Ford, GM delay EV investment: report

A REPORT published by Automotive News this week suggested Ford and General Motors (GM) will “push back” spending on electric vehicles, the duo postponing “billions of dollars” in investment as demand for battery electric models stalls.

The news comes at the same time Mercedes-Benz CFO, Harald Wilhelm, admits EV adoption rates are lower than expected, saying the EV market is a “pretty brutal space”.

For America’s big two, the decision to delay EV investment in the short term came as Ford announced that it will defer $12 billion ($A18.9b) in EV spending, including delaying one of two joint-venture battery plants it is planning in the US state of Kentucky.

GM said this week that it will no longer provide EV production targets and that it is withdrawing its commitment to build 400,000 EVs by the middle of next year. Somehow, the manufacturer says it remains committed to an electric future, and still expects to produce up to one million EVs in the United States by the end of 2025.

General Motors and Honda also announced that the duo will abandon plans to co-develop a line of affordable EVs, signalling a dramatic shift in expected take-up rates of electric vehicles in the US marketplace.

According to AutoForecast Solutions vice president of global vehicle forecasting specialists, Sam Fiorani, the announcement reflects the “balancing act” between volume and profitability manufacturers must walk in a market that is increasingly saturated with cheaper imports.

“If GM and Ford were to add hundreds of thousands of units of capacity, it would further crowd the market and require lower pricing to move inventory,” he explained.

“The market itself is the bigger factor here, and buyers are just not ready to transition in the volumes that everybody needs in order to make a profit.”

GM said it would delay three upcoming EV models – the Chevrolet Equinox, Chevrolet Silverado, and related GMC Sierra Denali – by a “few months”, allowing it to better manage capital investment while “aligning with evolving EV demand”.

“It is clear that we are dealing with a lot of near-term uncertainty,” GM CEO, Mary Barra, told Automotive News, referencing both the UAW’s lengthy strike and the EV transition.

“I hope it is equally clear that we are going to be acting with purpose, we are going to remain agile, and we are making sure we have a system that has the ability to respond to where the market is.

“Our commitment is to deliver a strong and profitable ICE business, as well as a strong and profitable EV business for our future.”

The report went on to say that some Wall Street analysts fear a reduction in EV volumes may raise questions about GM’s ability to achieve its profitability targets by the middle of this decade.

“With considerable uncertainty around EV demand, pricing, input costs and magnitude of labour cost increase, and spotty execution so far, we find it difficult to acquire comfort in the achievability of these targets,” said one analyst.

For Ford, and in addition to delaying its battery plants, comes news that the company is reducing some of its Mustang Mach-E production following recent industrial action. The 41-day UAW strike is estimated to have cost the manufacturer close to $1.3 billion ($1.95b), effectively wiping out its $1.2 billion ($1.89b) third-quarter net income.

“The narrative has taken over that EV (sales) are not growing,” explained Ford CFO, John Lawler.

“It is just growing at a slower pace than the industry and, quite frankly, we expected.

Mr Lawler said Ford is not cancelling its second-generation EVs, including a new three-row utility and a full-size pick-up, though he declined to say how long the company would delay its EV investments or the second battery plant.

“As demand has softened, we’ll need less capacity in the near term, so we will push out that investment until the time when we need to put that capacity in place,” he detailed, vowing that Ford would continue pushing for eight per cent margins on EVs within three years.

“Mid-to-late decade, those are reasonable targets, but that will be after a few billion dollars’ worth of investment. If you are building 100,000 Mustang Mach-Es and there is a natural market for 80,000 of them, that means you have to incentivise 20,000 more – and you just lose money.”

Mr Lawler told Automotive News that due in part to cheaper imports, Ford was finding it difficult to find the right balance on EV prices.

“There is tremendous downward pressure in the EV segment right now on pricing. What this is teaching us is that going forward it is really a cost game. The market leaders in EVs have the lowest cost structure.”

Across the pond, Mercedes-Benz CFO, Harald Wilhelm, told Automotive News Europe that EV adoption rates had been lower than expected.

Mr Wilhelm said the EV market is a “pretty brutal space” and that while the company remained committed to its EV targets, it could benefit from its ICE portfolio “if margins on EVs remained lower than previously assumed”.

“With some traditional players selling BEVs below the level of ICE cars, this is a pretty brutal space. I can hardly imagine the current status quo is fully sustainable for everybody,” he said.

Mr Wilhelm made the comments as part of Mercedes-Benz’s third quarter earnings statement.

This week, the German manufacturer reported a 12.4 per cent adjusted return on sales in its cars division in the third quarter. It said it expects to be on “the lower end of a 12 to 14 per cent forecast for the year” because of the price of competitors’ models, inflation, high interest rates, geopolitical uncertainty, and ongoing supply chain issues.

Mercedes-Benz cars earnings before interest and taxes fell 6.8 per cent to €4.8 billion ($A7.98b) while vans earnings jumped 44.0 per cent to €715 million ($A1.19b) with an adjusted return on sales of 15 per cent. Group revenue fell 1.4 per cent at €37.2 billion ($A61.8b).

Commenting on the news, South Korean manufacturer, Hyundai, said it would not delay plans to roll-out new electric models and said it was upbeat about prospects for continued growth over the coming year.

“We do not plan to dramatically reduce EV production or our line-up due to likely near-term hurdles as we believe EV sales will grow (in the) longer term,” Hyundai Motor Group executive vice president, Seo Gang Hyun, told analysts at a recent earnings briefing.

Hyundai Motor Group – which comprises Genesis, Hyundai and Kia – said earlier this year that it plans to launch 31 new electric vehicles globally by the end of the decade.

Mr Seo admitted that Hyundai Group EVs sales could be slightly lower than anticipated next year, but said the company retained the flexibility to boost ICE vehicle production if “demand shifted that way”.

For the third quarter, Hyundai booked a net profit of 3.2 trillion won ($A3.78b), more than double the year-earlier result. Sales also increased, climbing 8.7 per cent to 41 trillion won ($A47.6b) based primarily on solid demand for high-margin ICE powered SUVs.

With Automotive News and Automotive News Europe.