Energy Musings - February 22, 2024

Ford is cutting the prices of left-over EVs, which they label as "slow-selling." No truer words were written by Ford's advertising department. EVs have numerous problems and are confronting reality.

A Sign Of How Bad The EV Market Is

The headline of an article posted on The Drive website Tuesday read: “Ford Slashes 2023 Mustang Mach-E Price by up to $8,100 With 0% APR.”  More interesting was the tagline under the headline.  “Now’s a really great time to nab a solid, yet slow-selling EV.”  Even the advertising department at Ford Motor Company cannot hide the company’s problem with EVs – “slow-selling!”  Customers do not want them to the degree politicians believe and have incentivized and mandated.  As a report on EV battery costs stated, technology should lead policy rather than the other way around.  We are hard-pressed to cite any example of a policy leading the technology. 

After 120 years of history, batteries and EVs remain heavy, expensive, destructive of the environment during the mining of the minerals needed, limited in charging range, and poor performers in extreme cold and hot climate conditions.  Despite the rhetoric from EV believers, none of these problems have been solved.  So, the solution is to give buyers subsidies and provide huge credits to automakers to build them. 

This isn’t the Field of Dreams: “If you build it, he will come.”  I don’t remember the government demanding people electrify their homes, purchase telephones, and certainly not buy cell phones.  The latter demonstrates the technology over policy dictum.  How many people remember the shoebox-sized cell phones with limited battery life we started with, let alone how few people purchased them?  Technology solved the size and battery-life issues and the market took off. 

Ford’s eMustang was to be the star of the company’s EV business, but market realities have turned it into the leader of a disaster.

EVs have been a disaster for domestic auto manufacturers with Ford being the poster child.  Last year Ford lost $4.7 billion on EV revenues of $5.9 billion.  Ford is estimating it will lose $5-5.5 billion on EVs this year.  The company’s goal of reaching an 8% operating margin by 2026 was dismissed by Ford’s CFO John Lawler during his presentation to investment analysts earlier this year.  “I don’t think anybody believes we can bridge from here to 8% by 2026,” he said.  The EV division “needs to be profitable and provide a return.” 

Ford’s publicists crystallized their problem.  “Many North American customers interested in buying EVs are unwilling to pay premiums for them over gas or hybrid vehicles, sharply compressing EV prices and profitability,” they wrote.  Like any good marketer, slashing prices on leftover merchandise is required.  The chart below from The Drive shows the cuts for left-over 2023 EVs Ford has announced.  They are hoping this step will spur buyers and help clean out dealer lots. 

Maybe these price cuts will attract EV buyers, but the reductions just add to Ford’s loss per vehicle.

EV companies Rivian and Lucid yesterday posted larger EV losses than forecast and reduced their 2024 production outlooks.  Rivian is also cutting 10% of its salaried staff.  The company delivered 50,122 EVs last year but produced 57,232.  They are projecting producing 57,000 EVs this year, although Wall Street analysts had them at 66,000.  The company’s operating margin was a negative $2,030 million in 2023, or a loss of $40,500 per vehicle sold. 

Rumors are that the Biden Environmental Protection Agency will delay its revised tailpipe emissions rules for model years 2026-2032.  Those were the rules that backed up their estimate that two-thirds of vehicles sold in 2032 would need to be EVs to meet the new standards.  If the delay rumor is true, it justifies the delay in EV investments automakers have announced.  It is another black eye for the Biden administration’s green agenda. 

It will do little to change consumer minds about the problems with EVs.  It will go a long way to confirming that EVs are a niche auto market rather than a universal solution for America’s travel.  We expect the EPA’s delay will be pitched as an appeasement for voters upset with Joe Biden’s economic policies, but we wonder how great the outrage will be from the environmentalists. 

One can already see the pushback to market realities from these environmentalists.  Aaron Regunberg, senior policy counsel at consumer group Public Citizen and a former member of the Rhode Island House of Representatives, commented, “Putting more gasoline-powered cars on roads and saying that’s good for the climate is just misleading.”  This is an opening shot in the Public Citizen’s attack on hybrids and Toyota Motor Corporation, the world’s largest auto manufacturer and the number one provider of hybrid vehicles, in particular.  Public Citizen has urged attorneys general in states including Oregon, New York, Rhode Island, and Illinois to look into Toyota’s marketing of hybrids as being misleading.  No surprise about this collection of states. 

Toyota has long questioned the market for EVs and has aggressively pushed its hybrid technology starting with its Prius model in 1997.  Last year in the U.S., 1.4 million hybrids were sold compared to 1.1 million EVs.  And that comes with hybrids scoring only a $2,500 per vehicle subsidy versus the $7,500 awarded EVs. 

What environmentalists continue to ignore is that EVs are mineral-intensive, which in most cases come from overseas and often are mined with terrible environmental devastation and human suffering.  Toyota has shown it can produce 90 hybrids with the minerals used in one EV battery.  Hybrids deliver better mileage than gas-powered vehicles.  Because of the emissions legacy of EVs during their assembly, as demonstrated by Volvo in studies of its comparable gas and EV models manufactured in South Carolina, it takes years of driving with zero emissions from the vehicle to reach parity with gasoline vehicles.  The time needed to offset the legacy emissions is also influenced by the emissions of the electricity provider used to charge the EV.  It can take 6-7 years optimistically or 8-10 years of driving to offset the legacy emissions. 

Yes, hybrids will not get the automobile industry to net zero emissions, but they will reduce emissions considerably.  It could be viewed as a better alternative to EVs while better vehicle technologies are developed. 

Ford’s publicists have nailed the reality of the EV market – slow-selling.  There are many issues that customers face when purchasing vehicles, especially EVs.  Contrary to the optimists, vehicles are not bought the same way cell phones are – they cost much more and are purchased less frequently.  Automakers are wrestling with the reality of the EV market as politicians continue to believe in fairy tales about them.