US automakers adjusted their plans to transition to electric vehicle (EV) production at the end of 2023 as they looked to maintain growth in a trickier environment in 2024.
EV adoption is facing headwinds as higher interest rates have made financing more expensive for the already premium models. The financing rate for 48-month new auto loans rose to 8.3pc in August 2023 from 5.5pc in August 2022, the highest level since August 2001, according to Federal Reserve economic data. Higher interest rates have also made the financing of transitioning facilities and building new plants more costly.
Despite the headwinds, EV adoption is expected to continue growing in the US but at a slower pace than years past. Argus Battery Materials Analytics forecasts battery electric vehicle and plug in hybrid sales in the US rising by 37pc year-over-year to 1,935,000 vehicles in 2024 compared with a 50pc year-over-year rise to 1,410,000 vehicles in 2023.
Automakers are also facing higher labor costs in the coming years following an agreement with United Autoworkers (UAW) union. Big Three automakers General Motors, Ford and Stellantis agreed to give a 25pc raise to union members through April 2028 to end the six-week automotive strike. Traditionally non-union automakers are also facing a new unionization push following the strike, with UAW wanting to organize 150,000 workers across BMW, Honda, Hyundai, Lucid, Mazda, Mercedes, Nissan, Rivian, Subaru, Tesla, Toyota and Volkswagen.
Multiple automakers are scaling back their EV plans, which automotive executives have described as "aligning capacity with demand." Ford paused construction on one of its two battery plants at BlueOval City in Kentucky as well as scaled back its plans at its Michigan battery plant to 20 GWh/yr of capacity instead of 35 GWh/yr. These changes were part of the broader shift by Ford to delay $12bn in planned EV investments.
General Motors is moderating the pace of its investment in 2024 and 2025 to help maintain strong pricing for its models, according to its third quarter earnings call. EV maker Tesla is avoiding giving a timeline for its planned Mexico gigafactory so that the company can "get a sense for what the global economy is like" according to chief executive Elon Musk.
Automakers are also scaling back plans for their new vehicle offerings as they try to get ahead of the slower growth in demand. Tesla gave a Cybertruck production guidance of 250,000/yr by the end of 2025 after multiple years of delay, but "the ramp is going to be extremely difficult" according to Musk. He said at the start of 2023 that the model would be a significant contributor to the company's bottom line in 2024.
General Motors is also delaying the launch of its electrified models of the Chevrolet Equinox, the Chevrolet Silverado RST and the GMC Sierra Denali at its Orion assembly plant in Michigan by a few months to "ensure their success." General Motors chose to not provide new short term production targets for its EVs so that it could "evaluate EV demand and adjust production schedules to maximize profitability".
Automakers face tighter margins and even losses on models that they have struggled to ramp up to high volume production. EV maker Rivian made strides in the last year pushing its gross profit per vehicle delivered to a loss of $30,648 in the third quarter from a loss of $124,162 at the start of the year. However, most of these savings came at the start of the year and slowed by the end with $1,947/vehicle in savings delivered coming in the third quarter.
All of these challenges come as automakers seeking to qualify for the full $7,500 clean energy vehicle tax credit under the US Inflation Reduction Act face new requirements at the start of 2024. To qualify for the full credit, 50pc of the value of the components must be made in North America, while the US or free trade partner must provide 40pc of the value of the critical minerals in the battery.
While the tax credit can bring down the cost to the consumer, the extra requirements come at a difficult time for the developing EV ecosystem and add extra onus on vehicle and battery manufacturers. Telsa's Model 3, one of the company's bestselling models, will lose its credit once the new requirements come into effect, according to the automaker.
