Recently, some of the biggest car manufacturers in the world expressed their concerns about the viability of the electric vehicle market as consumer demand is failing to meet expectations. Companies such as GM, Ford, and Mercedes are attempting to navigate the competitive landscape of the EV space as consumer adoption is slower than anticipated.
For example, Ford Motor Company had to reign in its full-year forecast over uncertainty surrounding the United Auto Workers strike and the declining demand for EVs. Ford CEO Jim Farley told analysts on the third-quarter earnings call that the company was enduring significant losses on its EV lineup.
“It’s been a challenging situation, for sure,” Farley said. “Matter of fact, our business is never short of challenges, especially right now with the evolution of the EV market and new global competitors from China, as well as the technology disruptions.”
A commonly cited key reason prospective car buyers are turning away from EVs is their price point. The battery-powered vehicles often come at a notable price premium compared to their traditional gas-powered counterparts. Especially given the macroeconomic backdrop of historically high inflation consumers have contended with, this makes EVs a difficult sell.
EVs exploded in popularity several years ago, when they were relatively new on the market, where some buyers were willing to pay a premium for this reason. Additionally, consumers were flush with excess cash from stimulus checks alongside a red-hot economy from interest rates sitting at zero.
Moreover, the business landscape for EVs shifted drastically over the past couple of years, with nearly every major auto manufacturer jumping on the trend, trying to obtain a competitive advantage with consumers. Accordingly, this has created somewhat of a price war among leading car companies trying to offer buyers the most affordable product.
The macroeconomy and the dynamic business environment for electric vehicles have created a perfect storm where companies must offer a superior car at a competitive price. “A great product is not enough in the EV business anymore,” Farley noted. “We have to be totally competitive on cost.”
Similarly to Ford, General Motors scrapped its 2023 profit forecast, where CEO Mary Barra told shareholders the company would be slowing the pace of EV rollout to reduce costs.
“We are reducing our fixed costs by $2 billion net of depreciation and amortization as we exit 2024,” Barra said. “We are also moderating the acceleration of EV production in North America to protect our pricing, adjust to slower near-term growth in demand, and implement engineering efficiency and other improvements that will make our vehicles less expensive to produce, and more profitable.”
Analysts at Wedbush Securities wrote about a Tesla earnings call where CEO Elon Musk discussed the implications of market conditions on car affordability. Musk indicated Tesla could continue cutting prices on its models.
“In a nutshell we would characterize last night’s conference call as a ‘mini disaster’ as the Street wanted to get their arms around the falling margins and constant price cuts seen globally, but instead we heard from a much more cautious Musk,” according to Wedbush.
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