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How Did the Auto Industry Get the EV Adoption Timeline Wrong?

Although electric vehicle sales grew by 50 percent last year, that is far below the 70 percent growth the industry had forecast. High costs, infrastructure access, charging concerns and grid reliability continue to dissuade drivers.

Pandemic-affected inventories, overzealous emissions goals and high Wall Street valuations for electric vehicle maker Tesla Inc. generated a drive for legacy automakers to push a whole lot more EVs in the coming years — a strategy the industry now recognizes was a bit misguided.

Automakers like General Motors Co. and Ford Motor Co. have cut billions of dollars in EV investments and recommitted to producing hybrids, acknowledging that demand for the zero-tailpipe emissions technology hasn't met their expectations.

"I don't have a lot of patience for us getting the forecast wrong," Marin Gjaja, chief operating officer of Ford's Model EV division, recently told The Detroit News, "but the reality is we all sort of got it wrong."

This doesn't mean EV sales have stopped growing. In fact, last year, EV sales grew by 50 percent, but that still is below the 70 percent the industry forecasted, according to a recent Boston Consulting Group report. EV market share was at 6.5 percent in February, down from 7.3 percent in January and 6.9 percent in December, according to data from Inc., an automotive data tracking website.

It's no secret why. Impassioned EV buyers by now have one. Convincing the early majority is a harder sell. High costs, access to charging infrastructure, charging speeds slower than filling a tank of gas and concerns over grid reliability remain obstacles to consumer acceptance.

"It’s been a black eye for the industry," said Daniel Ives, analyst at investment firm Wedbush Securities Inc. "It’s almost like everyone jumped into the water thinking it was an ocean of opportunity, but at least so far, it’s been a big lake."

Customers like A.J. Petix, 32, of Mount Clemens say they'd love to get an EV, but their high cost and driving range remain concerns. Instead, Petix replaced his 2011 Ford Escape with a Ford Maverick Hybrid. The small pickup's 44 miles per gallon in city driving and its price below $30,000 appealed to him.

"The challenge for me is definitely mostly the additional investment of how do I take this on road trips," said Petix, "because the hybrid enables that simply by having a longer range and not needing to fill up as often. But when I do fill up, it only takes five minutes."

As a result, dealers like Rhett Ricart, owner of Ricart Automotive Group in Columbus, Ohio, say they haven't seen the expected volume in EVs at this point: "It's closer to Armageddon than a big party."

To convert the next wave of EV adopters, Boston Consulting Group analysts say automakers will have to address key customer requirements: 20-minute charging times, a 30-minute detour and wait time for fast-charging, a 350-mile driving range and a price of $50,000. Doing this could lead EVs to account for up to 30 percent of U.S. sales in the next few years when next-generation EVs are in full production, according to the group.

Hybrids will remain an important part of the transition. It's estimated they will have 15 percent to 20 percent of U.S. sales once the next generation of EVs are available. In February, hybrid market share was 8.9 percent, according to Edmunds.

"At least for the next five years, we think hybrids deserve at least as much investment focus in terms of volumes they can expect from customers until we get to a level ... when EVs can make money and we're at a level of scale where it all kind of makes sense," said Andrew Loh, managing director and senior partner at Boston Consulting Group. "The second generation of EVs, in our opinion, it's still the transition period where hybrids will still play a big role just because it's going to continue to be hard to make money."

'Chasing the Consumer'

Ford is investing in hybrids along with EVs, Gjaja said, noting that the learnings from getting the forecast wrong include the value of a robust core business in hybrids and internal combustion engine vehicles, which the Dearborn automaker calls its Ford Blue division. GM recognizes it, too, saying it will reintroduce plug-in hybrids into its North American lineup in a reversal from its "all in" on EVs mantra. Stellantis NV has emphasized that its STLA (pronounced "Stella") platforms were designed for all-electric vehicles but can support hybrid and internal combustion engine powertrains, too.

But to meet the U.S. Environmental Protection Agency's "strongest vehicle pollution technology standard ever" finalized last week, the companies need to sell EVs. Forecasting demand for them, though, has been trickier than expected.

Gjaja noted that vehicles typically take about five years to develop. In 2018, EVs made up 1 percent of U.S. new vehicle sales, and the prediction for 2023 wasn't much more at the time. That increased by a couple of percentage points in the next couple of years, but the picture really changed, he said, in 2021, when global EV sales doubled, and in 2022, when the U.S. projections climbed to more than 10 percent penetration. EVs last year ended up having a roughly 8 percent market share.

"Everyone said, 'Well, that's a disappointment,' but if you actually look back in time when we had to make the capital commitments and make the calls, we were five years out saying it's going to be 1-2 percent," Gjaja said. "Suddenly, we're seeing that the consumer was accelerating their adoption dramatically, and we realized there was a lot more demand out there than we had accounted for. So what you saw in the industry was everyone chasing the consumer."

What perhaps was somewhat overlooked, though, was the unique circumstances of the time, Gjaja said. The industry was facing a global microchip shortage that depleted inventories of all kinds of vehicles. Meanwhile, Tesla was ramping up production of its Model Y SUV and had a reliable supply chain of semiconductors for them.

"Some people moved into EV from ICE maybe a little faster because that was what was available," Gjaja said. "It feels like a big slowdown when, in reality, what happened was we had a temporary period of dramatic acceleration, and now we're back to maybe a more normal growth curve and adoption curve."

In the United States, Gjaja said over the next few years that looks like 20-40 percent growth, which is big for any segment. Even still, Ford says it pushed back $12 billion in EV investments, including scaling back the size of its battery plant in south-central Michigan's Marshall by 43 percent and delaying the launch of production at one of its battery plants with SK On in Kentucky. It's decreased production volumes of the Mustang Mach-E SUV and F-150 Lightning pickup, as well.

Ford CEO Jim Farley has acknowledged the understanding of the slower growth came into the picture last year when Tesla slashed the pricing on its vehicles as pent-up demand was satiated; that triggered a series of sticker cuts on EVs throughout the market, including on the Lightning and Mach-E. It revealed how challenging the business is going to be, Gjaja said. Ford lost $4.7 billion on its Model e division last year and expects to lose another $5 billion to $5.5 billion in 2024.

"A lot of OEMs are struggling, and Tesla has been willing to discount to drive volume," Gjaja said. "Collectively, the pricing in the market is really, really challenging on EVs, and it just speaks to our need to get more and more efficient, whether it's to compete with Tesla or to compete with U.S. OEMs or foreign OEMs that might come here with really efficient EVs."

The goal is to make Model e profitable. Traditionally, larger vehicles have meant bigger margins for automakers, but with EVs, it's the opposite because larger vehicles require bigger batteries, the most expensive part of an EV, Ford Chief Financial Officer John Lawler said on Tuesday at the Bank of America Securities Auto Summit.

For the automaker's next generation of EVs, Ford will have a smaller platform that will underpin new vehicles that will start as low as $25,000. A special "skunk works" team in California designed it with development practices used by Chinese automakers to turn out new models quickly. Although the platform is smaller because it doesn't have a large engine, the interior of an Edge-size vehicle can be more like an Explorer.

"We're moving into the early majority, and the early majority is much less forgiving, and pricing is an issue," Lawler said. "We don't believe the game is going to be really won with larger vehicles. We think it's going to be in the smaller, more affordable vehicles."

Pursuing Zero, Zero, Zero

Crosstown rival GM went all-in on battery-electric vehicles until recently announcing it'll have plug-in hybrid options for the North American market. Executives now say the automaker will be led by the customer.

But back in 2019, its Cadillac luxury brand announced that most if not all of its vehicles would be all-electric by 2030, a goal brand leader John Roth said stemmed from GM's mission toward zero crashes, zero emissions and zero congestion. The Detroit automaker aspires to be all-electric by 2035.

"Fast forward from that time horizon to where we are today; nobody ever expected it to be a straight line," Roth told The News. "I wouldn't say there's any change in our overall vision. We still are on a mission to achieve zero, zero, zero. We're just working through the zigzag line that is the auto industry to get there."

GM previously withdrew its 2022 target of 400,000 production EVs by mid-2024, but Chief Financial Officer Paul Jacobson said this week at the Bank of America Automotive Summit that GM was "on track" to hit its 200,000-to-300,000 EV production goal for North America this year.

Jacobson also said people typically draw straight lines when describing the path to EV adoption, "when the reality is it's going to be choppy."

In response to the choppiness, GM, in part because of demand, delayed starting EV truck production by one year at its Orion Assembly Plant. The electric Chevrolet Silverado and GMC Sierra EV will still be built as scheduled at GM's Factory Zero Detroit-Hamtramck Assembly Center.

GM and Honda Motor Co. Ltd. also canceled a joint affordable electric vehicle program, eliminating a $5 billion earmark at GM. The automaker is instead invested in bringing back the affordable electric Chevrolet Bolt built on GM's flexible Ultium platform using cheaper lithium iron phosphate (LFP) batteries.

In sticking with the Bolt, whose previous generation ended production last year at Orion, GM "saved billions of dollars in capital because it's much easier to do that than it is to go create a whole new line and launch those vehicles," Jacobson said at the Automotive Summit.

GM is pushing to have "a lot of capital discipline and a lot of responses to what you've seen in the market changing," he said, adding everyone on GM's leadership team is focused on getting EVs profitable in 2025.

After battling launch issues in 2023 and software problems causing a stop sale on the Chevrolet Blazer EV, GM's entry-level brand says it will have cheaper options for consumers. It recently lowered the Blazer's pricing so it now starts at $50,195, and customers can now access the $7,500 federal tax incentive. Chevrolet will also have an entry-level trim of the Blazer that will start under $50,000.

GM plans to offer an electrified Equinox priced at $34,995 later this year, and next year, it'll bring back the affordable electric Bolt.

On the luxury end, Cadillac has a major electric launch year in 2024 with the Escalade IQ coming this summer, the Optiq, an entry-point compact SUV, landing at the end of the year and the Vistiq three-row SUV coming early next year. For EV customers, Cadillac currently just has the Lyriq SUV on dealer lots, and it will offer a $300,000-plus Celestiq EV for ultra-luxury customers.

After a bumpy launch in 2022, Cadillac sold just over 9,000 of the Lyriq SUVs in 2023, with momentum building into 2024. The Lyriq's sales in the first quarter of this year will make up between 17 percent and 20 percent of Cadillac's overall sales on any given day, Roth said, up from 12.5 percent in the fourth quarter.

"Have things slowed or has the tip of the scale come down a little bit, sure," he said. "But we do know luxury buyers are telling us that around 60 percent of the time, they're looking to buy an EV or at least shop an EV for their next purchase.

"When you have a good EV experience, and you hit the three characteristics that make a good EV — great styling, great range performance and price value equation ... it's producing sales momentum."

Tesla's Valuation

Also no secret is the envy in the auto sector of Tesla's valuation. The Texas-based EV maker's market capitalization was $560 billion at the close of trading Thursday, with stock exchanges closed for Good Friday. That's compared to General Motors Co.'s $52.4 billion, Ford Motor Co.'s $52.8 billion, Stellantis NV's $85.2 billion and Toyota Motor Corp.'s $339 billion on the New York Stock Exchange.

"They see Tesla stock price, and they said, 'Me, too,'" said Warren Browne, an auto supplier consultant and former GM executive who worked at the carmaker for 40 years. "There was a failure to realize that Tesla doesn't have a value proposition problem. They don't have internal combustion engine vehicles in the showroom.

"Salespeople are trying to explain why (customers) need to spend 15 percent more on this vehicle. The vision looked good on paper, but when it hit the showroom, reality happened," Browne said. "They failed to understand that this was just a powertrain option and not a substitute vehicle."

In 2016, Tesla CEO Elon Musk revealed the Model 3, a sedan priced at $35,000 and started delivering the vehicle in late 2017. Model 3's arrival, among other factors, set off alarm bells across the industry that sped up the electric push. By 2019, Tesla reported sales of 367,500 vehicles globally, a 50 percent increase over the previous year. The Model 3 was followed by the Model Y with a starting price of $39,000. By 2023, Tesla sold 1.8 million EVs globally, with 1.7 million of those being the Model 3 and Model Y.

"When they looked at the success Tesla had, especially in the past several years, in terms of them finally getting some meaningful volumes ... I think that says to the industry, 'Hey, if you can make a viable product that's an EV, people will buy it,'" said David Whiston, an autos equity strategist at Morningstar Research. "That's a bit simplistic, though, because Tesla still has something no one else has, which is an excellent charging network."

Automaker after automaker, including GM and Ford, have now partnered with Tesla to get their EV customers access to the Tesla Supercharger network.

Whiston said while "everybody got a bit aggressive on where we'll be by late '23 and '24," that doesn't mean "EVs are dead."

For GM, the more affordable Equinox EV will be the test to see if the demand is there now, he added: "If it flops, then it's going to be a few more years before we can probably see meaningful EV demand. It doesn't make sense to me that only Tesla can do well in EVs."

Ford's Gjaja said most EV buyers seem to like their EVs. He said globally, Ford's EVs have a 70-80 percent loyalty rate, and technology advancements will help to lower prices and get more customers into them.

"In the U.S., once people change their behavior, once they get used to the car, they love how it drives, they love the efficiency of it and the cost of operation," Gjaja said. "We feel confident in the technology that it'll continue to improve."

Added analyst Ives: "Many stayed with flip phones until they went to an iPhone. Now, they can't ever imagine going away from an iPhone. Rome wasn’t built in a day. Neither will the EV industry."

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