by Kyle Johnson

 

Not dead. Not dying. But the electric vehicle (EV) industry is currently undergoing a massive restructuring. Below is a list of auto manufacturers that have announced reductions in EV production:

• Audi
• Aston Martin
• Ford Motors
• General Motors
• Jaguar Land Rover
• Mazda
• Mercedes-Benz
• Renault
• Toyota
• Volkswagen
• Volvo

We’re not talking about minor alterations to scheduled EV productions. Big changes are underway. For example, Toyota slashed its expected EV output by 30% for 2026. Mazda discontinued its only EV model. Ford expects to take a $1.9 billion loss after giving up on an electric SUV. Volvo abandoned its plans to sell exclusively EVs by 2030.

Superficially, the EV industry is doing just fine. An estimated 9.5 million new EVs (fully electric, not including plug-in hybrids) were sold in 2023, up 31% compared to 2022. So why are so many C-Suite executives changing course?

The conventional explanations for this restructuring are centered around convenience and cost. These reasons are sound, but I think there’s more to the story.

 

Convenience

While improvements have been made, charging EVs is still inconvenient compared to refueling vehicles with internal combustion engines (ICEs).

The Air by Lucid Motors is credited as the fastest-charging EV; one minute of charging adds 20 miles of range. Impressive but still well short of what can be achieved with a one-minute splash-and-dash, even with gas guzzlers. Fuel pumps dispense about 13 gallons of fuel per minute. At 11 miles per gallon, the Bugatti Chiron gets 143 miles from one minute at the pump.

In 2022, a Wall Street Journal reporter rented an EV for a 2,000-mile road trip and spent more time charging her car than sleeping. And the EV charging network hasn’t improved much since then. In November 2021, President Biden signed an infrastructure bill that included $7.5 billion to build 500,000 EV charging stations nationwide.

As of August 2024, seven have been built.

Yes, seven.

Some countries have better EV infrastructure than others. But recharging EVs remains a hassle. Even charging at home can be problematic. CBS reported that high electricity prices in New England left many EV drivers with huge electricity bills. Some are spending 50% more to recharge their EV compared to refueling an equivalent ICE car. Meanwhile, Californian EV drivers receive alerts from the operators of the power grid encouraging people to not charge their vehicles at certain peak hours.

Even if EV owners can meet their charging needs, they can expect 1–2% battery degradation per year.

 

Costs

According to the most recent data published by Kelley Blue Book, the average prices for EVs are $56,520 and $48,401 for ICE. These are US figures that exclude available tax incentives, such as $7,500 for qualifying new EVs and $4,000 for qualifying used EVs. An analyst for Cox Automotive claims that non-luxury EV models come with a 19% higher price compared to equivalent ICE cars.

If you’re in the market for an EV, exercise caution when doing your research. It’s easy to find claims that EVs are cheaper in the long run. But if such claims are true, why then are many US car rental companies reconsidering EVs?

Hertz made headlines in 2021 after announcing it placed an order for 100,000 Teslas at a cost of $4.2 billion. But in January this year, the New York Times reported that the company scaled back its order citing low resale prices. It also reported that other rental companies found EVs largely unprofitable due to unanticipated costs. Many EV renters cause collisions because they are unprepared for the abnormally quick acceleration. This resulted in higher insurance premiums than anticipated by rental companies. At the individual level, the National Association of Insurance Commissioners claims EV insurance can cost up to 20% more than for an equivalent ICE car.

Several rental companies are reducing their EV offerings due to slow repair times. It’s noteworthy that even big companies with thousands of EVs in their fleets and millions to spend face delays. Average EV owners likely suffer longer wait times and costs. An automotive research firm in the UK found that EV repairs take 14% longer and cost 25% more compared to ICE cars.

I’d be remiss not to mention some EV absurdities. An owner of Rivian RT1, a $73,000 electric pickup truck, was quoted $42,000 to repair a rear fender after a minor collision. One Tesla owner was quoted $21,000 to replace a water damaged battery. Admittedly, Lemon Laws were invented in response to poorly made ICE cars. But EVs seem to generate a disproportionate number of outlandish incidents.

 

Access To EVs

The EV market restructuring is occurring despite it never being easier for buyers to overextend themselves. The car industry has been financialized. In the US, buyers use credit for about 33% of used car purchases and about 80% of new car purchases. In early 2024, the average money down payment was just 14% on new cars. The average length of a car loan is 72 months. Some financing companies offer 120-month loans. Sellers encourage customers to focus on monthly payments, not all-in cost.

So why would EV manufacturers pullback now? Did car buyers suddenly gain more financial discipline?

I suspect not.

 

Still Cool?

This might upset the diehard fans, but it seems that EVs currently offer a poor value proposition.

This isn’t my opinion. It’s the opinion of many EV buyers. A survey by McKinsey & Company found that 46% of American EV buyers (and 29% globally) want to switch back to ICE vehicles citing high costs, range anxiety, and charging difficulties.

This higher number of frustrated American EV buyers is particularly interesting. For many people, a car is simply a tool used to get from A to B. But for many others, cars are much more of a personal statement and point of pride. Cars have long been a status symbol in America where car culture thrives. But the most practical cars have never been the most celebrated ones.

Unusually high costs and significant inconveniences are the price of admission for antique, classic, and muscle cars—all notoriously unreliable. American car enthusiasts celebrate and revere cars that regularly leave owners stranded. Enthusiasts tolerate headaches to preserve automotive history and earn a certain “cool factor.” These cars are limited in number and possess unique styling and features of bygone eras.

This clearly does not apply to today’s mass-produced EVs (or those that are hoped to be mass-produced, at any rate).

America isn’t the number one EV market in terms of volume or percentage. But innovation and trendsetting might make it the most important. Tesla was primarily responsible for kicking off the recent EV craze. Americans purchased many of the first vehicles in the early years. Early EV adopters earned the highest “cool factor” per dollar spent.

But that was then, and this is now.

As a brand, Tesla is synonymous with EVs. Anything that looks like a Tesla now suggests an EV. The design aesthetic everyone is now familiar with began in 2012 with the release of the Model S. That year, Tesla manufactured 3,100 cars and sold 2,650. For some time, Teslas were uncommon and visually distinct from everything else on the road. Driving a Tesla meant you had money, or at least a good credit score. In 2013, Edmunds reported that Teslas were the most-registered new car in eight of the wealthiest 25 zip codes.

But times have changed. Teslas are everywhere now. Last year, the company sold 1.8 million cars globally, and 670,000 in America. I suspect only enthusiasts can immediately differentiate the flagship Model S Plaid (which can exceed $100,000 with options) from an ordinary Model S… or even the entry level Model 3 ($38,990).

And now, the Chinese are flooding global markets with sleek, cheap EVs.

Demand for Teslas is sputtering. This year, Tesla offered discounts and incentives because demand didn’t meet expectations. In Q1, the company experienced its first YoY sales decrease since the early days of the pandemic.

It seems that EVs are even more difficult to sell for legacy brands, given that they also produce ICE cars and/or hybrids. Small badges and different vents/grills are often the only way to distinguish EVs from their ICE counterparts. Such EVs likely have the smallest “cool factor” of all. This might explain why EVs spend an average of 120 days on dealership lots before being sold—about double the time of ICE cars.

Despite ample supply and access to credit, the American car buyer doesn’t seem to want EVs as much these days. I smell trouble.

 

EVs & The Luxury Boom

EV sales boomed during the pandemic, as did luxury brands. A Goldman Sachs product with a basket of European luxury brands grew by 57% between 2020 and 2023. A report by Bain & Company found that 95% of luxury brands saw growth in 2022.

When stimulus money was flowing, Moet Hennessy Louis Vuitton (LVMH) grew to become the world’s most valuable luxury company, with a market cap once exceeding $500 billion. At one point, Bernard Arnault (CEO of LVMH) surpassed Elon Musk as the richest person on Earth.

But it’s been tough sledding of late. Sales have slumped. Market caps for the top four luxury brands have fallen by roughly $200 billion from the peak.

It would be foolish to dissect the EV restructuring by exclusively looking at the numbers. We humans are emotional beings. It’s easy to overestimate our own rationality. People of ordinary means find ways to justify buying designer clothes, purses, jewelry, etc. But that’s increasingly difficult when money gets tight. I suspect the same thing is happening with EVs. Things like “zero” emissions and at-home charging may, in fact, be rationalizations opposed to genuine reasons behind many EV purchases.

High costs and hassles will be tolerated if the social reward is high enough. Today, EVs come with more headaches than ICE cars. And as EVs become more common, owners are likely to receive decreasing amounts of social acknowledgment and praise.

No judgment. Status-seeking behavior is an undeniable aspect of society. The design language of many top-selling luxury brands like Gucci, Louis Vuitton, and Dior is often less than subtle. It would be quite a surprise if subtly is what EV buyers crave.

 

Reeks of Recession

It seems highly improbable that luxury goods and EVs struggle at the same time for independent reasons. That they are struggling at all indicates a weak economy. A recession is a simple and logical way to explain both.

Team No Landing is toast. This leaves Team Soft Landing and Team Hard Landing to duke it out. Remember, both agree on a recession. They just disagree on its severity.

It might sound strange, but I wouldn’t overly obsess about official statistics and declarations. In my opinion, the recent 818,000 downward job revision proves that government statistics are primarily tools of propaganda, not objective measurements.

If a recession is ever officially recognized, it will be in retrospect. Not much help to investors.

Economists, academics, and pundits revel in word games. They never tire of bickering about official statistics. Most demand our agreement but have no shame when proven wrong. Economic stats can’t be ignored entirely, but they should be taken with a hefty dose of salt.

In general, I tend to lend more weight to people with skin in the game. Corporate executives suffer real world consequences for getting things wrong. I’m not saying you need to agree with me. But it seems worthwhile to consider why so many auto executives lowered their forward guidance this earnings season.

If not for a recession, then what else?

And the Fed just made what looks like an emergency rate cut (50 basis points is twice the usual amount)… because everything’s fine, right?

KJ

 

P.S. EVs significantly impact resources like copper and lithium. But resource speculation is cyclical. Once a week, Lobo does a deep dive on the economy and markets in our free, no-hype, no-spam newsletter: the Speculator’s Digest. It’s the only place to receive his latest thoughts.