Legacy automakers are facing significant financial challenges when it comes to selling electric vehicles (EVs), according to a recent analysis by the Boston Consulting Group. The analysis reveals that most automakers are losing around $6,000 on each EV sold for $50,000, even after accounting for any tax credits or incentives. While technology advancements and economies of scale from increased EV production can help reduce this cost gap, it is unlikely to be fully closed. This poses a potential threat to legacy automakers in the U.S. market, especially if highly-subsidized Chinese EVs gain traction.
In an effort to address the cost-profitability gap, automakers may need to explore alternative solutions such as more aggressive efficiency programs, additional public support, or linking financial incentives to range or efficiency. Expansion of charging infrastructure is also expected to play a crucial role in boosting EV adoption. Despite some automakers already gearing up to turn a profit on EVs, the challenge lies in achieving the necessary volume to do so. General Motors, for instance, had plans to produce hundreds of thousands of Ultium EVs annually by now, while Ford announced a strategy focusing on smaller, lower-cost EVs at higher volumes to compete with Chinese rivals.
While Tesla has managed to turn a profit on its EVs, thanks in part to high sales volumes and a lack of legacy internal combustion business, other automakers are facing profitability challenges. Stellantis CEO Carlos Tavares has indicated that EVs cost the company 50% more to make, a cost that cannot be passed along to consumers. As the industry continues to evolve, a new round of incentives, decreasing battery prices, and factors like tariffs on Chinese automakers importing cars from Mexico could impact the profitability equation for U.S. automakers. It remains to be seen how legacy automakers will navigate these financial challenges and position themselves competitively in the evolving EV market.
Despite the financial hurdles, legacy automakers like General Motors and Ford have been making strides in their EV programs. GM’s Factory Zero in Detroit-Hamtramck has been revamped for EV production, while Ford has unveiled plans for new EV platforms to be introduced by the mid-decade. Both companies have expressed ambitions to turn a profit on EVs in the near future. Mary Barra of GM suggested profitability on models above $40,000, indicating progress towards closing the cost gap. However, achieving profitability on EVs will require a multifaceted approach, including addressing cost challenges, increasing production volumes, and adapting to market dynamics.
As the EV market continues to evolve, legacy automakers will need to stay nimble and innovative to compete effectively. Collaboration with stakeholders, exploring alternative business models, and leveraging technological advancements will be crucial for success in the transition to electric mobility. With the right strategies in place, legacy automakers have the potential to overcome financial challenges and thrive in the growing EV market. By embracing change and adapting to shifting consumer preferences, automakers can position themselves as leaders in the sustainable transportation sector and drive the adoption of electric vehicles in the years to come.
