Topics in this section: - Electric vehicles to power through automaker profit pinch - Automakers base EV pace on Tesla income line - Battery EVs a few-horse race until profitability is consistent - Emissions, fuel economy rules not yet irrelevant - Easier fuel standards won't help sell trucks
These analyses are by Bloomberg Intelligence analysts Kevin P Tynan and Michael Dean.
Electric vehicles have been slow to reach sustainable profitability, enabling automakers to spread investment in the technology over a longer time frame as earnings decline. Some manufacturers will be slower than others in developing battery-powered electric vehicles, as brands typically targeting low prices and higher volume can't compete at the top of the technology ladder.
Automakers base EV pace on Tesla income line
Tesla's 1Q backslide into unprofitability has created demand sustainability concerns and calmed the sense of urgency legacy automakers might have in developing battery-electric vehicles. Tesla's move toward consistent profitability will determine the pace and intensity of the commitment to the technology. Unit sales of battery-electric vehicles increased 89% globally in 2018, though the sequential drop in 1Q was 35% after Tesla pulled forward demand ahead of the $3,750 step-down of the federal tax credit on Jan. 1. Battery-powered autos are profitable at a considerably higher price point than many volume automakers can -- or want -- to compete at.
Low-volume brands are likely to be quicker to move to battery electrics across the portfolio, as consumers equate the higher price points with premium nameplates.
Battery EVs a few-horse race until profitability is consistent
Tesla's position as the largest automaker selling solely battery-powered electric vehicles ensures aggressive volume growth as the delivery focus jumps from the U.S. to China and Europe, while questions about the sustainability of demand and profit may keep full-line manufacturers from sharing the enthusiasm for the technology. Only Nissan had EV sales representing 1% or more of its U.S. total in 2018, and with automakers delaying their electric-vehicle commitment until the technology is accretive to earnings, 2019 and 2020 will seem undersupplied as well.
Tesla represented 18% of all electric vehicles sold in 2018, and more than half of those deliveries were in its domestic market. Of the remaining manufacturers selling battery-powered cars globally, only China's BAIC was above 10% in 2018.
Emissions, fuel economy rules not yet irrelevant
As EV sales grow, the prospect of a patchwork of rules begs for a policy across states to avoid the capital-destroying development of multiple vehicles for each market, lessening the focus on easing fuel-economy standards. General Motors pushed back on President Donald Trump's plan to freeze mpg requirements at the 2020 level, though it didn't back the fleetwide 47 mpg 2025 target set by the Obama administration. GM urges a national mandate to simplify production plans, given consumer acceptance of electric vehicles isn't widespread enough to allow automakers to achieve scale.
GM favors a U.S. standard of 7% zero-emission vehicle credit target in 2021, increasing two percentage points each year to 15% in 2025 and 25% in 2030. California's proposal calls for 12% in 2021, with an increase to 22% by 2025 and subsequent years.
Easier fuel standards won't help sell trucks
Lower fuel-economy standards won't alter U.S. consumer demand, which is increasingly skewed toward pickups, SUVs and crossovers. Freezing the goal at 37 mpg has more public relations downside than sales upside, given truck sales as a percentage of the U.S. vehicle market in 2019 are on pace to top 70% for the first time in history. Lower efficiency standards may create the perception that domestic brands are rewarded for lacking innovation and harming the environment. Trucks represent 85% of 2019 U.S. unit sales for General Motors, Fiat Chrysler and Ford.
The EPA and NHTSA proposed a federal 37-mpg standard from 2020-26, rolling back a plan to get to 47 mpg by 2025. The proposal also seeks to eliminate California's authority to set its own vehicle-efficiency rules. Twelve other states subscribe to California's standards.
