US consumers bought just under 16,000,000 new cars in 2024,
which is 2.2% more than the prior year and the new sales
record since the pandemic. Most automakers did well as they
adjusted to slowing demand for EVs and focused on their core
business in the United States of gasoline powered trucks and
SUVs. The American car market
continues to be dominated by larger and heavier cars, where
demand for SUVs has grown hugely over the last 50 years.
Brands like Toyota and Ford benefited from growing demand
for hybrids in recent years. Mazda saw the biggest gains,
which sales up at nearly 17% in the United States, where they
sold more cars in 2024 than ever before.
Other top performers were Honda and Mercedes-Benz.
The best selling vehicle in the United States was once again the
Ford F Series truck, followed by the Chevy Silverado and then the
Toyota Rav 4. This is no surprise as the F
Series has been the best selling truck in the United States for
47 years and the best selling vehicle of any kind in the US
for 42 years. General Motors and Ford both
reported their best year of U.S. sales since the pandemic, as
lower interest rates, higher inventory and dealer incentives
persuaded shoppers to buy. The worst performers in terms of
sales in 2024 were Stalantis, followed by Tesla.
Despite Tesla's stock price rising more than 70% in 2024,
the number of vehicles they sold fell by 1%.
This was their first sales decline in more than a decade,
and it came in a year when they're much hyped truck was
introduced, which is supposed to be more in line with American
vehicle purchasing trends than the sedans that they've been
selling up until now. This decline in sales for a
company priced for extreme growth indicates that investors
may be pricing in growth that's unlikely to occur.
In recent years, Tesla investors have mostly ignored sales
figures, focusing instead on the eventual development of robo
taxis, robots, solar roofs, a battery business and rocket
equipped sports cars, all of which are coming next year.
Stellantis, which is made-up of 14 automotive brands, was formed
by a merger between Fiat Chrysler and Peugeot Citron.
The company's revenues have been hit by weak demand, Chinese
competition and regulatory uncertainty around electric
vehicles. They missed analyst
expectations, warned on profits and the CEO left abruptly last
month. Reflecting these difficulties,
the stock fell by more than 40% in 2024.
Stalantis's problems are largely driven by the fact that they
raised prices in the post pandemic period, focusing on
high end models pricing some new Jeeps north of $100,000, which
caused vehicle sales to crater. Stalantis to today have some of
the highest inventories of vehicles on dealer lots, as
their expensive cars and trucks are simply not selling.
Dodge, which was once famed for its Hemi V8 engines, has just
pivoted to building electric vehicles.
While Architectural Digest raved about the new electric muscle
cars, automotive journalists were less positive.
I'm not sure how them Du Bois would feel about paying $70,000
for a car that's slower than a cheaper Tesla Model 3, which
also has more range. On the plus side, the Charger is
a great name for an EV and it does have speakers where the
exhaust pipe should be so that you can still annoy your
neighbours revving up your EV. Over the summer, Jaguar entirely
halted production of all of their cars, which were not
selling very well, so that they could fully electrify the brand
by 2025. In November, they unveiled a new
brand identity, which drew a lot of press and switched the design
focus from classic British heritage to a more colorful and
controversial look. Their advertising campaign used
the slogan Copy Nothing, and they unveiled a new logo of
which appeared to be copying the Dyson vacuum cleaner logo.
I guess both firms are now in the electric appliance business.
Jaguar later revealed a concept car, the Type 00, which appears
to have been designed using Microsoft Paint and has no rear
window, but at least it still has wheels for now.
Auto manufacturers stepped up their R&D spent massively over
the last 10 years, spending 10s of billions of dollars
developing electric vehicles and self driving technologies with
little to no short to medium term returns on their
investments. As the growth in demand for EVs
appears to be waning, is electrification killing the car
industry? The pace of US car sales picked
up towards the end of 2024 as falling interest rates and
improved dealer inventories attracted shoppers.
There was a lot of talk after the US election that EV buyers
would rush out to take advantage of the Biden era electric
vehicle tax credits, which are worth up to seven and a half
$1000 before they possibly go away as Trump promised to
eliminate these incentives on the campaign trail.
There was a small pop in EV sales in December, with General
Motors doing quite well. But if that's what a rush looks
like, what will sales be like without the government
incentives in place? Even with the tax incentives,
Boston Consulting Group reported earlier this year that
automakers lose roughly $6000 on every EV they sell in America.
Last year, Rivian revealed that it lost $33,000 on every truck
they sold. Around the same time, Lucid
reported that they lost $338,000 on each car sold.
The problem for both of these companies is that they're
selling in the luxury vehicle segment and EV buyers want more
affordable cars. The biggest success in EV
adoption globally has of course been Norway, where 90% of new
sales are electric. This was achieved through
massive government incentives, where EV subsidies make up 2% of
Norway's national budget. New electric vehicles in Norway
are exempt from several taxes, including a 25% value added tax
on cars. According to the IER, an
equivalent ICE vehicle in Norway would be subject to $27,000 in
various taxes that are avoided by buying an EV.
For that reason, it's no surprise how many EVs are sold.
Electric cars were additionally made exempt from any road or
fairy tolls and were allowed to drive in bus lanes.
A number of these incentives have been reduced over time,
partially because of complaints that they disproportionately
benefit the wealthy who can afford EVs.
Norway was able to afford to spend billions a year on EV
subsidies like this because they have the largest sovereign
wealth fund in the world, funded by revenue from their oil and
gas production. With such high EV adoption, all
of the important EV infrastructure has been
installed in Norway, making the cars extremely convenient there.
According to Vox, one of the negative side effects of the EV
subsidies in Norway is that they've made driving so cheap
that fewer people use public transportation, bicycles or
walk. Norway today has one of the
lowest rates of public transportation usage in Europe
and a higher car ownership rate than Denmark and Sweden.
It's Scandinavian neighbours. EV subsidies have been found to
really move the needle in Germany.
Electric vehicle sales dropped almost 40% last year when the
German government ended its €6000 EV subsidy.
In 2022, Sweden eliminated a number of EV subsidies, which
resulted in a 20% drop in electric vehicle sales.
A huge part of the transition to electric vehicles globally is
driven by government policy rather than customer demand.
And even with government incentives in place, automakers
are still generally losing money building these cars.
A huge problem affecting the demand for new EVs is the
terrible depreciation buyers are hit with.
I made a video last year on how many EVs have more than halved
in value over their first year of ownership.
It'll take quite a while to recover that kind of loss with
fuel savings. In the UK there was a huge surge
in EV sales in December when sales of battery powered cars
jumped around 60% from a year earlier.
The reason this happened is that under UK law, automakers are
fined 15,000 lbs, which is around $19,000 per car if 22% of
their sales were not electric. Thus, they had to sell EVs at
great discounts to avoid the fines.
Despite the end of year surge, which automakers still fell
short of the 22% target and the target for next year will be
28%. The required quota of electric
vehicles to be sold in the UK ratchets up every year until
2035, when it reaches 100%. The British Society of Motor
Manufacturers and Traders told the press that the discounts
needed to boost EV sales to hit last year's targets were
unsustainable, so 2025 could be even worse for the industry.
Last year, according to Bloomberg, only one in 10
private buyers in the UK chose an EV, with business and fleet
customers driving the majority of the demand.
Stellantis cited the UKEV mandate when it announced plans
in November to stop manufacturing Vauxhall vans in
the UK after 120 years of production.
Nissan, who employ over 7000 workers in the UK, said last
November that the EV mandate risks undermining the business
case for manufacturing cars in the UK.
Ford, who laid off 800 British auto workers in November, blamed
unprecedented regulatory and economic headwinds.
So far, the British government is resisting pressure to weaken
the EV mandate, but they may have to back down if it starts
to impact employment. The change from ICE cars to EVs
is mostly a minor one for consumers.
The new cars serve the same purpose as the old ones did and
mostly work the same other than having a huge screen on the
dashboard to distract the driver.
The major worry for EV buyers is whether they'll be convenient to
charge and if they'll be as durable as an ICE vehicle.
For manufacturers, the transition is much more
complicated. All of the intellectual property
that they've built up from decades of manufacturing
mechanical cars loses its value when they move to building EVs.
The firms have to shift from their background in mechanical
engineering to software development and battery
manufacturing, which might involve an entirely different
workforce. If tailpipe emissions were the
only thing that mattered to governments, they might push
ahead with the change and just let customers buy EVs from
China. But the auto industry employs
2.4 million Europeans and more than 4 million Americans.
It's not just auto workers either.
There are 13 million Europeans and a similar number of
Americans who rely on the auto industry for employment, making
various components that are part of the auto industry supply
chain, repairing cars, or selling spare parts and
consumables. The workers who make car seats,
door hinges, windshields, suspension components, and so on
should be fine, as these are needed on EVs too.
But the highest paid jobs have historically historically been
in manufacturing, engine and transmission components, and
these workers and businesses won't be able to easily
transition to making batteries and electric motors for EVs.
It's an entirely different skill set.
For this reason, governments are forced to weigh their
commitments to workers and voters in their countries
against their commitments to the Paris Climate Accords.
In recent months, a number of major automakers have announced
plans to slow their transition to electric vehicles.
Volvo announced that they wouldn't move as quickly as
planned to an all EV lineup, and both Ford and General Motors
said that they would delay the introduction of previously
announced models. Five years ago, Ford said that
it would go almost completely electric in Europe by the end of
the decade, but they're now walking back those plans.
In November, they announced that they would be laying off another
4000 workers in Europe, where the transition to EVs is losing
traction industry wide. Volkswagen and Stellantis have
issued a profit warnings in recent months, citing a broad
slowdown in vehicle sales and that governments are pulling
support for EV purchases. Volkswagen even announced that
they can't rule out plant closures in Germany for the
first time in their history. General Motors, which has had a
lot of success with EVs, has still lowered their planned EV
production and said that they would delay the launch of the
first Buick EV, which they had been planning.
Overproduction has LED Ford to announce that they're cancelling
their planned all electric three row SUV and that they will
instead use the plant that they've been retooling to build
F series Super Duty pickup trucks.
A lot of this turmoil stems from EV production growing faster
than consumer demand, particularly in Europe where
governments are mandating the change.
According to NPR, a slowdown in EV sales growth doesn't
necessarily signal that EVs aren't coming.
They argue that the question is about the pace of the journey,
not the destination, making the case that the nature of any
adoption curve is that new technologies catch on. 1st with
a a tiny slice of tech geeks, the innovators.
Then they reach the early adopters who will put up with
some inconveniences and are willing to pay a little more for
cool tech. The problem for EV
manufacturers, according to NPR, is that mainstream buyers are
much harder to win over. They point out that it took 20
years for hybrids to become mainstream.
Right now, most car owners are happy with the existing
technology and see no reason to make a change.
It may still take some time to convince them, but this won't
help investors who were expecting 50% annual sales
growth and are now seeing both higher competition and lower
overall market growth. GM, Ford and Volkswagen have all
said that they are committed to ramp up their EV businesses, but
that the pace of consumer adoption might not be as fast as
was previously expected. A big dilemma for politicians is
that while they want cheaper EVs for environmental reasons, they
don't want to undermine their domestic auto manufacturers or
local employment by importing them from abroad.
Governments so far are not backing down on their mandates,
but they are equally not willing to see their manufacturing
industries be wiped out by cheap Chinese imports.
According to most auto analysts, EVs are still expected to
eventually make up most of the global automotive fleet due to
tightening environmental legislation around the world.
While many big automakers are struggling to meet government
targets due to lower than anticipated consumer demand,
they are still lobbying governments to keep many of the
requirements in place, but with more time for compliance and
lower penalties for companies that don't meet the
requirements. The reason that they want this
is that they've invested billions of dollars in new
facilities and don't want this investment to become worthless
if the government's mandated demand goes away.
A change in direction from governments would be extremely
difficult for big businesses, as governments have encouraged
companies to install things like charging infrastructure or to
mine for minerals needed for batteries.
If governments change direction, a lot of this investment could
become worthless. According to the New York Times,
3 of America's largest automakers are strategizing on
how to ask Donald Trump to not scrap the federal regulations
that compelled the industry to sell electric vehicles.
While they don't love Biden's rules, they've already invested
close to $150 billion into EV manufacturing and worried that
if Trump made an abrupt change, they could lose out to
automakers like Toyota and Mazda, who focused on
traditional cars and hybrids. A big question for the coming
years is whether governments will continue to subsidize EVs
while they're still mostly being sold at a loss.
Even after the subsidies, Trump says that he won't.
And while European governments seem more committed, their
budgets are a lot tighter and they may not be able to afford
the subsidies. While Norway was able to
complete the transition to EVs and get all of the charging
infrastructure in place, they did it at enormous cost, which
they could afford due to their fossil fuel wealth.
Other countries don't have that much money to throw at the
problem. According to most estimates, the
battery of an electric vehicle typically accounts for around
40% of the overall vehicle cost. This compares to ICE cars, where
the engine makes up only around 1/10 of the value of the
vehicle. It's not unreasonable to ask if
a company is even in the EV business if they don't make
their own batteries. China is the world's leading
producer of EV batteries, accounting for 75% of battery
cell manufacturing capacity. China also produces and refines
over half of the world's lithium, cobalt, and graphite.
China's BYD started out making batteries for mobile phones and
only later moved to building EVs.
They were, after all, already building the most complicated
component. Most manufacturers outside of
China don't make their own batteries.
Tesla, for example, buys most of its battery cells from suppliers
like CATL and Panasonic. They have, however, made efforts
to produce their own 4680 battery cells, which are
currently only used in the Cybertruck, a low volume
vehicle. Northfold was founded in 2016
with the goal of manufacturing EV batteries in Europe and
selling them to European automakers.
It quickly became the symbol of Europe green ambitions and later
its failings. Northvolt took in around $13
billion in debt and equity financing since its founding
last year. They manufactured less than 1%
of the batteries they were theoretically capable of
producing and ended up filing for bankruptcy in November.
After burning through billions of dollars in investment they
raised from firms like Volkswagen and Goldman Sachs,
Northvolt quickly transformed from Europe's best shot at local
battery production to a company companies struggling to survive
due to production difficulties, the loss of BMW as a major
customer, and a lack of funding. Pure EV companies like Lucid and
Rivian have been struggling despite building vehicles that
are praised by their owners. Lyon Electric, a Canadian
electric bus manufacturer, received almost $50 million in
taxpayer subsidies before filing for bankruptcy, resulting in the
complete loss of those public funds.
Some of the slowdown in sales at Tesla has been blamed on Elon
Musk's involvement in politics, which might be pushing some
buyers away who don't share his political views.
While 1/3 of E VS sold in America are sold in California,
a left-leaning state, CNN found that many of the reasons people
choose in EV are unrelated to politics.
And a lot of conservatives do buy electric vehicles.
EV buyers are often the same same people who upgrade their
computer and mobile phone every year because they love new
technology. EV buyers are driven by things
like brand status, charging station availability, a desire
to own the newest technology, and of course incentives like
rebates. According to LendingTree, Tesla
buyers are amongst the most indebted new car buyers and they
take out the longest duration car loans to finance the
purchase. It is possible that the slowdown
in sales at Tesla is less related to politics and is
driven instead by increased competition in the EV space and
slowing demand from mainstream buyers who are happy with the
existing technology. According to Ernst and Young,
fewer buyers are considering buying an EV today than we're
considering 1A year ago. A recent Wall Street Journal
article argues the 2025 may be the year that net zero dies, as
voters lose patience with the project and grow less shy about
saying so. Some of that can already be seen
in recent election results around the world.
The author argues that Britain's Labour Party has already started
to backtrack on its green electricity pledges and may be
getting cold feed about the EV mandate now that job losses are
starting to mount in the domestic auto industry.
He says that the climate policies pursued by Angela
Merkel and her successor Olaf Schultz are at the root of
Germany's slowdown, and the politician likely to replace
Schultz promises a significant rethinking of energy and climate
policies. If German voters do step back
from net zero, the rest of the EU is unlikely to be far behind.
The reason that voters have grown tired of net zero is that
they were promised that the transition could happen with no
noticeable dent to prosperity or reduction in living standards,
which no longer appears to be true.
While some jobs are disappearing, the green jobs
that were supposed to replace them are not materializing.
In Europe, France's government recently suggested that meeting
it's net 0 targets would require households to tolerate lower
temperatures inside their homes during the winter and to travel
less on holidays. None of which is particularly
surprising. The article says that the main
reason net Zero might die in 2025 is because of how
destructive the policies have been on the auto industry, a
huge employer in Europe. It seems to me that we're likely
to see significant turmoil in the auto industry in the coming
years, where historic brands like Jaguar and Dodge could
disappear if they botched the transition to electric vehicles
by alienating their existing customers without convincing a
new audience to buy their new products.
The biggest problem for the auto industry might be the
geopolitical tensions between the US, Europe, and China.
Automakers may struggle to deal with changing environmental
regulations, new trade rules, tariffs, restrictions on tech
transfers, and a general reversal of globalization.
Thanks again for tuning into this week's podcast.
If you enjoyed it, I'd love if you could write a short review
on Spotify or Apple or podcasts or wherever you listened in.
Have a great week and I'll talk to you again soon.
Bye.