The Auto Industry/EV Suicide Pact
The EV business sector is not being developed for profit, nor is it to satisfy market demand, nor does it help to “save the planet,” and it’s killing off jobs. So why is it happening?
Image: Chevrolet
Of all automakers, it seems that General Motors (GM) and the Ford Motor Company are taking the quickest path to financial disaster. The amount of profit sacrificed at the EV alter is stunning and shows no sign of slowing down.
Ford recently announced a new financial reporting structure to segment out its traditional car business (called Blue) from its commercial (called Pro) and EV (called Model e) businesses. Alongside this announcement, Ford “recast” its 2021 and 2022 results, showing that the Model e business lost $900 million in 2021 and $2.1 billion in 2022. Ford is forecasting a $3 billion loss within their Model E business in 2023.
Overall, Ford is a profitable company, thanks to their traditional car and commercial vehicle businesses. Yet the company is running full speed to “transition” away from these profitable businesses and into the gaping, white-hot profitability dumpster fire that is the entire EV movement.
A Multi-Billion Dollar “Startup”
Ford encourages investors to view the Model e business as a “startup,” with all of the upfront spending and small volume scale familiar to startups accounting for its massive losses. The company claims that their EV initiatives will bring in 8% operating profit margins by 2026 assuming “lower battery costs” and “benefits from scale.” That profit margin is tied to an unlikely EV business growth of around 90% per year over the next three years, as well as lower costs that are entirely unrealistic either from economy of scale or the notion that battery costs will go anywhere but up.
Regarding GM, the strategy behind the company’s lurch into EVs without any meaningful market demand is easier to understand. GM’s 2009 bailout by the U.S. government came with plenty of strings attached, one of which was to steer the company away from market-oriented activity and toward activity preferred by the government. This explains GM’s lack of interest in delivering products desired by consumers and rushing headlong to electrify cars that make them virtually unsaleable.
One example is the otherwise highly saleable Chevy Silverado 1500 half-ton truck, which becomes a three-ton truck given the 2,000 pounds of batteries it will carry. As with the electrified version of the Ford F-150 Lightning, the electrified Silverado will surely be greatly limited in how far it can carry or tow anything, preventing the truck from doing, well, truck things.
Who’s The Customer Here?
But none of that matters to GM management, who have understood long ago that their customer is not the buying public, but the government. Yes, those subsidized loss-leader Chevy Bolts sitting unsold on dealer lots will ultimately find their way into government fleets around the world. And it doesn’t matter that the luxury model Cadillac Lyirq sold a total of 36 units in the third quarter of 2022 (Tesla sold 54,000 Model Y units in the same period), it is institutional sales to the government and the continued obedience to government EV mandates that drives GM strategy going forward.
It's having an impact on GM’s people. The company recently announced a “voluntary separation program” for a majority of its 81,000 salaried workers that would provide a lump sum payment and other severance based on how long they worked at the company. GM aims to cut $2 billion in personnel costs, roughly one-third the amount the company plans to lose on its EV programs in the next two years.
Ford has already announced an 11% cut to its workforce in Europe, where EV adoption has assumed an almost religious position. The overall plan announced by Ford is to cut $3 billion in “structural costs” out of the traditional business (that would be the Blue and Pro divisions) in support of the EV business segment. Ford is bleeding its profitable business divisions to prop up their EV financial sinkhole.
And Where’s The Market?
Committing enormous resources to the electric vehicle business segment which, after being available on the market for nearly two decades, currently accounts for only 5.8% of annual vehicles sold in the U.S., seems unrealistic at best and financially reckless at worst.
Looking at the market, the practical and economic realities of EV ownership among consumers is coming to light very quickly. Simply put, the more consumers learn of the overall experience of owning and operating an EV, the less they want one. Ford and GM are on a mindlessly aggressive path toward completely failing their customer base by putting products on the market that a majority of consumers simply do not want.
As we move forward, there could be a point in time where EVs are declared hazardous to the environment and might eventually be banned. This has been discussed for a few years already, and putting more EVs on the road only exacerbates the issue.
To Summarize, Automakers are:
Pulling resources from profitable business units to prop up one that is failing terribly while costing thousands of jobs,
Building products the market is not asking for and,
Ignoring the real possibility that the products they’re pushing today will be obsolete or declared illegal to own within a decade.
Ford and GM are just two examples of an auto industry suicide pact to transition away from gas-powered vehicles and go completely electric. It’s not being done for profit, nor is it done to satisfy market demand, nor does it help to “save the planet.” It is purely the result of business leaders colluding with the government by creating arbitrary EV mandates that are crushing them financially. And they are sacrificing jobs to fulfill these mandates.
Could it be that the auto industry is being set up for another government bailout? Or could it possibly be a total industry takeover?
Since “transitioning” to electrification makes no business sense, I can’t see any other rationale.
Keith, Bob,
2 different yet Interesting perspectives on the EV issue from folks I've worked with and respect.
It's a timely conversation as I have 2 vehicles almost at lease end and I'm pondering whether to switch to an EV on at least one. All three of us are "Car Guys" and we worked together building the 12 Volt Audio program at Harman / JBL so it's a leap of faith to switch gears suddenly and embrace the new frontier of Batteries vs Gas, Amperes vs Octane. Being old school, I love a cockpit filled with Gauges, Switches, Knobs and Levers such as my current BMW 330i. Sitting in a Tesla with just an iPad-like screen and shuffling through menus to complete a task that a simple button push would accomplish is not something I long for. I love shopping for a new vehicle and poring over the myriad of brochures I would collect, comparing the interiors and performance specs was the fun part, the purchase was almost anticlimatic. I just can't get excited about EV's in the same way. Perhaps a Hybrid might be a way to put my toes in the EV pool before going headfirst.
Bob, you were a Slot Car guy, these are just larger scale Slot Cars 1/1 scale. As we get closer to the middle of the decade the debate will intensify and perhaps better choices will emerge.
My major concern is cities like NYC, Chicago, Boston & Los Angeles with high concentrations of apartment dwellers sharing a limited amount of Charging Stations.
Hi Keith. It's been a long time. I hope all is well with you my friend.
However, I completely disagree with you on almost all the points except for the ones about the Model T.
Your arguments have some merit if you go on the assumption that advances will stop where they are today and no further progress will be made. As you know, I am a long time car buff. I love the sound and feel of a high performance car, and continue to be a manual-shifting lover of "driving" as opposed to just steering. The idea of autonomous vehicles makes me want to puke. But, on the other hand I can't wait to buy an electric vehicle. It will be soon. I'm just waiting for a few more choices that aren't SUV's. Why you ask? Because they make so much sense! The performance is excellent, maintenance is profoundly reduced by the simple elimination of virtually all the parts that wear out. No oil changes. No cooling flushes. No Spark plugs. No coils. No PCV systems. No vacuum leaks. No throttle bodies or injectors. No transmission. I could go on all day.
Even with current technology, and factoring the additional pollution from initial manufacture, the crossover point for most typical drivers is in the first 6-months to 1-year where the total lifecycle pollution of EV's becomes less than an equivalent IC vehicle, and it just continues to get better after that.
Range, for most people is practically a non-issue if you think it through. With 250-300 mile range, a typical user can go for days without a charge. The logical use model is to do your daily commute and charge overnight, when electricity usage is already low, and you wake up to a full charge in the morning to do it all over again. My commute is 25 miles each way. The daily usage will be extremely small. I don't know about you, but when I go on a long trip, I need to stop every 2-3 hours anyway to take care of nature's call. You can sit at a quick charger for, at most about a 1/2 hour and be almost full again. Gives me time to get a burger and a Coke. So for the occasional trip, it's no major sacrifice. And, with typical brilliance from Mr Musk, Superchargers are almost always near shopping and restaurants, or highway rest areas. Others are sure to follow.
The other oft-quoted "problem" with EV's is the cost of batteries. They are expensive if you have to replace them out of warranty. However, the reality of the situation is that that is an extremely rare occurrence in the lifecycle of a typical EV. Vehicle manufacturers typically have 8-10 year/100000 mile battery warrantees. California ups that to 150,000, so most initial users will not need to ever replace them. Even then, at 150,000 miles you are likely to have over 80% capacity left, so a 300 mile range drops to 240 miles, which is of no concern with daily use for most people. This cost will be of concern to used vehicle buyers, because they may be the ones to foot the bill. And this fear may affect use vehicle values.
But, by the time a sufficient number of batteries actually need replacing, battery recycling will be the norm. Even now, people in the industry are claiming that 80% of the material in batteries can be recycled. This will obviously reduce the environmental impact of Lithium mining, but with increased production, recycling, and alternative uses for used batteries such as residential power backups, the current early-adopter costs will become more reasonable.
And there is the prospect of even newer battery technology in the future. Remember when Nickel-Cadmium batteries were the rage? It wasn't that long ago.
The bottom-line is that I can't see any of the popular arguments against EV's standing up to the inevitable progress of time. Elon Musk and Tesla demonstrated that EV's are not glorified golf carts, and the rest of the industry is still catching up. It's happening globally, and it won't stop. While I'm not a fan of the government intervening when inappropriate, it seems to me that what they are doing, by incentivizing the development of new technology and infrastructure to support it, is totally appropriate in this case. It's coming, and the USA is competing with powerful entities globally who are developing and implementing the technology. If we want to compete, we need to develop as fast or faster, or we will find ourselves left in the dust. If there are any smart people left in the oil companies, they should be figuring out how to adapt their business model to monetize the new tech rather than lobbying to fight it. Fighting it is a losing battle.
I could go on, but the horse is hungry.