Perhaps one of the most interesting, confounding, and unpredictable business segments active in the world today has to be the automobile business. It’s a business that is always challenged. No product offering seems to stir such a wild combination of on-going consumer interest and passion, desire, innovation, cost, climate policy, emissions, political positioning, natural resources, economic bell weather, purchase processes, taxes, tariffs, money, loans, interest, negative equity, resale, safety, warranty, repairs…the list goes on.
This decade began with the ominous emergence of COVID-19 which quickly descended upon the country. The pandemic and its unknown status delivered fear and uncertainty to most Americans, businesses, and the global supply chain. Within a month of the pandemic’s arrival, businesses had closed or paused, workers were staying at home and the critical just-in-time inventories for vehicles, parts and accessories stopped the supply chain in its tracks. Most people stopped buying cars and trucks – at least for a while.
In 2021 as vaccines helped to speed a return to societal normalcy, we all saw the effect of marketplace “pent-up demand” with car buyers picking up all the remaining new vehicle inventory at dealerships and finding full-price invoices penciled-in with an additional mark-up to the vehicle price called a “market-adjustment”.
And while vehicle prices rose, another milestone was emerging; ambitious climate-change legislative mandates from the State of California, followed by the State of New York declared that the majority (60-70%) of all OEM vehicles sold in those states by 2030 must have 0% emissions. By 2035, the ask would increase to 100% of all vehicles sold would essentially be 0% emissions vehicles. By any standard, this was a tall order.
It’s important to remember here that government policies were leading the way here, as opposed to consumer desire and demand. Government was going to quickly help solve the climate change issues affecting the planet. Were all car buying shoppers on-board with this direction?
The automotive industry loosely labeled the 2020’s as ‘the decade of transition”. That ‘transition’ was focused on the reduction and discarding of internal combustion engine manufacturing and the rapid scaling and adoption of electric vehicle platforms. OEM auto manufacturers believed that they understood the assignment, and all seemed to move quickly to get their versions of EV’s into production. There was a big challenge with the massive shift to EV’s in such a brief period of time – money, capital, cash. It was enormously expensive to shift from one technology to another – and doing it quickly. EV’s required extensive research and development, new platforms, new technology, new engineers, new assembly plants. OEMs focused for more than 100 years on mechanical engineering suddenly had to force themselves to become tech companies.
The shift to EV’s cost billions upon billions in capital for legacy carmakers. They also had to worry about playing catch-up to existing EV-only competitors like Tesla, Lucid and Rivian. Of these “Big 3” EV manufacturers, Tesla was the heavyweight. Tesla’s market cap in 2022 of $1.2 Trillion was bigger than all the other legacy car makers combined. How did this possibly happen?
Elon Musk.
Not the founder. (That was Martin Eberhard and Marc Tarpenning). Not the engineer, not even the innovator – though the public gives Musk full credit for all these attributes.
Elon Musk is a marketer and the loudest voice in the room. Because Tesla was the first EV-only manufacturer to be the most visible volume brand in the marketplace, they got a head start over everyone else and in the process became the category defining brand. Their technology was also a benchmark standard for other brands, including self-driving, summoning, and a host of other unique features.
But the biggest issue for EV’s is infrastructure…charging stations. Musk understood that this is where the real money is. And while the government was advocating a rapid shift to EV’s by 2030 and beyond, the fact was that the country had woefully little charging infrastructure to actually support those vehicles. And, by the way most EV’s took hours upon hours to recharge and had a range less than that of standard combustion engine vehicles. Oh, and EV’s were expensive, very expensive. The average EV today is $55,544 while the average combustion engine vehicle is $49,740. While that gap has been narrowing, the price perception remains.
One by one, OEMs from Audi to Volvo, Stellantis to Ford all announced that they would either be ceasing manufacturing of V8s completely or reducing them dramatically and reserving them for a selected 1-2 models. Even Porsche announced that their Cayman and Boxster models would go completely electric. All these actions were based on the expectation of an EV transition purchase wave.
In 2022 and 2023, social media really began to ramp up on EV’s. Memes. Teasing. Sarcasm. It started with gearheads and real car nuts. A video of a street race where the EV would win against the gas-powered car, and yet everyone watching says they would rather have the gas-powered car any day. Why?
For many, electric cars lack soul. Electric cars were technically much more powerful and certainly faster, but they didn’t engage the senses. They were essentially silent. They were lacking in creating a bond with people. On the other hand, a Mustang GT with a 5.0L V8 pumping out 500hp with a tuned exhaust was akin to having Wilson Pickett wail his cover version of the Jimi Hendrix cover, “Hey Joe” with back-up from the boys at the Muscle Shoals recording studio. You felt it. You heard it. It had real soul. It was thrilling. It was engaging.
EV’s have created an industry segment share in the U.S. of about 7.5%. It will likely be more difficult to increase the growth rate of the previous 2-3 years. The new Trump administration will be eliminating consumer tax credits towards the purchase of an EV. Many larger government subsidies supporting EV manufacturers will likely be curbed or go away entirely. So, EV sales, at least for the time being, will be on a slightly inclined plateau.
The bigger issue here, however, is consumer sentiment and desire. No one fully understood or appreciated that despite concerns about climate change, fossil fuels and safety, most people really didn’t want an electric vehicle. From a practical everyday American standpoint, it was too expensive, more costly to insure, short on range while long on recharging times. Memes on Facebook would show video after video of Tesla vehicles spontaneously combusting in fire.
From an emotional standpoint, most EV’s have been low on personality, engagement, and connection.
While the cost of gas has risen and fallen over the past 4 years, the American love affair with horsepower and the internal combustion engine has only grown stronger. Trucks with 700hp supercharged V8’s. A new Corvette with over 1,000hp. The Dodge Charger and Challenger models rose to new popularity.
The message had become quite clear to a number of OEM’s. EV’s, at least presently had limited appeal. The political influence was significant. While the Biden administration had championed the innovation and technology behind EV’s it was also understood that there was insufficient electrical grid infrastructure to support those vehicles in significant numbers. Ironically, the process to manufacture (1) EV was also a process of deliberately pillaging natural resources such as lithium. In fact, Automotive News reported that with the manufacture of the resources required to build that (1) EV, you could apply the same resources to produce 27 internal combustion engine vehicles.
The incoming Trump administration wants the market to determine what sells. It is releasing federal mandates on EV volume vs. ICE’s for OEM’s. All tax rebate purchase incentives have been discontinued. The right leaning followers of Trump might also love Elon Musk, but they drive Ford, Chevy, and Ram pick-up trucks. Ironic.
It’s whiplash for the manufacturers.
The Ford Lightning is treading water. EV plants are on a reduced schedule. EV start-ups Nikola and Canoo have filed for bankruptcy. V8s are back on new car option orders. Porsche just announced that it shelved plans to take the Cayman and Boxster to EV’s. That’s not happening.
It feels like its 2019 again. Make the best of it.
