Why automakers are pulling back on their ambitious EV plans

As summer unfolds with spring in the rearview mirror, sales staff at car dealerships across the country are clearing out inventory to make way for the new 2025 models arriving in the fall.

But one group of cars is still clogging up dealership lots: EVs. The relatively high cost of EVs, range anxiety and American consumer preference for hybrids are some of the factors to blame.

Latest data from S&P Mobility reveals that EV stock at the end of April rose 5.7% compared to the previous month and rose 105% compared to a year ago. This despite big discounts for EVs during most of the year.

“It’s tough sledding out there,” said Elon Musk, CEO of Tesla (TSLA).

EV-only startups are especially feeling the pain. California-based Fisker just filed for bankruptcy protection on Tuesday. His death follows Lordstown Motors filing just a year ago.

Given that automakers other than Tesla are selling electric vehicles at a loss, it’s not surprising that automakers in general are pulling back. Last week, Ford (F) CFO John Lawler said COVID had boosted EV sales. But once these buyers and early adopters were accounted for, the broader group of buyers was unable to intervene.

Top buyers are “not willing to tolerate some of the other issues you might have with an upcoming EV and that sort of thing,” Lawler told Yahoo Finance. “I think you will see the growth continue, [but] it will be a little slower than we have seen in the past.”

Lawler believes Ford’s second-generation EVs are where the company will see profitability, but those vehicles won’t arrive until late 2025 or 2026 at the earliest. Meanwhile, the company said in April that it was delaying EV production at its massive BlueOval City EV campus in Tennessee to 2026 from an initial start date of 2025. It also shared that Ford was “rescheduling” the launch of the next EVs.

GM (GM) is plotting a similar strategy. The company retreated from its big initial EV plans, with CFO Paul Jacobson revealing at a Deutsche Bank conference that GM now expects to produce 200,000 to 250,000 EVs this year, slightly below its plan of 200,000 to 300,000 units. At one point, GM projected production of up to 400,000 EVs this year.

Still, Jacobson told Yahoo Finance at the conference: “We are capturing significant results [EV market] to share; we sold more than 9,500 EVs in North America last month.” The Chevrolet Blazer and Cadillac LYRIQ EV had “really strong gains,” Jacobson added.

Ford and GM’s moves follow similar pivots by Big Three rival Stellantis (STLA), which halted development of a joint venture battery factory with Mercedes (STLA), and instead signed an agreement with China’s Leapmotor to build EVs.

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Mercedes has heavily abandoned its plan to be all-electric by 2030, with the German luxury carmaker seeing just 50% of sales being “electrified” – i.e. both hybrids and full EVs – by 2030.

German Volkswagen (VOW3.DE) also retreated. For example, the company canceled the U.S. launch of its ID.7 EV sedan last month. Customers “want plug-in hybrids now, including in China and the US,” Volkswagen Passenger Cars CEO Thomas Schäfer said in an interview at a conference in London, according to a report. Bloomberg Report.

How did automakers get the EV timing wrong?

“Americans have never been ready to adopt electric vehicles at the rate predicted by many industry and government ‘experts’,” Karl Brauer, executive analyst at iSeeCars, told Yahoo Finance. from 7% to 10% And take the EV share to 20%, 30% or more percent That was clearly a long way off.”

Said CarGurus director of industry insights Kevin Roberts: “The expected EV adoption curve has always seemed accelerated by an understandable combination of the government’s desire to reduce emissions, along with automakers seeking to match Tesla’s margins and the share price success.” He added: “Decisions were made to try to go straight to electric vehicles and avoid a transition generation of hybrid powertrains that would have allowed more time to develop consumer comfort in the segment and build charging infrastructure.”

For companies like Ford and GM, refocusing on gas-powered and hybrid engines seems like a logical move. And the prospect of producing cars that already have a positive cash flow – and of leveraging Chinese partners for electric vehicles – was good music for Wall Street.

“Based on our analysis, the automakers best positioned to capitalize on the growing popularity of hybrids include Asian original equipment manufacturers… such as Toyota (TM), Honda (HMC) and Hyundai (HYMTF), as well as North American automaker American Ford,” CFRA’s Garrett Nelson wrote in an April research paper.

“Ford has had considerable success selling traditional hybrid versions of two pickup truck models: the Maverick (52,361 units) and the F-150 (50,103 units) in 2023. Also worth mentioning is Stellantis, whose Jeep Wrangler 4xe and Grand Cherokee 4xe were the two best-selling plug-in hybrid models in the US last year,” Nelson added.

On the other hand, Nelson said that automakers that have invested more in pure battery electric vehicles, such as GM, are positioned less favorably.

Problems on the way?

The question remains: Will companies like Ford, GM, Stellantis and others that have reduced investment end up losing EV market share – and will companies that continued to innovate and spend emerge as the big winners in the eventuality? EV transformation?

Chinese electric vehicle manufacturers are going full force into new vehicles with cutting-edge technology and autonomous driving capabilities. For example, look at the success of the latest technology brands like Xiaomi It is Established EV manufacturers like BYD.

“The Chinese already have all the advantages when it comes to electric vehicles, from controlling the global lithium supply to aligning the government and manufacturing sectors to reduce production costs,” added Brauer of iSeeCars.

“[American automakers] we’re not ready,” BYD Americas CEO Stella Li said of U.S. automakers and their electric vehicle game plans in an interview. with NBC News in April. “We are ready. We are technology ready and supply chain ready.”

In response to China’s EV threat, the US and EU announced tariffs against Chinese EV manufacturers, with the US quadrupling the tariffs to 100%, and EU rates reach 38.1%. But tariffs and other trade restrictions are not typically a long-term answer, with restrictions failing on Japanese automakers in the 80s an excellent example.

Perhaps the old adage, “if you can’t beat ’em, join ’em,” could be how automakers like GM, Ford and Stellantis handle their EV pivots.

“We believe that Western car companies (including Tesla) have reached a unanimous and simultaneous conclusion: China has won the race for electric vehicle supremacy,” Morgan Stanley’s Adam Jonas wrote in a note to clients last month. Jonas predicts that the industry will enter a new phase of reduced spending, greater protectionism through tariffs and likely cooperation with China regarding EV production and development.

However, automotive tastes in the U.S. versus the rest of the world may play into the hands of traditional automakers — the Big Three plus Toyota, VW and others — who have been making cars tailored for Americans for some time.

Said CarGurus’ Roberts, “The U.S. market may prove to be unique enough in its taste for vehicles” such as SUVs and pickup trucks, “while most low-cost Chinese EVs tend to be much smaller vehicles, which consumers in the US USA tends to avoid it.”

In other words, for American automakers, there may be a path to success.

Pras Subramanian is a Yahoo Finance reporter covering the auto industry. You can follow it Twitter and so on Instagram.

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