The Struggle of EV Development for Traditional Automakers

Apple recently announced the abrupt termination of its electric vehicle (EV) development project. Despite a decade-long effort, no tangible results have emerged. Apart from Apple, many traditional automotive companies have adjusted their EV plans in recent months. For instance, Ford announced plans to delay or cut its $12 billion spending on EVs and will reassess the need for in-house production of batteries. Honda and General Motors also scrapped their joint plan to develop affordable electric SUVs over a year ago.

Stumbling Blocks for Traditional Automakers

The reasons behind the cancellation or postponement of EV investments by US and EU traditional automakers can be gleaned from Ford’s financial performance last year. Ford’s EV business incurred losses of $700 million, $1.1 billion, $1.3 billion, and $1.6 billion in each quarter from Q1 to Q4. EV sales remained at approximately 34,000 to 36,000 vehicles per quarter from Q2 to Q4, with no visible growth. The EBIT margin in Q4 was almost -100%. With an average EV selling at around $47,000, the -100% EBIT margin represented a cost of about $93,000 per car, significantly higher than the traditional gasoline cars’ cost of $33,000.

The difficulty in the EV business lies not only in development but, more importantly, in cost reduction. President Biden’s support for wage increases in the automotive industry at the end of last year has made cost control more challenging for US car companies.

Ford EVs’ tepid sales last year indicate that the initial high-growth phase of EV development appears to have passed. Many consumers with purchasing power and a willingness to embrace new things may have already purchased EVs. To stimulate another wave of consumers, prices need to be lowered to achieve economies of scale through expanded sales and subsequently achieve profitability. However, for European and American traditional automotive companies, the decision to lower prices brings many risks and requires substantial investment in new capacity. It is also difficult to determine the level to which prices should be lowered. If demand fails to materialize and additional production capacity is added, it will only worsen losses and could even lead to bankruptcy. However, if traditional automakers cease their investment in EVs, in just over a decade, when the government completely bans the sale of fossil fuel vehicles, they will also be out of the market. Therefore, they have no choice but to grit their teeth and continue their EV investments.

Strong Competition from Chinese Brands

In contrast, the situation for Chinese EV manufacturers appears relatively optimistic. China’s traditional internal combustion engine (ICE) technology lags behind that of Western countries and is unlikely to catch up in the short term. However, EV is a new thing, and the previous technological differences in ICE do not apply to the EV competition. Moreover, EVs rely more on electronic and electrical technology, with relatively simple mechanical design. Chinese companies generally have a strong foundation in areas such as electronic product assembly and design, which makes them more competitive in developing EVs compared to ICE.

In recent years, the Chinese government has also vigorously promoted the development of the EV industry through subsidies. As a result, not only did the EV companies see rapid growth, but its upstream and downstream industries such as battery manufacturing and battery raw materials also thrived. China currently has a dominant position in global lithium battery supply. Since batteries can easily account for more than 30% of EV costs, Chinese companies have more competitive advantages than foreign brands in pricing EVs.

Finally, China has the world’s largest automobile market with a complete industrial chain and a massive economic scale. Many companies supply parts to foreign brands and have spent the past 30 years continuously improving product quality to meet the standards of foreign customers. Moreover, with wages being lower than in developed countries, their component cost-effectiveness is very attractive, leading to much lower EV costs than those of European and American automotive companies.

Tesla’s CEO Elon Musk recently told industry analysts that Chinese EVs are so good that without trade barriers, “they will pretty much demolish most other car companies in the world.” Ford’s struggle in developing its EV may be a showcase.


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