Profit vs. the Planet: Here’s Why US Automakers Are All-In on Electric Vehicles
Gas-guzzlers still pull in the big bucks for US car companies, but as we saw at the Detroit Auto Show, the tide may be turning thanks to government incentives and pressure from Wall Street, China, and climate experts.
“And today, I’m pleased to announce…”
Steve Majoros, director of marketing for Chevrolet, paused to build suspense at the Detroit Auto Show last week, before raising his voice and proceeding with sportscaster-like enthusiasm. “The all-new electric Equinox, Silverado, and Blazer.”
Just a few hours earlier, Jeep debuted the latest additions to its electric lineup by driving them over a 23-foot steel mountain before parking on stage.
But the buzz inside the 723,000-square-foot convention center in downtown Detroit didn’t match the reality on the streets outside. The roads were teeming with gas-powered vehicles taking their drivers throughout the day.
Still, the automotive industry is clearly on a path toward electrification. It’s a complicated, politically sensitive subject. Change is uncomfortable—especially with evolving concerns such as limited charging infrastructure, restrictive range, and big price tags.
To begin to explain such rapid evolution, let’s examine the companies actually making the cars.
Under CEO Mary Barra’s “zero crashes, zero emissions, zero congestion” strategy, all General Motors brands (Cadillac, Buick, Chevrolet, GMC) are set to be fully electrified by 2035—the same year California is set to ban gas-powered cars. Cadillac and Buick are first up, by 2030. Last month, Jeep announced its intention to become the world’s leading electric SUV brand.
Depending on the number of EVs driving around your neighborhood, these goals may seem like an out-of-touch pipe dream or a lame attempt to catch up to the world Tesla is already living in. But there are a number of reasons why car companies have rallied around an electric future.
Are Electric Vehicles More Profitable?
Car companies are businesses, so this is the obvious first question. But so far, EVs are minimally profitable or even losing money depending on the model. Automakers are working hard to scale production for the future prospect of profitability.
In the meantime, gas-guzzling SUVs and pickups foot the bill. The three top-selling cars in the US in 2022 so far are all pickup trucks.
An employee works on the 40 millionth Ford F-Series truck on the assembly line at the Ford Dearborn Truck Plant. (Credit: JEFF KOWALSKY / Contributor / Getty Images)
“Companies like GM are funding their EV investments from the massive profits they continue to make on giant pickup trucks and SUVs—the Tahoe, Suburban, Escalade,” says Randall McAdory, an EV analyst. “So, on one hand, these companies are diving head-first into the EV world by saying some brands will only sell EVs by a certain date. On the other hand, they still invest in their cash cows.”
Before revealing Chevy’s EV lineup in Detroit, Majoros quickly highlighted the newest version of the Chevy Tahoe, a $53,000, eight-person SUV that averages only 21mpg in the city. Jeep is also coming out with a 2023 version of the Grand Wagoneer L. It will be $90,000 and 19 feet long with an abysmal 14mpg in the city.
EVs are currently more expensive to manufacture than gas-powered vehicles because of spiking battery costs. The cost of lithium, the main ingredient, has skyrocketed since demand far exceeds the number of working mines that can supply it.
“Batteries cost the manufacturer anywhere from $13,000 — $25,000 or even higher for something like a Rivian or a Hummer,” says Cory Steuben, president of Munro & Associates, an EV engineering and consulting firm. “Just the battery costs more than the total vehicle cost for some cheaper ICE [internal combustion engine] cars.”
While the industry feverishly works to bring down battery costs, Wall Street rewards their big bets by placing higher valuations on all-electric companies like Tesla ($277.85 per share at press time) over legacy ICE brands like Ford ($12 per share).
“Wall Street sees it as a more efficient mode of transportation—fewer parts, cleaner, less expensive to maintain,” says Michael Dunne, CEO of electric vehicle consultancy ZoZoGo.
“Electrics are the theme of the decade, so if companies aren’t building them, Wall Street will say, ‘You guys are dinosaurs, you’re building yesterday’s technology and you gotta get with it.’ Plus, it will be enormously helpful to reduce pollution and emissions,” he adds.
With Fewer Parts, EVs Are Simpler to Make, Maintain
Fully electric vehicles are decidedly simpler machines than their ICE counterparts. They do not have gas engines or transmissions, which contain hundreds of expensive, intricate parts such as a radiator, pistons, and spark plugs.
“An EV is essentially an electric motor or two and a battery pack—that’s it, that’s the powertrain,” says EV analyst McAdory.
First-time EV owners learn the surprising simplicity of their vehicles first hand—no oil changes, almost no visits to the shop. “I love it, there’s no maintenance,” says Harper Ferguson, a product marketing manager who drives her Tesla through the mountains of Boulder, CO. “I’ll never go back to a gas vehicle.”
From an engineering perspective, this checks out. “You don’t have the same thermal and vibrational loads that come from a gas engine, which break down components over time,” says Steuben. “Basically, heat and vibration are bad for a car, and EVs have a lot less of that.”
Smart manufacturers are working on universalizing battery packs to work across many vehicles. GM’s Ultium battery platform powers five EVs across the company’s brands: the Hummer, Cadillac Lyric, Chevrolet Equinox, Chevrolet Blazer, and Chevrolet Silverado.
The Ultium is made up of interchangeable parts that can swap out as technology evolves, rather than being one large battery. This helps reduce battery and manufacturing costs, while benefitting customers over the life of the vehicle through things like component upgrades and access to more chargers and accessories that work with all vehicles on the same platform. It’s like the EV equivalent of the Apple iOS or Android operating system.
For automakers, fewer parts means simpler manufacturing with less costly labor. Automakers know that if they can drive down battery costs, improve battery technology (and therefore range), build out the national charging network, and scale production, they will win.
“This is the same thing we see technology doing throughout time in business,” says McAdory. “Between 1900 and 1920, anybody working in the horse and buggy industry lost that work. Then, the assembly line made technicians and artisan mechanical work essentially obsolete.”
Over time, the hope is that new jobs will stem from new domestic industries, such as building and installing chargers, mining lithium, and creating batteries on top of producing vehicles.
Fierce Competition and Massive Foreign Markets
While EVs made up just 5–6% of US new car sales in 2022, battery-powered cars are more common across both the Pacific and Atlantic Oceans. In Europe, most western countries have double or more the adoption rate. Globally, EV sales are expected to hit 13% in 2022.
In China, all the nation’s automakers are working toward a country-wide mandate to have 40% of their sales from electrics by 2030. That’s a seismic change that, if put in place in America, would effectively end the gas-powered pickup truck and SUV culture as we know it.
The streets in China have many more EVs in number and type than the US, priced anywhere from $5,000 urban commuters to a $26,000 Tesla lookalike and beyond, says ZoZoGo CEO Dunne, who spends time there for work.
“The extent to which China is way ahead of everyone else is a shocker,” he says. “The United States isn’t used to being the underdog, and that’s where we are when it comes to electric vehicles and batteries. They have the largest factories and so many companies.”
American leaders aren’t ready to cede the development of this new industry to China or lose out on the biggest market of potential EV consumers in the world.
“I think the United States government looked at its supply chain cupboard and realized it’s largely empty,” says Dunne. “We’ve come to depend enormously on Asia when it comes to manufacturing goods. The government is doing everything it can to build a competitive supply chain here at home.”
He explains that 90% of batteries today are built in three countries: China, Japan, and Korea. That’s hyper concentration in one geographic area where the US has tenuous relations, especially with China.
“It is very clear that we don’t have sufficient R&D and manufacturing capability for batteries in the US,” says Alex Mitchell, SVP of the LA CleanTech Incubator. “And the events of the last two-plus years have shown us the supply chain risks of manufacturing overseas.”
Startups and entrepreneurs, including Elon Musk and Tesla, are securing big investments to spin up lithium mines and battery manufacturing plants in places like California and Nevada. The upcoming Thacker Pass mine in Nevada promises 3 million tons of lithium deposits to be mined over 46 years, and then it’s on to the next.
What About Climate Change?
Climate change is akin to all of humankind sitting in a big car with the sun bearing down. More heat comes in than can escape through the roof and windshield, making the inside unbearably hot. This is called the greenhouse effect. Carbon dioxide, which gas cars emit from tailpipes, accelerates this effect by bolstering the atmospheric layer that traps heat.
Emissions from transportation account for 27% of total US greenhouse gas emissions, according to the Environmental Protection Agency.
“Climate change is a massive issue, and I think if you’re lucky enough to be in the C-Suite of some of these car companies, you’re getting access to information that scares you and you hold the pen,” says Trevor Pawl, the chief mobility officer for the state of Michigan. “They know they could literally change the world, so for once you have the public sector and private sector reaching a level of urgency that works.”
While the problem with car emissions is not new information, it’s now becoming a marketing tool.
“The Jeep Brand is in a profound transformation of our portfolio,” Christian Meunier, CEO of Jeep, said in a video last month. “This is a forward-thinking strategy to make sure millions of Jeep fans around the world have a planet to explore.”
But are EVs necessarily more environmentally friendly? In our story about the hidden environmental costs of EVs, we identified five moving targets that will determine whether battery-powered vehicles are really the climate answer humankind is looking for: the energy source behind the electricity; time of day when charging; the temperatures in the local climate; emissions from manufacturing batteries; and an individual’s driving patterns.
All of these factors must come together for EVs to achieve the desired environmental impact. But reducing tailpipe emissions, plus building a cleaner, more innovative set of industries to support that goal, is a clear first step.
Battery recycling is an example of one new industry. Massive recycling plants like Redwood Materials, started by former Tesla co-founder J.B. Straubel, seeks to recycle and manufacture batteries in Nevada. The company has $792 million in funding from investors, including Ford, and a $3 billion valuation.
Finally, GM CEO Mary Barra’s “zero emissions future” has become entwined with politics and economics. Initiatives like the Inflation Reduction Act give a $7,500 tax credit for people who buy American-made EVs. Kia will begin producing electric vehicles in the United States for this reason, Elektrek.co reports, as it’s something EV shoppers will look for.
Reinventing an Industry or a Culture?
Some people don’t see EVs fitting into the “Built Ford Tough” American ethos, the pride of “Motor City,” but recent data show the tide is turning.
Thirty-six percent of Americans are considering buying or leasing an electric vehicle, with more interest from men than women, according to a recent survey by Consumer Reports.
“Where I live in San Diego, there’s a powerful social momentum towards electric,” says Dunne. “If people see someone without an electric car they’ll ask, ‘So when are you going electric?’”
Yet it remains to be seen what the ceiling on adoption will be.
“I’m not espousing 100% adoption,” says Dunne. “For some people, let’s say you have a 100-mile commute each way. You probably don’t want electric. But if you look at the number of people who have gone electric, very few have gone back to ICE vehicles after. Very few people went back to a Nokia phone after an iPhone.”
If there’s one thing American culture can rally around, it’s saving money. High gas prices are turning more and more people on to electric vehicles, like James Constantino who we met at the auto show. He and his wife Monica, who are retired, drove their 2010 red Mustang convertible to the show for the reveal party of the 2023 Mustang. They are lifelong lovers of the American muscle car, which is famous for the rev of its powerful gas engine.
“I worked as a supplier for Ford, so I was at the Mustang plant a lot,” Constantino said. He can’t wait to get his hands on the electric Mustang Mach-E, and is patiently waiting for his turn on a list to order the 2023 model.
“We want an EV for around town because of the gas prices, and then an ICE vehicle for longer trips. I can plug the EV in my garage and get 300 miles on it, and that works for me,” he said before he and Monica walked over to redeem a $15 voucher for a food truck, courtesy of Ford.
Originally published at https://www.pcmag.com.