According to news on December 4, traditional automakers such as General Motors and Toyota have recently begun to scale back their originally ambitious electric vehicle production goals. This may result in them being unable to meet the growing demand for electric vehicles in the future, thus becoming the biggest loser in the electric vehicle transformation process. General Motors announced last Wednesday that it would raise its dividend and buy back $10 billion worth of stock, effectively wiping out the company's net profit this year. The move pleased investors, with GM shares up about 10% from before the announcement.
But shareholders' joy may be short-lived. General Motors President Mark Reuss said last year that revenue from sales of gas-powered vehicles would fund the company's transition to electric vehicles. That appears to be no longer the case, in part because GM is desperate to boost its stock price.
GM CEO Mary Barra may think the market is being unfair to the company's stock price, since GM has been largely profitable for more than a decade. But using stock buybacks to boost the stock price may just be masking the reason why investors are so unfavorable to GM—the company's lack of ability to execute on its plans.
Beginning in March 2020, General Motors announced a series of active investments in electric vehicles and autonomous vehicles. The company said in June 2021 that it would increase its commitment to invest $20 billion in electric and autonomous vehicles to $35 billion. General Motors' stock price tripled during this period.
General Motors' first new electric vehicles were supposed to be a huge success. The pure electric Hummer weighs 4 tons and has a starting price of US$113,000. It once made headlines in major media, while the Cadillac Lyriq, priced at US$60,000, hit the demand pain point of luxury SUVs in the mass market. But it soon became apparent that GM had messed up the product launch process.
Although General Motors stated that it has more than 90,000 pre-orders for the pure electric Hummer and that the Cadillac Lyriq is fully booked, it has delivered less than 1,000 pure electric Hummers and 122 Cadillac Lyriqs when mass production begins in 2022. This summer, Barra blamed a supplier for delays. Production in 2023 has improved, but there has been no significant change.
In October this year, General Motors said it would scale back its electric vehicle plans. The decision isn't surprising considering the problems the company has encountered while mass-producing these electric vehicles.
GM blamed sluggish customer demand. However, industry data does not support this claim. According to data from industry research organization Cox Automotive, U.S. electric vehicle sales hit a record high in the third quarter, reaching 313,086 vehicles. According to data from consulting firm J.D. Power, about 9% of new cars sold are currently electric vehicles. This proportion is more than twice what Bloomberg NEF predicted in 2020, which means that the popularity of electric vehicles is faster than expected in the past.
However, legacy automakers such as Ford and General Motors have backed away from their ambitions, with the likes of Toyota dismissing all-electric vehicles as a short-lived bandwagon.
The risk is that these traditional automakers' products may not meet consumer demand. Bloomberg New Energy Finance predicts that 28% of light vehicles in the United States will be electric vehicles by 2026, Bank of America predicts this proportion will reach 26%, and J.D. Power believes it can reach 24%. In other words, demand for electric cars could quadruple in two and a half years. According to relevant data, the market share of electric vehicles will be larger globally, reaching 42% in the European market and 52% in the Chinese market.
GM currently says it will be able to produce 1 million electric vehicles by 2026, accounting for 17% of current global sales. If overall market share does not improve significantly, this means that GM's production capacity will be at least 10% less than market demand.
Toyota is another traditional automaker whose production capacity may not be able to meet demand. The company has invested heavily in both solid-state and hydrogen batteries, but plans for solid-state batteries have been delayed for several years. Now Toyota claims it will produce enough solid-state batteries for "tens of thousands of cars" by 2027. Considering that Toyota sold less than 4,000 fuel cell vehicles last year, the goal of achieving hydrogen fuel cell vehicles may be further away.
Toyota did not give a sales forecast for 2026 but said it would sell 3.5 million electric vehicles globally by 2030, which would account for about 33% of total sales based on last year's data. Bloomberg New Energy Finance predicts that electric vehicles will account for 44% of the global market by the end of the 2020s, which means Toyota's production capacity will also be about 10% lower than market demand.
The same may be true for Ford. Because the company recently scaled back its plan to produce 2 million electric vehicles annually by 2027. Stellantis seems to be in better shape. Ford said it aims to have 3 million electric vehicles by 2027, which would account for half of current Stellantis vehicle sales. If Stellantis can stick to this goal, it should be able to meet demand with ease, likely gaining market share in the process.
Since the auto industry believes that electric vehicles are the way forward, why aren't many traditional automakers taking advantage of this opportunity to gain more market share?
Some analysts believe that traditional car manufacturers still tend to act cautiously. Therefore, they do not have sufficient supply of battery materials to meet future demand. This will mean they have to sign potentially more expensive contracts to address supply shortages.
Tesla’s repeated price cuts have also squeezed traditional automakers’ electric vehicle profit margins. Executives at these manufacturers believe they cannot win market share through price wars. They may be right, but the risk is that the cost of achieving returns will eventually grow exponentially because the development model does not match customer expectations.
In recent years, competition in the electric vehicle market has turned into a race to see who can move fast enough so that automakers have all their products ready for an expected wave of demand. As a result, this has become a corporate chicken's game, and sadly many legacy automakers are holding back.