And it has been threatening to come out with a pickup truck, that would hit Ford, which has already abandoned sedans in the US and is dependent on its F-series trucks, the best-selling vehicle of all times. And then it came out with cheaper models, including a compact SUV, and this is the mass market, this is the sweet spot in the US, this is where the volume is. Tesla hit BMW and Mercedes Benz right where it hurts with its low-volume luxury sports sedan (Model S) and then with the near-luxury Model 3. The legacy automakers are not doing it because they want to they’re doing it because they have to in order to not get run over by Tesla and by a bunch of Chinese automakers. The auto industry has never seen this type of mega-investment wave – and investor enthusiasm is going to be required to fund it. Tesla burned through more than $20 billion in cash it had raised from investors to get to where it is today (it raised more cash last year through huge equity sales, but hasn’t burned that cash yet).
Ford is investing over $30 billion in its EV programs through 2025. Volkswagen – along with Toyota, the largest automaker in the world – plans to invest $86 billion over the next five years on its EV programs. GM announced that it would invest $35 billion through 2025 in EVs and driver-assistance and self-driving technologies. The amounts of money going into these efforts by legacy automakers are just mind-boggling.
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The big legacy automakers – GM, Ford, FCA owned by Stellantis, Volkswagen, BMW, Mercedes, the Japanese automakers, the Korean automakers – have all announced investments to the tune of billions of dollars each, or tens of billions of dollars each, in creating their EV models, building EV manufacturing plants, beefing up their software operations, and creating or expanding research operations, manufacturing plants, and supply chains for batteries.
And the transition to EVs is a zero-sum game. What the conference was not about is that the transition to EVs cannibalizes sales of other vehicles because the auto industry in developed economies, including the US, has not seen any growth at all in vehicle sales. And that’s what GM’s investor conference was about – creating investor excitement about this “transition to EVs,” from a Chevrolet crossover “priced around $30,000,” to the high-end Hummer EV pickup truck with 1,000 hp. This year, may be around 15 million vehicles.īut the one segment that is growing in leaps and bounds is EVs. Last year, the industry sold 14.6 million vehicles. In the US, sales peaked in 2000 at 17.4 million vehicles, then fell off, then plunged to 10.4 million vehicles in 2009, and then recovered to hit 17.5 million vehicles in 2016, and that was it. But there has been no growth in developed economies in two decades. There are some developing economies where sales are still growing. But volume growth, in terms of the number of vehicles sold, is hard to come by in the auto industry. Sales growth in this industry is obtained by selling higher-priced vehicles. It said that half its manufacturing capacity in North America and China will be capable of producing EVs by 2030. GM confirmed that logic by pointing out that it expects its margins to increase as it transitions to EVs. So… I don’t see this statement as sign of an increase in volume, but an increase in prices. GM’s average transaction price in Q3 in the US jumped by 20% year-over-year. In terms of the math, 8% in price increases a year for nine years would do that without having to jump through the hoops of selling more vehicles. In the press release for its investor conference today, GM said that it plans to double its annual revenues by the end of the decade as it transitions to EVs. It’s a zero-sum game that’s eating up a huge amount of cash.
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