EV Segment Begins 2024 Experiencing an Economic Hangover

Adapted from GCADA

Following an incredible, whirlwind, three-year high fueled by outsized promises and expectations spurred on by a seemingly endless supply of money and government edicts, the EV world finds itself taking four ibuprofen and guzzling a quart of Gatorade as it attempts to recover from its current hangover.

The industry has difficulty shaking the cost, range anxiety, and charging time trilogy with potential buyers beyond the early adopter crowd.

“Automakers have moved from rosy to reality because consumer acceptance has grown more slowly. So, they are looking at kind of slowing their rollout,” Cox Automotive Industry Analyst Michelle Krebs recently told The Washington Post. 

As a percentage of growth, EV sales have had a fantastic run, but the numbers are a bit deceiving. According to October 2023 J.D. Power data, EVs grew from less than 3 percent of the market to about 8 percent in three years. While statistically gaudy, the growth accounts for only 869,000 of the vehicles sold during the first 10 months of the year. Interestingly, Tesla sold 493,000 of those vehicles and most were sold on the coasts. However, as we all know, days’ supply, customer demand, recent revised OEM sales projections, and capital investments indicate a more measured growth rate going forward. 

A recent Wall Street Journal (WSJ) article titled "How electric vehicles are losing momentum with U.S. buyers" illustrates the cooling demand, noting U.S. EV sales increased 76 percent in April 2022 and were increasing at a 42 percent rate in November 2023. As Ford Chief Financial Officer John Lawler told The Washington Post, “The narrative has taken over that EVs aren’t growing. They’re growing. It’s just growing at a slower pace than the industry and, quite frankly, we expected.”

Our OEMs aren’t the only ones struggling with the economic realities associated with this transition. WSJ reports EV start-ups are finding the economic landscape challenging to navigate, noting at least 18 companies, including prominent names such as Nikola and Fisker, are in danger of running out of money by the end of 2024, while another 16 have enough cash on hand to last until 2025 or later. Nearly all of these companies went public through a Special-Purpose Acquisition Company (SPAC) between 2020 and 2022. Five such entities have either already gone bankrupt or been acquired, and the median stock price for the rest is down 80 percent, according to WSJ research.

Raising additional money while proving they can mass produce and distribute vehicles in a segment experiencing reduced MSRPs seems like a Herculean task for these start-ups as they battle to show investors their viability.

The charging station industry has several issues. Many companies in this industry are not profitable, and their stock prices are declining. For instance, ChargePoint Holdings' shares fell by 74 percent in 2023, Blink Charging's shares dropped by 67 percent, and EVgo’s shares lost 21 percent. 

The President of the United States, Joe Biden, has set a target to have 500,000 public chargers available by 2030. Currently, there are only 159,000 public chargers in 60,000 locations. However, consulting firm McKinsey estimates that this number is only a third of the public chargers necessary if half of all vehicle sales are electric. 

Investors are becoming skeptical of profit margins in the charging station industry, as companies are making vague promises of forthcoming profitability. Blink Charging’s CEO told the Wall Street Journal, "I think the investor class has grown weary of the industry’s lack of profitability." Moreover, Tesla’s charging stations and their charging standard are already dominating the market, and Big Oil could further complicate matters if they enter the recharging fray. 

It is uncertain how the charging station industry will overcome these challenges. Additionally, it is unclear if these previously ignored realities will finally recalibrate reasonable expectations for EV sales. It is increasingly likely that ICE, EV, and hybrid powertrains will coexist for several decades, and it will take a long time to fully convert to a new powertrain. 

The expectation that EV sales would grow linearly and reach 50 percent by the end of this decade was misguided. The EV industry will need to find a way to overcome these challenges that Gatorade and ibuprofen won’t cure.