Energy Musings - June 27, 2024

The problems and challenges of electric vehicles continue unabated and are likely worsening. We cover numerous issues raised about the electric vehicle market in recent weeks.

EV Narrative Stumbles Into Reality

Recent news about electric vehicles (EVs) highlights the economic problems causing buyers to take their finger off the “buy” trigger.  How is it possible that the solution for a net zero emissions world is failing?  It is due to the combination of expensive vehicles to buy and operate, concern about charging locations, and range anxiety.  The industry slowdown has forced Biden administration climate acolytes to back off from their push for EVs to be two-thirds of new vehicle sales by 2032. 

The recent EV news flow began several weeks ago with an interview on CNBC with Stellantis CEO Carlos Tavares.  His appearance followed the company’s investor day, where Tavares addressed the problems of the former Chrysler Fiat automobile manufacturer.  He described the “arrogant” mistakes by himself and the company in the company’s U.S. operations that led to sales declines, bloated inventories, and investor concerns.  The company is cutting costs by laying off workers.  A number of senior executives have recently left Stellantis, creating negative vibes among its dealers. 

Stellantis’ U.S. sales fell 10% during the first quarter.  Cox Automotive reported that days’ supply of vehicles at Stellantis’ Jeep and Ram dealers were more than twice the industry average of 76 days.  The company was the only major automaker to report a decline in U.S. sales last year, with its market share dropping below 10%.  Tavares acknowledged management was slow to boost dealer incentives to sell cars, cut costs, and take other marketing steps to move its inventory.  At the same time, Stellantis acknowledged problems with two unnamed auto plants it is working to correct. 

The most interesting part of the CNBC interview was Tavares’ comments about the EV market.  He stated they needed to cut vehicle costs by 40% to bring them in line with the cost of internal combustion engine (ICE) vehicles if they wanted to sell their EVs.  He also pointed out that the industry needed the user experience to improve – charging stations readily available and the time to charge shortened.  Neither of these changes will happen quickly or will be easy to achieve. 

When European auto sales figures for May were released, it was not surprising to see EVs suffering.  The industry’s auto manufacturing association reported overall vehicle sales fell 3% in May, but EVs and plug-in hybrid EVs (PHEV) suffered the most.  EV market share was 12.5% in May, down from 13.8% in May 2023.  The PHEV market share dropped to 6.5% from 7.4% last year.  Traditional hybrid vehicle market share soared from 25% last May to 29.9% last month reflecting the global trend in a less polluting vehicle option. 

European automakers acknowledge that the high cost of EVs makes them luxury purchases hurt by high inflation and interest rates.  Germany ending its EV subsidies last December resulted in a 16% sales decline for 2024’s first five months. 

Auto manufacturers are adjusting.  Mercedes has halted the development of its MB.EA platform for future large EVs.  They will keep ICE vehicles in their product line-up well into the 2030s, longer than previously announced.  Mercedes and partner Stellantis also stopped work on its joint battery plant.  Stellantis also plans to keep other power trains in its line-up to meet customer desires. 

Fisker Bankruptcy

Back in the U.S., Fisker Inc., a car design firm founded by Henrik Fisker in 2016, filed for bankruptcy as it ran out of cash.  The company manufactured 10,000 Fisker Ocean SUVs last year but delivered only about half.  In bankruptcy court, one of the first steps was to ask permission to sell the 4,300 undelivered Ocean vehicles to a leasing company to get an immediate injection of cash. 

The fate of the Fisker Ocean was sealed when Marques Brownlee, a YouTube automobile reviewer, released his review, “The Worst Car Ever Reviewed.”  He stated, “Do not buy this version of the Fisker Ocean.”  Fisker admitted it had software problems, but the reviewer refused to wait for an updated vehicle for his review.  Brownlee said he wanted to test a vehicle in the market rather than a modified vehicle.  Fisker’s stock price dived 50% after the release of the YouTube review.  Since the video’s release in mid-February, it has been seen over 5.7 million times. 

The bankruptcy filing revealed the failure of Fisker to complete a joint venture with Nissan hinted at last August when it disclosed plans during its Product Vision Day for multiple new models to include a low-cost EV and an electric pickup truck.  The joint venture would have ensured the models moved forward, supported by a financially strong partner. 

Speaking of bankruptcies, rental car company Hertz, devastated by its failed effort to get renters into EVs, is attempting to raise $750 million in cash to avoid going under for a second time in the past four years.  The company is owned by two private equity firms who purchased it for $2 billion after its 2021 bankruptcy.  They are offering to buy $500 million in debt to protect their equity position, which is nearly worthless.  Another $250 million in pik (payment-in-kind) bonds are to be purchased by another private equity firm. 

After acknowledging that renters were rejecting EVs, plus they were expensive to repair and insure, Tesla’s decision to cut prices on its models destroyed the residual value of its fleet Hertz decided to abandon the plan and sell its EVs.  Vehicle fleet depreciation is a major cost for rental car companies.  Rental car companies count on the resale of their vehicles for income and cash.  The destruction of the EV used car market crippled Hertz.  Now, after putting over 20,000 EVs up for sale, the company has adopted a no-haggle $25,000 sales price to try and sell them in a falling market. 

McKinsey Vehicle Intentions Survey

The most challenging new information impacting the EV market was the release of a consumer intentions survey by management consultant McKinsey & Company.  It asked questions of EV owners and their intentions about future EV purchases.  The answers should be disturbing for automakers and EV proponents.  The headline message of the study was, “46% of EV owners in the United States say they’re going to go back to a gas-powered car.” 

The McKinsey Mobility Consumer Pulse study is produced by McKinsey’s Center for Future Mobility.  It surveyed more than 30,000 respondents globally who “regularly use mobility” and asked more than 200 questions about mobility, car ownership, and consumer preferences.