Mary Barra Is Forced by the Market to Back Off EVs After Previously Jumping on the Bandwagon
Guest Post from the Institute for Energy Research.
Mary Barra, General Motors C.E.O., announced that the company would not have the production capacity to make one million electric vehicles at the end of 2025, an indication that it will fall short of a stated target. GM originally set a goal of having production capabilities in place for a million electric vehicles, but said they could only sell that many if the market materializes, which it has not.
There has been a slowdown in the EV market’s growth, as early adopters have gotten their electric vehicles, and other consumers are wary over their high cost and lack of charging stations. In fact, those same concerns and their own experience are leading many existing EV owners to question whether to buy another.
Despite President Biden’s victories in getting the Infrastructure Bill and the Inflation Reduction Act through Congress, there has been little progress in using the funds to develop the EV manufacturing and charging industries. It is unlikely that the $1.7 billion that Biden’s Energy Department has for promoting the manufacture of electric vehicles will even be dispersed before the election.
According to Barra, customer demand will dictate how fast the company can get to the one million mark for annual sales of electric vehicles, and that currently it is seeing a slowdown in their deliveries, which echo the remarks Barra made in December when she said that meeting a target for an all-electric fleet by 2035 will depend on consumer acceptance. U.S. deliveries of electric vehicles were flat in the second quarter compared with the same period a year ago, despite being up by 11 percent over the first quarter, according to market research firm Cox Automotive.
GM recently overcame EV battery production problems and has delayed the opening of an electric pickup truck plant in suburban Detroit. GM is delaying the opening of its second electric-truck plant in Michigan to preserve capital amid a slowdown in sales growth for electric vehicles. The conversion of its Orion Assembly plant will move back by a year to late 2025 “to better manage capital investment while aligning with evolving EV demand.” It also plans to make improvements to its electric trucks.
The carmaker is in the process of ramping up production of its electric Chevrolet Blazer mid-sized SUV and smaller Equinox model, which the company hopes will boost sales. GM reported a drop in first-quarter U.S. vehicle sales on lower deliveries to commercial customers. GM’s total vehicle sales fell 1.5 percent to 594,233 units in the first three months of the year.
GM’s 2024 Production Forecast
GM cut its 2024 EV production forecast and announced a new $6 billion share buyback plan, as the automaker must depend on demand from its gasoline-powered models. GM now projects the higher end of its 2024 EV production to be 250,000 units, down from a prior forecast of 300,000 units.
Ford to Cut Costs and Focus on Hybrids
Ford Motor is on track to deliver its $2 billion cost reduction plan and added that it would achieve this through material and design changes. Ford has asked its electric-vehicle suppliers to reduce costs in an attempt to support profitability, saying “everything is on the table.”
Ford asked suppliers to ensure efficient manufacturing operations and reduce capital spending, calling for further cost-reduction proposals on such vehicles as the Ford F-150 Lightning electric pickup truck, Transit electric van and Mustang Mach-E SUV, including ideas that might require investment but would support profitability.
Discounts and sharp price cuts from competitors, including EV market leader Tesla to sustain consumer demand amid high interest rates have forced Ford to reciprocate. To re-ignite demand and stave off competition from Chinese automakers such as BYD, analysts have said EV makers need to introduce vehicles that are affordable to the masses.
Ford recorded a $1.3 billion operating loss for its EV and software division in the first quarter of 2024. Executives expect this section of the company to sustain a pretax loss of between $5 billion and $5.5 billion for the year.
While Ford continues to develop affordable and smaller electric vehicles by a team in California, the company in the near term is focusing on boosting sales of hybrid vehicles, which are preferred by many consumers, instead of adopting fully battery-powered cars. In the near term, hybrids are a top priority for Ford, and the auto company plans to increase hybrid sales by 40 percent this year and quadruple them in the coming years.
Ford reported a 6.8 percent increase in first-quarter U.S. auto sales due to demand for its pickup trucks, crossover SUVs and hybrids. Sales of Ford’s affordable compact Maverick pickup truck surged nearly 82 percent to 39,061 units as more buyers gravitated toward cheaper vehicles over the past few months amid higher living costs.
Ford had boosted production capacity for the Maverick, which starts at $23,815 for gasoline, with a hybrid model costing around $1,500 more late last year to meet the strong demand. Ford notched overall sales of 508,083, compared with 475,906 a year earlier, as U.S. vehicle sales extended a recent strong run.
Conclusion
Chief Executive Officer Mary Barra walked back expectations for her company’s electric vehicle program, the latest such move by a legacy automaker as momentum slows for plug-in models. Barra told CNBC that GM will not have the production capacity in place to build one million electric vehicles at the end of next year, which was the stated target.
The CEO said customer demand will dictate how fast the company can get to the one million mark for annual sales of electric vehicles. GM is racing to fix problems in its electric vehicle business to make good on promises Barra made five years ago, but it still has a long way to go.
Ford is also making changes to its EV plans and is focusing on hybrids in the near term. It is expected to lose between $5 and $5.5 billion this year in its EV business and must make up for the losses with hybrid and gasoline powered vehicle sales.
It is unclear how changing market conditions will mesh with the Biden Administration’s stringent mandates aimed at forcing drivers to transition to electric vehicles.
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Delicious justice. For 50 years GM was playing Lucy footballl with the other makers. Now Elon has pulled the ball from GM.
The revised projection for GM’s EV sales is now 250,000, which means roughly half of their sales will be EV’s? That doesn’t seem possible.