Yesterday's late-breaking news that Ford is going to cut its F-150 Lightning production in half for 2024 is likely to be framed as another doom-and-gloom story for the electric vehicle market. And let's face it: it's not an amazing headline for Ford, even if matching supply to demand is a financially smarter play for the near term. But a few other factors are at work here that could make 2024 a tricky year on the EV front—at least for a few automakers.
Welcome back to Critical Materials, InsideEVs' morning roundup of industry news and what it means for the zero-emission transformation. We made it to Day Two of Critical Materials, folks; what an achievement. As any EV owner will tell you, consistency is key.
0%: Some Brief Thoughts On Ford's Conundrum And What It Means For 2024
Before we get down to the news, a few thoughts on Ford's Lightning production announcement and what the next year could—emphasis on could—look like in the industry:
- The Lightning is an excellent truck. But truck owners have valid concerns when it comes to electric towing and hauling. And above all, the Lightning suffers from the same problem countless other EVs do: it's just expensive. That's because legacy (and many startup) automakers are struggling to not only make EVs, but make them profitable.
- The top-selling EVs in the U.S. this year have been the Tesla Model 3 and Model Y, as well as the Chevrolet Bolt. Why? In large part, because they're affordable. And that's what the market isn't getting.
- But 2024 could be an excuse for some buyers to wait until nearly every automaker switches to Tesla's NACS port instead of the CCS fast-charging plus most use now—which will open them up to a huge, high-quality charging network. And it could be an excuse for automakers to wait and see how the 2024 election turns out before they spend more money on battery plants, R&D and new electric models for the U.S. market. Our man Suvrat Kothari had a great piece on the political stakes yesterday, and you know those factor into plans being made by Ford, General Motors and the rest.
I truly hope both of those outcomes don't happen, but I could certainly see it. Especially on the latter front. It's entirely possible some automakers, who would prefer to slow-walk a switch to EVs or not do it at all, will wait to see if a new president is coming in who will roll back the Biden Administration's tough fuel economy standards before deciding to keep the same pace they're at now.
On that note...
30%: Can America Afford To Lose Further Ground On The EV Front?
If the American auto industry decides to slow down the pursuit of EVs—and for the sake of argument, I count in that all automakers with vast American production arms making American-focused cars, like Nissan, Volkswagen and Toyota—does that leave us uncompetitive with the rest of the world?
The answer is a strong yes, because how could it not be? And if you don't believe me, ask Jon McNeill. He served as president of Tesla between 2015 and 2018, and he has an op-ed in TechCrunch that alludes to this very thing. I'd say McNeill knows what he's talking about here, so this is worth a read in full:
In 2018, when I was President of Tesla, Piero Ferrari (yes, that Ferrari) came to visit the Tesla factory and raved about our electric sedan, which was faster than his supercars. He wanted to see what we were doing with his own eyes.
Fast-forward to 2021, Ferrari introduced its first hybrid car on the market, and in 2025, Ferrari plans to sell its first fully electric car. Even a heritage, luxury sports car manufacturer with the oldest and most successful F1 team recognizes consumers’ demand for EVs.
But it may be too little, too late for the Italian auto manufacturing industry. Italy once produced some of the most admired and coveted cars in the world, but Italian companies and policymakers didn’t invest in advancing the industry. In 1997, Italy manufactured 1.8 million vehicles; last year, just under 800,000k cars were produced in the country.
We have to solve these problems.
As we head into a new year, we’re about to see a new round of EV sales figures. Sales may be better than we expected, or demand may have risen by a percentage point or two less than we hoped. Whatever those numbers are, I expect the skepticism to persist.
Still, we can’t lose sight of the big picture. We have to stay the course if we want to remain a leader of this multi-trillion-dollar industry, or hold on to manufacturing jobs, or stop relying on other countries for our cars.
I've said it once and I'll say it again: these car companies can sort this stuff out, or BYD is going to come here via Mexican factories and do it for them.
60%: The EV Tax Credits May Not Be Helping Much, Either
I'll have more to say on this later before the year wraps, but the revised $7,500 EV tax credit scheme—which started this year applying to every EV on sale and is now about to be much more strictly limited to cars whose battery minerals don't come from a "foreign entity of concern"—may have been a swing and a miss.
Those new rules, which go into effect Jan. 1, limit the tax credits on batteries that may have materials and minerals from China. Which, right now, is a lot of them. That country has had an iron grip on the battery supply chain for years and it's going to take a while to untangle.
Meanwhile, the tax credit had, ostensibly, three goals: boost local EV and battery production here in America, help fix air pollution with cleaner cars, and cut China off at the knees. And I'm not sure it can do all three. Maybe pick two? Here's more from Automotive News today:
"The Biden administration is trying to use EV policy to achieve … simultaneous goals, and those goals come with real trade-offs," said Cullen Hendrix, a senior fellow at Peterson Institute for International Economics. "If the Biden administration just wanted to speed the EV transition and move the U.S. vehicle fleet toward a decarbonized future, the U.S. policy would look very different and likely embrace Chinese imports."
Instead, the White House is engaged in a "delicate dance," Hendrix said, with administration officials trying to incentivize battery supply chains in the U.S. and with allies, while still being realistic about China's dominance in the sector.
"At the same time, you have senators and representatives on both sides of the aisle in Congress who don't want to see Chinese firms potentially benefiting at all from these credits, even if that makes it harder in the medium and short term for U.S. firms," he added.
Definitions outlined in December by the Energy Department prevent companies that are incorporated or headquartered in China, for example, from accessing the EV tax credit, as well as those that are at least 25 percent controlled by the Chinese government.
Companies that strike contracts or licensing agreements with Chinese firms or other covered entities must retain certain rights over the operations for their vehicles to qualify. That includes determining the timing or quantity of production and the exclusive right to maintain, repair or operate equipment critical to production.
And here's more on where the tax credit is going:
However, options for consumers are still slim in 2023. Only about 20 vehicles qualify for a credit out of more than 100 EV models for sale in the U.S., according to the alliance, which represents major automakers such as Ford, General Motors, Hyundai and Toyota.
That number is expected to drop further next year and more drastically in 2025 as the foreign entity exclusions take effect, though many automakers said they were still reviewing the guidance and determining which EVs ultimately will qualify.
"The incentive looks built for cars that aren't here yet," said Mark Wakefield, global co-leader of the automotive and industrial practice at consulting firm AlixPartners. "It's built for cars that are lower-priced battery-electric cars, built with fully domestic components — and that doesn't happen overnight."
Meanwhile, the consumer who just wants to save money and go electric is bewildered by all of this, and who can blame them?
90%: Hybrids Were Victorious In 2023, And That's Also Good News
I don't buy the culture-war "You can pry my gas car from my cold, dead hands!" argument for a second. (Beyond pure sports cars, anyway.) I think people would love to break up with gasoline, or at least cut way back on it. Case in point: in America, hybrids—both the plug-in and non-plug-in kind—had a fantastic sales year. (I just wrote a longer thing on this too, if you're curious.) This could be seen as a bridge to more electrification, but in the short-term, it means new cars with fewer CO2 emissions. Here's CNBC to elaborate:
Sales of traditional hybrid electric vehicles, or HEVs, such as the Toyota Prius, are outpacing those of all-electric vehicles in 2023, according to Edmunds. HEVs accounted for 8.3% of U.S. car sales, about 1.2 million vehicles sold, through November of this year. That share is up 2.8 percentage points compared with total sales last year.
EVs made up 6.9% of sales heading into December, or roughly 976,560 units, up 1.7 percentage points compared with total sales last year. Sales of plug-in hybrid electric vehicles, or PHEVs, accounted for only 1% of U.S. sales through November.
Morgan Stanley earlier this month said Toyota Motor, Honda Motor and Hyundai Motor, including Kia, account for 9 out of 10 hybrid sales in the U.S. Representatives for those automakers said they are actively attempting to increase production and sales of hybrid vehicles in the U.S.
“While the transition to full battery electric transportation will take time, hybrids and plug-in hybrids will play an equally important role in Kia America’s near and mid-term goals,” Eric Watson, vice president of Kia America sales, said in a statement to CNBC.
Nine out of 10 cars sold being hybrids is an amazing stat for the Japanese and Korean automakers.
100%: How Would You Design The EV Tax Credit?
Congratulations! Marine One has just landed on your front lawn, and President Biden has stepped out. He apologizes for destroying your vegetable garden with his helicopter, but he's here to offer you a job. You are now America's EV Tax Credit Czar, and you are in charge of unilaterally fixing this whole thing and doing whatever you want, Congress be damned.
So how would you design an EV tax credit? Do you prioritize local production, anti-China policies or the environment? And if the answer is "we shouldn't do a tax credit at all," what makes you say that?
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