[Global Focus] Electric Car on the Highway Turns onto Unpaved Road

Manufacturer-Consumer Appropriate Price Gap
Price Reduction to Internal Combustion Vehicle Level
Expected to Take at Least 3 Years

This year, the high growth expectations that had driven global electric vehicle (EV) stocks to soar are now giving way to a crisis narrative. As the price-cutting competition ignited by Tesla escalates into a chicken game, the prolonged high-interest-rate environment is causing a global demand decline that is shaking the entire automotive industry. Amidst a wave of EV manufacturers withdrawing or postponing their investment plans, forecasts suggest chronic low growth for the coming years.

Global Automakers Hit the Brakes on ‘EV Investments’

Recently, leading EV players such as Tesla, along with traditional automakers like Ford, General Motors (GM), and Mercedes-Benz, have rushed to cancel or delay their EV investment plans. Tesla CEO Elon Musk hinted during an earnings conference call that "consumer demand is slowing due to higher interest rates," suggesting a possible slowdown in investment pace.

Ford has abandoned its previous volume-driven strategy. The company shifted from a market penetration approach by flooding the market with EVs to a profitability-focused strategy. Ford announced it would "pause spending on $12 billion of the $15 billion investment in EVs and EV battery production facilities" due to inability to withstand downward price pressures.

[Image source=EPA Yonhap News]

Production of the flagship EV, the ‘F-150 Lightning,’ will also be temporarily reduced. This is a tough measure taken because the company has yet to escape a structure where losses increase the more vehicles are sold. Mercedes-Benz CFO Harald Wilhelm analyzed, "The EV market is becoming an unsustainable business due to intensified price competition and demand slowdown caused by high interest rates," calling the EV market "a very brutal sector."

GM scrapped a $6.8 billion affordable EV development project with Japan’s Honda. CEO Mary Barra expressed concern, saying, "We have decided to abandon our previous goal of producing 100,000 EVs in the second half of this year and 400,000 in the first half of next year," adding, "The transition to EVs will be more challenging."

The Pitfall of Disparity...Consumers Drift Away Due to High Prices

Germany’s largest investment bank, Deutsche Bank, recently reported that "the slowdown in EV industry growth is becoming clear," diagnosing that manufacturers and investors who had accelerated EV adoption are now experiencing a "melt-down." Despite pouring massive funds into EV adoption over recent years, both quantitative and qualitative growth have stagnated due to demand slowdown, prompting many to withdraw. U.S. business magazine Fortune noted, "There is no clear evidence of a market collapse yet, but the growth rate is definitely slowing."

The main reason for the demand decline in the EV market is cited as high prices. The EV market has passed the ‘blooming phase’ led by early adopters who overlooked high prices and infrastructure shortages and is entering the ‘diffusion phase,’ where general consumers are actively purchasing EVs. In this process, the gap between manufacturers and consumers regarding the ‘appropriate price’ is widening.

EV manufacturers have tried to stimulate demand by lowering prices, but the market response appears weak. Tesla, for example, has aggressively cut new car prices by up to 30% in major markets such as the U.S., Europe, and China to target general consumers. Other automakers have also joined the price-cutting trend. According to U.S. automotive evaluation agency Kelley Blue Book, the average EV price in the U.S. was $50,683 at the end of September, down 3% from the previous month ($52,212) and about 22% from a year ago.

Tesla’s much-anticipated ‘half-price EV’ launch schedule continues to be delayed. Although Tesla unveiled a long-term business plan blueprint in March for the first time in seven years, it did not include plans for the ‘half-price EV’ that investors had been waiting for. Instead of a half-price EV, Tesla is pursuing a ‘half-price assembly’ strategy to reduce EV manufacturing costs by half compared to current levels. CEO Musk first pledged at the ‘Battery Day’ event in September 2020 that "this year we will release a $25,000 (half-price) EV."

The ‘different dreams’ regarding price between manufacturers and consumers present a difficult challenge to resolve going forward. Geopolitical risks such as U.S.-China tensions and the Middle East war have increased uncertainty in raw material supply chains, and vehicle semiconductor production capacity has yet to stabilize. Recent strikes by unions at three automakers have raised concerns that production costs may rise rather than fall. Ford warned that the simultaneous strike by the United Auto Workers (UAW) against the three major U.S. automakers could increase new car prices by $850 to $900. Former Ford CEO Mark Fields said, "With ongoing margin pressure in the EV business and declining demand, we will have no choice but to focus on profit and loss support through internal combustion engine vehicles for the time being."

Additionally, limited driving range and insufficient charging infrastructure remain constraints. Jeff Iosa, who lives in New London, Connecticut, said, "The biggest factors making me hesitate to buy an EV are the high price and concerns about charging infrastructure," adding, "I worry whether there will be enough infrastructure for long-distance travel in an EV." U.S. automotive market research firm CarGurus pointed out that the combination of still-high prices and incomplete infrastructure is slowing the growth pace of the EV industry.

Mass Sell-Offs Lead to Stock Price Declines...Calls for Cautious Investment

Market forecasts suggest that the EV market slump will not end soon. Bloomberg New Energy Finance (BNEF), an energy market research firm, predicted, "It will take at least three more years for EV prices to fall to the level of internal combustion engine vehicles." Analyst Rossner said, "It will be difficult for new EV prices to fall significantly enough to lead to mass adoption by 2025," adding, "How quickly and sufficiently EV prices can be lowered will be a major turning point in the paradigm shift to EVs."

[Image source=Reuters Yonhap News]

Investor enthusiasm is gradually cooling. Tesla’s stock price has plunged up to 23% (closing price basis) over the past two weeks since its Q3 earnings announcement on the 18th of last month. Compared to November 2021, when the stock price hovered above $400 per share, the current price ($219.96 per share) has nearly halved. The sell-off is a result of concerns that the current stock price is excessively overvalued relative to long-term profit growth potential.

There are also voices expressing concern over further declines. According to data compiled by financial information provider LSEG, 14 Wall Street analysts have consecutively lowered Tesla’s target price since the Q3 earnings announcement, with the average target price dropping to $260. Ford’s stock price, which announced a slowdown in its EV transition plan, also fell nearly 7% after the announcement.

GM’s stock price fell 17% over the year, with a 31% plunge from its peak on February 13. Rossner told U.S. business media CNBC, "As expectations for the EV era collapse, it is leading to a stock price crash for EV stocks."

This content was produced with the assistance of AI translation services.