Market Overview

Ford And GM Do Not Care Much About Electric Vehicle Production

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Ford And GM Do Not Care Much About Electric Vehicle Production

The promise that electric vehicles (EVs) hold in the automobile market hinges on two major factors – that they will decrease tailpipe emissions and they will be more economical to operate than internal combustion engine (ICE) vehicles. But as oil prices continue to stay close to a several-decade record low, the cost of operating an ICE vehicle has not been this inexpensive in recent years, making them look a lot more attractive to prospective buyers. 

With analysts lowering their outlook for global oil demand in the second quarter of 2020 due to the COVID-19 epidemic, it is certain that the operating cost of ICE vehicles will be comparable to that of EVs. 

The memo looks to have reached major U.S. auto companies, with detailed production plans for North America showing Ford Motor Company (NYSE: F) and General Motors Company (NYSE: GM) forecasting to produce more than five million SUVs and pickup trucks in 2026, while only planning to make 320,000 EVs the same year. These paltry EV numbers are nowhere close to holding up to the big two's often reiterated idea of an electrified auto future. 

To put numbers in perspective, the production volume is only about 5% of the companies' total vehicle production in North America that year. In comparison, EV market leader Tesla Inc. (NYSE: TLSA) manufactured more cars in 2019 at its Fremont, California factory than Ford and GM  plan for 2026. And even with these minuscule numbers, the EVs being produced in the U.S. by Ford and GM will mostly be exported to China, where the demand for EVs has far outstripped the rest of the world.

Thus, it is puzzling to see the auto giants publicly take a stance that looks quite different from their reality and proposed future. Executives across both Ford and GM have frequently expressed faith in a future inching towards an all-electric zero-emissions transport environment. However, if the devised plans are followed religiously, the big two will produce eight-fold the number of SUVs than traditional cars, with an overwhelming 93% of those cars being ICE vehicles. 

Earlier this March, GM CEO Mary Barra stated that the company would spend $20 billion on its electric and automated vehicle programs over the next five years, with an idea of selling a million EVs a year in the U.S. and China – a statement that directly contradicts the plans set in place. 

While Barra spoke of climate change and the company's aggressive move to produce EVs, GM's resolution to ramp up the scale of SUV production in the future belies its proposed intentions. Now with the price of oil tanking, the strategy might actually work well to its advantage. 

However, the reason for the automakers to continue professing interest in electrification might stem from the fact that the stock market reacts positively to it. By aligning themselves with the promise of sustainability in transport, companies can hope to keep their stock value high. 

A case in point is the market value of Tesla compared to that of GM. While Tesla has a market cap of nearly $96 billion, GM has a market cap of around $32 billion. This is interesting, because GM's annual revenue was more than five times that of Tesla in 2019.

And the reluctance to produce more EVs comes down to a North American auto market that has yet to adopt EVs en masse compared to China or Scandinavia. "We're trying to time this with the natural demand of consumers (so) we're not forced to do artificial things and we don't violate the laws of economics," said Hau Thai-Tang, Ford's chief product development and purchasing officer. 

For now, it appears that the big two automakers are prioritizing ICE vehicles over EVs. But on a positive note, the companies have stated that they will look to improve fuel efficiency and reduce tailpipe emissions as much as possible – thus, holding on to their end of the sustainable transport promise.

 

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