As EV sales lag, small business suppliers welcome expected boost in hybrids

The good news for businesses supplying components to manufacturers of electric vehicles is their companies are expected to be in great demand over time. The bad news is "over time." While downshifting EV makers cited in the CNBC article included Ford, General Motors, Mercedes-Benz, Volkswagen, and most other major players, there's little question about...

The good news for businesses supplying components to manufacturers of electric vehicles (EVs) is their companies are expected to be in great demand over time. The bad news is “over time.” That qualifier has only just been added, as previously expected driver enthusiasm for battery-powered cars appears considerably slower translating to sales.

The moderating tradjectory showing fewer EV sales than anticipated means the world’s main car makers are altering their manufacturing plans, which will require similarly modified ambitions among suppliers. Those shifts appear to be the result of automakers, tech enthusiasts, stock markets, and media reports broadcasting their shared excitement over sustainable, non-polluting vehicles without fully assessing actual consumer demand.

That has resulted in a considerable gap between expected and actual sales. That differential led CNBC on Wednessday to declare the “EV euphoria is dead,” in a report detailing how”(a)utomakers are scaling back or delaying their electric vehicle plans.”

Despite the dread that declaration might inspire in small businesses supplying parts, software, or battery charging cables to automobile manufacturers, the mood of the hour should be temporary gloom, not definitive doom. While downshifting EV makers cited in the CNBC article included Ford, General Motors, Mercedes-Benz, Volkswagen, and most other major players, there’s little question about battery-powered cars’ dominant role in the future of driving.

In fact, although universal adoption of those e-vehicles by consumers is now expected to take longer than before, they already occupy a fairly big place in the present market.

According to from Cox Automotive analysts quoted by CNBC, “U.S. EV sales were a record 1.2 million units last year, representing 7.6% of the overall national market.” That is expected to increase quickly to between 30 percent, possibly almost 40 percent of all cars sold by 2030. Given those dramatic forecasts, why are manufacturers putting the brakes on development at all?

Government enthusiasm, consumer hestiation

Mostly because they–backed by government advocacy of sustainable alternatives to internal combustion cars–projected themselves into the EV future with a tad too much gusto. GM planned on producing only electric cars by 2035, while its Buick and Cadillac brands fixed 2030 deadlines to make that transition. Ford expected half of its North American sales to be battery-powered by the end of this decade–identical to the goal set by the Biden Administration for the industry.

Reuters reports U.S. Treasury Secretary Janet Yellen on Wednesday said President Joe Biden’s administration is taking steps to ensure success of the domestic electric vehicle industry in the face of China’s growing exports in the sector and heavy government subsidies.

Asked whether the United States needs new tariffs on Chinese EVs, Yellen told reporters at a new battery materials plant in Kentucky: “I don’t want to get ahead of where we are, but it is a commitment that President Biden has made … that we’re going to want our domestic industry to be successful.”

When U.S. automakers initially announced their ambitious transition plans, Wall Street reflected the ambient enthusiasm for electric rides, lifting the stock prices and valuations of conversion-minded legacy auto makers and new players alike.

What couldn’t be known as that happened, however, was that stated consumer interest in EVs, and general desire of drivers to reduce their carbon footprint, would be considerably cooled by higher purchase prices–8.5 percent more, according to recent Cox Automotive estimates. That difference is expected to slim down to parity in 2027, though by then repair prices for electric cars are slated to cost 30 percent more than for gas-burning cars.

Both upfront and looming expenses have led far more drivers than expected to delay EV car buys, resulting in manufacturers now shifting plans from all-electric production to far more hybrid, and even gas-burning vehicles than they’d wanted.

This creates reasonable short-term concerns core suppliers–but only for the short term. While those businesses will need to adjust to lower all-electric manufacturing targets, many of the same components they make for EVs also go into hybrid models that car companies will ramp up to fill a larger than expected, more affordable cross-over demand. Zero-sum, it is not.

“The market was never going to make a smooth transition to EVs, and we expected a slowdown in this shift as early adopters were satisfied,” Sam Fiorani, vice president of vehicle forecasting at AutoForecast Solutions, told CNBS.

At the same time, unexpected opportunities are may arise from the adjustments being made to market preferences. By way of example, Morgan Stanley analyst Adam Jonas told investors in a recent note how Toyota’s bet on hybrids over electric-only cars should provide a boost to its output–along with business to its suppliers.

“Toyota is almost completely absent from the market yet will gain more U.S. market share than any other car company this year. Let that sink in,” CNBC quoted from Jonas’ memo. “EVs may be ‘the future’ but are struggling in the present. Hybrid sales are growing 5x faster than EVs in the U.S.”

“Over time” may therefore come sooner for suppliers than feared.

(c) 2024 Mansueto Ventures LLC; Distributed by Tribune Content Agency, LLC.