It seems like there’s barely a corner of the nascent electric vehicle industry that’s not struggling right now.
The carmakers who’ve promised multi-billion-dollar plans to pivot to battery vehicles are being savaged by equity investors, with shares in General Motors Co. down 30% since the start of August and even perennial market darling Tesla Inc. falling 16%. An automotive chief executive officer can’t stand on a stage these days without downgrading some aspect of their EV rollout plans. While sales are still growing at double-digit rates, expectations of a rapid switch away from conventional drivetrains have taken a hit.
The consensus explanation is that, in the words of one analyst quoted by the Financial Times recently, “the early adopters have adopted.” The mainstream consumers that auto companies are depending on next are still being held back by a toxic combination of doubts about price, range, and charging infrastructure.
Those fears have spread from the top to the bottom of the electric vehicle supply chain. Have a look at the five big manufacturers of EV batteries (excluding BYD Co., which makes cars as well) and you see a remarkably similar pattern. Shares are all down by roughly a third from the end of July:
Even the materials those battery makers turn into electric cells are suffering. Lithium hydroxide is worth barely more than half of what it cost a few months earlier, and nickel (a crucial component of EV battery cathodes) has lost more than 20% of its value. Miners such as SQM SA and Albemarle Corp. are falling faster than the auto manufacturers.There’s one big problem when you consider all three of these charts together. EV batteries make up about 30% to 40% of the cost of the vehicle itself, and raw materials account for about 40% of the battery cost. One reason that the industry hit a speed bump in recent years is that the surge in commodity markets drove up the price of lithium-ion cells, in turn making it impossible for car manufacturers to achieve the declines in sticker prices that they’d been predicting a few years back. That pattern, however, has now comprehensively reversed. The commodity weakness that’s doing such damage to the shares of lithium miners translates into lower costs for the battery manufacturers, who in turn can pass on cheaper prices to carmakers. Downstream manufacturers can use this moment to either rebuild margins and repair their income statements, or continue the price war that’s been ongoing for the past year and bring electric cars closer still to the moment of price parity with conventional vehicles.
That’s now well within view. In China, EVs have already reached price parity with conventional vehicles. In the US, the average battery car sold in September retailed for USD 50,683, barely above the USD 47,899 for the industry as a whole, according to Cox Automotive — a 5.8% premium, compared to 35% 12 months earlier. Prices for cells in China are running well below the levels needed to build battery packs for less than USD 100 a kilowatt hour, based on data from consultants Intercalation. That’s long been considered a holy grail for the industry, a level at which EVs would become comprehensively cheaper than the competition.Automakers’ gloom is being fueled by a soft consumer market. The squeeze on spending from high interest rates is going to continue hurting electric and gasoline-powered vehicles alike until the Federal Reserve starts reversing course. The cost of materials, margin pressures and sticker shock that have plagued the industry in recent years, however, ought to start receding soon as commodity prices decline.
Those other worries about range and charging infrastructure are similarly likely to diminish. The average range of new EVs is now 300 kilometers (186 miles) or more in developed markets. Globally, a public charging station is being installed for every 10 new EVs sold — roughly the level that the European Union regards as sufficient to diminish those fears.
The current situation resembles nothing so much as the solar industry in the late 2000s, when persistently high prices for the key component polysilicon led most analysts to see the entire technology as a busted flush that would never be competitive with fossil fuels. Few were paying attention to the looming raw materials glut, and how it would utterly transform the sector once it worked its way into consumer prices.
Good drivers spend a lot of their time looking in the rear-view mirror — but in this case, that’s giving an unrealistic picture. The road ahead looks far better than what the auto industry has just survived.
