Automakers move carefully on EVs with slowing sales, uncertainty on tax credits

WASHINGTON (TNND) — General Motors is selling its stake on a battery plant in Michigan as U.S. automakers continue to scale back plans for their electric vehicle fleets due to lackluster sales and uncertainty about what is to come for government incentives with President-elect Donald Trump coming into office.

GM will sell its stake in the plant to LG Energy Solution for a nearly completed battery plant in Michigan, reducing the number of plants it will operate in the U.S. to three. It comes as sales of electric vehicles have not met elevated expectations over the last few years and forced companies to reevaluate their approach to expanding their lineups.

Many automakers are losing money on their electric vehicle fleets due to high production costs that are mostly driven by the expensive batteries that power the vehicles despite subsidies from the Inflation Reduction Act. With fewer people than expected purchasing the vehicles, companies have had to change plans to preserve their profitability.

“We’re focused on optimizing our battery technology by developing the right battery chemistries and form factors to improve E.V. performance, enhance safety and reduce costs,” Kurt Kelty, GM’s vice president of battery cell and pack, said in a statement on Monday.

Multiple companies have scaled back their plans and pulled back on guidance about expectations for electric vehicle sales over the last year as the push to get more people to go electric has been met skeptically by consumers. Along with GM, Ford, Volkswagen and others have all made announcement about slower timelines for EV expansion amid sales that came in below expectations.

“GM and other auto companies a few years ago, stepping out of COVID, they thought the EV market would just take off,” said Z. Justin Ren, associate professor at Boston University’s Questrom School of Business. “And at that time, people had a hard time getting a hold of basically any car. That was a supply chain problem. But I think those big auto companies, it was a signal that consumers were gonna buy EVs like crazy, as we saw two years ago, but then it didn't happen. So, in the short term now, I think all companies like GM and Ford are trying to adjust.”

The market for electric vehicles has grown but sales have slowed despite generous government subsidies for manufacturers and a tax incentive for consumers. According to the International Energy Agency, pure electric vehicles accounted for 8% of overall vehicle sales in the U.S. in October.

GM has seen the most growth this year for American companies, selling more than any other U.S. manufacturer outside of Tesla during the third quarter, according to data from Cox Automotive. The group is projecting EV sales to grow to finish out the year as consumers try to take advantage of tax credits that could vanish under Trump.

“There is concern that federal tax credits for EVs and PHEVs may be reduced or eliminated when the new administration takes office. As a result, EV sales may experience some tailwinds, leading to robust activity through the end of the year,” Cox Automotive senior economist Charlie Chesbrough said in a release.

Trump has been generally resistant to electric vehicles and has vowed to end what he describes as Biden’s EV “mandate.” He has also floated eliminating the $7,500 tax credit that is available for some buyers to help make the cars more affordable and could scale back other subsidies with the GOP-controlled Congress over the next two years, adding to the uncertainty for automakers and consumers.

“If you take a $7,500 incentive away, people's purchasing intent is decreased, no doubt about it. But the nuance is which market segment will be affected more,” Ren said. “Tesla consumers are not that price sensitive But I think it would affect different manufacturers differently.”

Electric vehicles will account for about 20% of all cars sold globally at around 17 million, including plug-in hybrids that also have traditional internal combustion engines. But most of that growth is happening in China, which accounts for some 60% of those sales, according to IEA.

China’s dominance in the EV market has been a significant barrier for American and European manufacturers to overcome as they ramp up electric vehicle offerings and try to source the materials and capacity to make batteries. Chinese automakers can sell their vehicles at a sharply discounted price compared to their U.S. and European counterparts and have large government subsidies and mandates to help boost sales.

China also controls major pieces of the EV supply chain like mining for lithium that is used to create batteries and the technology that goes into making batteries. President Joe Biden has made cutting reliance on China a priority as he has steered investments into U.S. manufacturing capacity for battery production and mining for crucial minerals.

Automakers followed suit with the help of massive subsidies in the Inflation Reduction Act with a wave of vehicle and battery plant announcements across the U.S. as they made billions in investments into making their fleets electric and set ambitious timelines for moving away from combustion engines.

But those goals are appearing harder to reach than anticipated as sales have not met expectations. American drivers have been hesitant to switch from combustion engines to electric vehicles over concerns about price, an insufficient charging network and anxiety about their range compared to a fuel-powered vehicle.

EV prices have fallen over the last two years but are still more expensive than combustion engine vehicles. The average price for a new EV in October was $56,902, compared to $48,623 for a new vehicle. If the $7,500 tax credit were to be taken away under Trump, cost would become an even larger barrier to overcome for automakers in the near future.

Charging networks are also a concern for buyer that fuel concerns about range anxiety. Electric vehicles do not have the same range as a full tank of gas and many parts of the country do not offer drivers access to fast-charging stations while massive investments from the government and manufacturers take time to turn into functioning stations.