Lately, it's been hard to read the news without seeing some story about the "electric vehicle slowdown" or how car companies are "rethinking" their EV-related investments. But that's a pretty shallow assessment; what's really going on is that most automakers now seem to be settling in for the long haul instead of walking this stuff back entirely. And you can see this pretty much across the board, if you look closely enough.
That idea is the central focus of this midweek edition of Critical Materials, our morning news roundup that covers the auto industry's tech- and battery-focused shift. Also to that end today: General Motors just signed a big battery-related deal with LG Chem, and the entire EV market seems to be waiting for its next "breakthrough" moment. Let's dig in.
30%: Don't Count Ford Out
Ford's Q4 2023 earnings call last night brought a lot of news on the electric front: handsome profits from gas trucks sold to consumers and fleets, continued $4.7 billion losses on its EV-focused Model e division (including $1.57 billion that quarter alone), and some interesting details from CEO Jim Farley about a secret project within the company to develop a much cheaper EV platform that can compete with the Chinese automakers and whatever Tesla may be cooking up there.
That last part is important, and we'll get back to it in a moment. For now, here's Farley talking about taking time to set up things like the total vertical integration of its battery supply, via CNBC:
“One of the things we’re taking advantage of in taking some timing delays is rationalizing the level and timing of our battery capacity to match demand and actually reassessing the vertical integration that we’re relying on, and betting on new chemistries and capacities,” Farley said during the automaker’s fourth-quarter earnings call.
Farley reiterated the company still believes EVs will grow, but noted widespread adoption for mass-market consumers won’t happen until the costs are more in line with traditional vehicles. EVs are typically thousands of dollars more expensive than their gas-powered counterparts.
Ford Chief Financial Officer John Lawler said in addition to reassessing the vertical integration in new battery chemistries, the company is further looking into adjusting installed production capacity to match demand and potentially delaying next-generation EVs to “to ensure they meet our criteria for profitability, given the new market reality.”
Lawler did add that the Model e division will have to stand on its own “sooner rather than later." But these moves—especially that cheap EV platform—are certainly not those of a company retreating from the electric game or betting on a long-term future for gasoline-powered cars, despite what you may read elsewhere.
60%: Waiting On That Next Breakthrough
On this topic, I'll point you to an opinion piece in Bloomberg that speaks to the challenge we cover here quite often: the market is still waiting for truly affordable electric vehicles. This piece argues Tesla is likely to get there first (something I don't disagree with) and says that every time Tesla has dropped something new, historically, you saw a mini-boom of competitors to keep up:
Thus far, there have been three step changes in EV demand in the US, when sales doubled or almost doubled: 2012-2013, 2018 and 2021. All roughly coincided with the launch of a game-changing model, all manufactured by Tesla Inc.
That would be Model S, Model 3 and then Model Y. (The author correctly does not put the Cybertruck in the game-changer category.) But right now, the electric world has an affordability and profitability problem, and that's the exact same challenge Ford's skunkworks team is trying to solve too. After all, EV prices still skew pretty high, especially without the Chevrolet Bolt on the market and the pending demise of the Nissan Leaf:
While the more pessimistic takes on EVs seem a bit ridiculous in the context of a market that grew by roughly half last year, signs of creeping fatigue are unmistakable. EV sales in the last three months of 2023 recorded their first quarter-on-quarter drop in almost two years; meanwhile, year-over-year growth of 31% marked a significant slowdown. This came against a backdrop of ongoing price cuts, savaging profit margins (including Tesla’s) and residual values, prompting the likes of Hertz Global Holdings Inc. to U-turn on ambitious EV rental rollouts.
Besides the perennial problem of sparse, and too-often unreliable public charging — outside of Tesla’s network — the US taste for trucks has skewed the EV product slate here toward heavy, and thereby expensive, models. Whereas sub-$30,000 models represent the biggest category in China, the US lineup tends to cluster in the $50,000 to $80,000 range. What’s needed are cheaper, mass-market models.
[...] EV sales are forecast to grow again this year. BloombergNEF’s base case is a 32% increase, which would be the slowest rate in five years. Notably, analyst Corey Cantor writes that the difference between the high and low growth scenarios — 45% and just 13%, respectively — “could be whether or not any automakers beyond Tesla … [are] able to clinch a breakthrough.”
That's worth a read in full. And it's why even Tesla is trading pretty low at the moment; this won't be another year of significant growth for them. That won't happen until the budget EV comes out in the next few years sometime.
But it makes sense: maybe 2023 and 2024 were the rapid takeoff points that automakers wanted (perhaps unrealistically) for their EVs. Instead, we're at the phase when everyone is building up their battery plants, figuring out how to make these things, and working on breakthroughs to make them much cheaper. Whenever that happens, we could see the next huge takeoff point.
90%: GM And LG Chem Team Up For $19 Billion Cathode Supply Deal
Here's another example of an automaker that's had a ton of challenges on the EV front gearing up for a long-term position: GM and South Korean tech giant LG have another tie-up in the works, this one a $19 billion deal for battery materials. From the Wall Street Journal:
The Seoul-based chemical company said Wednesday that it signed a 10-year deal to provide GM with more than 500,000 tons of cathode materials—enough to make batteries for about five million EVs—beginning in 2026. It said the cathode supply is worth at least 24.75 trillion won ($18.65 billion).
LG Chem will produce the material in Tennessee, where it broke ground on a plant in December as part of plans to boost its role in the North American EV chain. The facility, which it expects will become the largest cathode material plant in the U.S., will produce up to 60,000 metric tons of cathode materials a year starting 2026.
LG Chem said the deal with GM builds on a plan the companies made in 2022 for the long-term supply of cathode materials.
That's a short item, but it says a lot.
100%: What EV Breakthrough Gets The Market To Adoption?
In your view, what "breakthrough" is that? Solid-state batteries with 600+ miles of range? Ultra-fast charging times? Just prices below $30,000? And more importantly, which car company gets there first?
And remember, automakers like China's BYD are doing a lot of that right now, and when it comes to the U.S. market, the only thing keeping them away are regulations and tariffs.
