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Why automakers are backtracking on their ambitious EV game plans

While refocusing on currently profitable vehicles like hybrids that consumers prefer, will automakers miss out on an eventual EV transformation?

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

But one car group is still clogging up dealer lots: EVs. The relatively high cost of EVs, range anxiety, and American consumer preference for hybrids are a few factors to blame.

The latest data from S&P Mobility finds that EV inventory at the end of April climbed 5.7% compared to the prior month and rose 105% compared to a year ago. This despite steep discounting for EVs through most of the year.

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

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

Given that automakers other than Tesla are selling EVs at a loss, it's not surprising car manufacturers across the board have been backtracking. Last week, Ford (F) CFO John Lawler said COVID boosted EV sales. But once those buyers and early adopters were accounted for, the broader group of buyers failed to jump in.

A Ford Mustang Mach-E vehicles are shown on a dealership lot, Wednesday, May 29, 2024, in Salem, N.H. (AP Photo/Charles Krupa, Pool)
A Ford Mustang Mach-E vehicles are shown on a dealership lot, Wednesday, May 29, 2024, in Salem, N.H. (AP Photo/Charles Krupa, Pool) (ASSOCIATED PRESS)

Mainstream buyers are "not willing to put up with some of the other issues that you might have with an EV around range and those types of things,” Lawler told Yahoo Finance .“I think you're going to see the growth continue, [but] it's going be a little bit slower than what we've seen in the past.”

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

GM (GM) is plotting a similar strategy. The company has backed away from its initial big 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 lower than the 200,000 to 300,000 unit plan.

Still, Jacobson told Yahoo Finance at the conference, “We're picking up significant [EV market] share; we sold over 9,500 EVs in North America last month." The Chevrolet Blazer and Cadillac LYRIQ EV had “really strong gains,” Jacobson added.

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

Mercedes pivoted hard from its plan to be all-electric by 2030, with the German luxury automaker seeing only 50% of sales being “electrified” — meaning both hybrids and full EVs — by 2030.

Germany’s Volkswagen (VOW3.DE) has also pulled back. For instance, the company canceled the US release 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 Bloomberg report.

Visitors check details of a car at the New York International Auto Show 2024 in New York, the United States, on March 29, 2024. The New York International Auto Show 2024 opened to the public on Friday with models from over 20 manufacturers on exhibition. (Photo by Liu Yanan/Xinhua via Getty Images)
Visitors at the New York International Auto Show in New York last March. (Liu Yanan/Xinhua via Getty Images) (Xinhua News Agency via Getty Images)

“Americans were never prepared to embrace electric vehicles at the rate predicted by many industry and government 'experts,'" iSeeCars executive analyst Karl Brauer told Yahoo Finance. “It was obvious getting from 3% to 7% EV share was much easier than getting from 7% to 10%. And getting EV share to 20%, 30%, or more percent? That was clearly a long ways off.”

Said CarGurus director of industry insights Kevin Roberts: “The hoped-for EV adoption curve always felt accelerated by an understandable mix of government desire to reduce emissions, along with automakers looking to match Tesla’s margins and stock price success.” He added, "Decisions were made to attempt to go straight to EVs, and bypass a transitional generation of hybrid powertrains that would’ve allowed for more time to develop consumer comfort in the segment and build up charging infrastructure.”

For companies like Ford and GM, refocusing on gas-powered and hybrid powertrains seems like a logical move. And the prospect of producing cars that are already cash-flow positive — and leveraging Chinese partners for EVs — was sweet music to 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 U.S. automaker Ford,” CFRA’s Garrett Nelson wrote in a research piece in April.

“Ford had considerable success with the sale of 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 bestselling plug-in hybrid models in the U.S. last year,” Nelson added.

Conversely, Nelson said automakers who made larger bets on pure battery EVs, such as GM, are less favorably positioned.

The question remains: Will companies like Ford, GM, Stellantis, and others who have pulled back investments eventually lose EV market share — and will companies who have kept innovating and spending emerge as the big winners in the eventual EV transformation?

Chinese EV makers are going full force into new vehicles with cutting-edge tech and self-driving features. For example, take the success of newer tech brands like Xiaomi and established EV makers like BYD.

“The Chinese already have every advantage when it comes to EVs, from controlling the global lithium supply to aligning their government and manufacturing sectors to reduce production costs,” iSeeCars’ Brauer added.

“[American automakers] are not ready,” said Stella Li, BYD Americas CEO, about US automakers and their EV game plans in an interview with NBC News in April. “We are ready. We are ready for technology, and we are more ready on supply chain.”

In response to the China EV threat, the US and EU announced tariffs against Chinese EV makers, with the US quadrupling levies to 100%, and EU rates going as high as 38.1%. But tariffs and other trade restrictions are not usually a long-term answer, with the failed restrictions on Japanese automakers in the ‘80s a prime example.

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

“We believe that Western auto firms (including Tesla) have come to a unanimous and simultaneous realization: China has won the contest for EV supremacy,” Morgan Stanley’s Adam Jonas wrote in a note to clients last month. Jonas predicts the industry will enter a new phase of lower spending, higher protectionism through tariffs, and likely cooperation with China with regards to producing and developing EVs.

However, tastes in automobiles in the US versus the rest of the world may play in favor of legacy automakers — the Big Three plus Toyota, VW, and others — who have been making cars tailored for Americans for some time.

Said CarGurus' Roberts, “The US market might prove to be unique enough in its vehicle taste" like SUVs and pickups, "while most of the low-cost Chinese EVs tend to be much smaller vehicles, which US consumers tend to shun.”

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

An earlier version of this story mentioned GM having an original goal of 400,000 EVs produced in 2024, but the projection that was withdrawn was actually for EVs produced from 2023 through mid-2024.

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

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