EV sector grapples with layoffs, production cuts and altered plans

EV sector grapples with layoffs, production cuts and altered plans

Reuters — 2024-02-22

Automotive Industry

A global slowdown in electric-vehicle demand is rippling through the industry, costing jobs and leading to changes in strategic plans, layoffs and production cuts, suggesting pain in the near term could slow the transition away from gasoline-powered combustion engines.

On Thursday 22 February, German luxury carmaker Mercedes (MBGn.DE) toned down expectations on EV demand and said it will update its gasoline-powered engine vehicle lineup well into the next decade.

Mercedes delayed its goal to go all-electric by 2030. Instead, it now says it will retain combustion engines in at least half of its vehicles until then. Previously, it had hedged by saying consumer demand would dictate how soon it went all-electric.

"High interest rates, moderate oil prices, and range anxiety all have conspired against EV demand. The enthusiasm of early adopters of EVs wasn’t representative of the longer-term and broader demand for these vehicles," said Brian Jacobsen, chief economist at Annex Wealth Management, which does not own shares in any EV makers.

"We expected a reduction in demand and enthusiasm for the vehicles so we didn't find the valuations compelling," he added.

The pivot by Mercedes comes a day after EV startups Rivian (RIVN.O) and Lucid (LCID.O) forecast 2024 production well below analysts' expectations and Rivian cut its workforce by 10%. That news caused shares of Rivian and Lucid to tumble on Thursday by 27.5% and 19.5%, respectively.

The pain follows last year's price war that drained margins and pressured many companies' already money-losing EV operations.

"There is a host of macro-level challenges," Rivian CEO RJ Scaringe told Reuters on Wednesday, adding that high interest rates and geopolitical risks were making consumers price-sensitive.

The situation was previously flagged by Ford (F.N) General Motors (GM.N) and market leader Tesla (TSLA.O) where CEO Elon Musk's warning in January of the market leader's slowing pace of growth slashed $80bn in market value in one day.

Prices for used EVs collapsed by 16.4% in January compared with a year ago, according to Manheim Used Vehicle Value index data. Even in China, the world's largest auto market where demand for EVs has been strong, new-energy vehicle sales fell 38% in January, the first monthly drop since August 2023.

That drumbeat of bad news even has the administration of US President Joe Biden set to propose a softening of limits on tailpipe emissions designed to get more Americans into EVs, sources said.

Earlier during the month of February 2024, Volvo Cars (VOLCARb.ST) decided to halt investments in Polestar after the money-losing luxury EV offshoot brand missed a 2023 delivery target.

Some industry observers argue that the long-term picture of a transition to EVs remains in place despite any short-term road bumps.

"A slowdown in the growth rate from 45% to something more sustainable is not the disaster the press has been pushing. And interest rates affect all car sales, not just EVs," said Vitaly Golomb, a Rivian investor and investment banker who focuses on mobility.

"The effect is more pronounced on more expensive vehicles of course and EVs still average higher price," he added. "Perhaps (automakers) need to emphasize the stark difference in total cost of ownership."