Ford, which expects to lose $5 billion on EVs this year, recently announced it would take one-off charges of up to $1.9 billion because of, among other factors, its decision to delay production of a next-generation all-electric pickup truck, its planned cancellation of a three-row electric SUVs, and its new priority on hybrids.
Meanwhile Stellantis is delaying plans to retool a shuttered plant in Belvidere, Ill., for EV production. This has angered the UAW.
National United Auto Workers president Shawn Fain led a rally near the shuttered Stellantis plant in Belvidere Thursday. Union officials called on Stellantis to keep its promise to re-open the plant and to not delay the reopening any further.
Stellantis is obviously delaying these plans because of the weakness in EV demand: “It is critical that the business case for all investments is aligned with market conditions and our ability to accommodate a wide range of consumer demands.”
Imagine that—catering to consumer, rather than government, demands.
Stellantis has been bullied and bribed into making EVs, a type of car that the government wants consumers to buy. Consumers, however, are not cooperating with enough enthusiasm. As I noted in a recent post, carmakers now have two groups of “customers.” Those customers want different things. The first group are car buyers. They are purchasing EVs — U.S. sales of new EVs hit a record in the second quarter — just not at the pace that carmakers need and the second “customer” group, the government, (increasingly) demands.
This second “customer” is also (directly or indirectly) a source of funds. This money comes from taxpayers. Most taxpayers have no plans to buy an EV, but their tax dollars are still being drafted to help pay for the tax incentives given to those who do. And more of their tax dollars are going help manufacturers make the cars that the manufacturers do not want (really) to make and that they do not want to buy.
The government has awarded Stellantis a $335 million grant to convert the Belvidere plant for EV production. That is the plant that Stellantis is now intending to open later than originally planned.
Meanwhile, American consumers are, reports the WSJ, “balking at paying more for gas-powered cars, making it harder for the car makers to use those profits to subsidize EVs.” That’s bad, but still worse will be the effect of regulations designed to ensure that automakers sell (as a percentage of their sales) fewer of those gas-powered cars that customers still do want to buy. The manufacturers use the profit they make on selling those to help fund their huge investment in EVs.
These regulations will mean that auto manufacturers will either have to restrict the volume of traditional car sales or, the WSJ explains “buy regulatory credits from the likes of Tesla.” Regulatory credits? Federal rules limit the total amount of emissions attributable to the vehicles sold by an automaker in a given year. If the automaker goes over this limit, it can buy credits from manufacturers such as Tesla which have them to spare (such sales have accounted for around half Tesla’s profits this year). As the regulatory ratchet tightens, it will reduce automakers’ carbon rations and the cost of those credits will rise, unless the traditional manufacturers are able to sell more of the EVs that not enough consumers currently want to buy. Regulations from states led by California add to the pressure.
Call me a “free market fundamentalist if you will,” but I don’t think that is how auto markets are meant to work.
The WSJ added this little detail:
Anderson Economic Group estimates that mid-sized EVs cost between $12.61 and $16.11 to fuel per 100 miles, compared to $10.71 for gas-powered models. For pickups, the cost differential is larger.
A contributing factor:
Climate mandates and regulation have increased electricity prices relative to gasoline.
Calculating the cost per mile is extremely contentious, but that this claim can even be made is worth noting. Needless to say, the more EVs are bought, the more pressure will be put on a grid that is already having to deal with higher costs and lower reliability as it decarbonizes. And then there’s the small matter of the increasing demand imposed on the grid by AI LLM data centers.
But back to Stellantis’ Belvidere plant. The UAW is protesting the company’s plan to delay the reopening of a plant to manufacture EVs for which it does not as yet see the demand. Stellantis says the delay is permitted under the terms of its agreement with the union. The cost of reopening the plant? A total of $5 billion, although most ($3.2 billion, with a joint venture partner) is for a new EV battery plant. Getting it ready for EV production has been estimated at $1.5 billion. Chump change! The UAW’s Shawn Fain has blamed the delay on “corporate greed.” “Market conditions,” he says, “didn’t do this.”
In a way he’s right. If all this had been left to the market, Stellantis would almost certainly never have committed itself to this project in the first place.
Oh yes, there’s this.
ABC 7:
Federal officials said there is additional pressure on the company to reopen because they have received more than $330 million dollars in federal grants under an agreement to produce electric vehicles.
Industrial policy is what it is.