in profits in Q3 2023.
Net profit for the third quarter reached 10.41 billion yuan ($1.42 billion), a 82.2% increase from a year earlier, on a 38.5% rise in revenue to 162.2 billion yuan, BYD said in a market filing. It flagged earlier this month that third-quarter net profit could as much as double.
That was a smaller increase than the second quarter when profit was up 145%. The third-quarter earnings was within its forecast range of between 9.55 billion yuan and 11.55 billion yuan.
See. It’s possible to be a successful EV automaker, though it certainly helps to live in a country that handed out billions in automotive incentives and already have a longstanding battery business.
GM And UAW Reach A Tentative Deal
Details are scarce at the moment, but it sounds like General Motors and the United Auto Workers union have reached a tentative deal, according to CNN and multiple outlets.
Terms of the deal are not yet known, but it is expected to be along the lines of the deals already announced at Ford and Stellantis, including an immediate 11% raise in the top hourly wage rate, additional pay hikes totaling another 14% during the four-and-a-half years of the contract, as well as a return of the cost-of-living adjustment meant to protect workers from rising prices.
It’ll be interesting to see how the battery plant issue was resolved.
RIP 0% Financing
When money was cheap, it was much easier for companies (and dealers) to offer 0% financing to customers. Money is no longer cheap and 0% financing has basically vanished.
If there’s a company that’s offering 0% financing it could mean that product isn’t selling or the automaker is hoping to make up some market share. Carfax has a list of cars with 0% financing deals and it’s a pretty telling mix that includes also-rans like the Nissan Armada, Ford Edge, and Subaru Solterra, and market share plays like the Nissan Rogue.
The Big Question
Would you buy a Ford Edge if you got 0% financing? What about a Nissan Titan? How big of a deal is that to you, right now? Or are you holding off on buying until rates (maybe) get better?