🔋It Hertz
Is the anti-EV sentiment as bad as it seems? The real reasons EVs are getting the cold shoulder.
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The recent cold snap has had many people in the US on edge, especially electric vehicle owners. While ERCOT, Texas’s fragile grid, made it through the week unscathed, Chicago looked like a scene from The Day After Tomorrow (an apocalyptic movie). With temperatures failing to get above 5 degrees Fahrenheit for three consecutive days, reports of many stranded EVs and non-functioning EV charging stations followed. Combined with the worse battery life and extra energy for heating, this led to many dead/stuck EVs which made their way into the headlines.
This is on the back of what seems to be a sentiment shift about EVs. Once heralded as the future of automobiles, the enthusiasm has seemed to have quelled as of late. Are the negative headlines and dead batteries all FUD or has the cold frozen the EV boom? Let’s dig in.
Hertz
One of the recent stories is that the car rental agency Hertz decided to downsize its EV fleet that it campaigned so hard for. Trying to get ahead of the EV revolution in 2021, Hertz announced aggressive plans to buy EVs from Tesla, Ford, and Polester over the coming years. They’ve also invested a lot into advertising as seen with a host of annoying Tom Brady commercials (please excuse my slander for the man). Just this month, Hertz has begun selling 20,000 EVs, predominantly Teslas, and taken some significant depreciation losses in the process. The company will use some proceeds to buy internal combustion engine (ICE) vehicles, citing higher-than-expected collision/repair expenses and depreciation. The company went head first too fast and is now backtracking.
EV Production
Production of Ford F-150 Lightning trucks was cut in half citing lower than expected demand in December. Similarly, GM delayed the opening of one of its EV truck plants by a year. On top of that, this week Ford announced that it would also be laying off some staff working on the F-150 Lightning for similar reasons. This information signals a decrease in the demand for electric trucks and/or EVs in general. In this case, production costs have been very expensive for these legacy automakers. While Tesla has made manufacturing profitable, these legacy automakers are losing tremendous money on each EV ($36-73k per vehicle). Now they need to lower prices to get sales which will only add to losses. See At A Loss where I cover this in greater detail. More so than the demand slump for their EV trucks, production costs are legacy automakers’ biggest problem right now even with the huge government support. Companies are usually reluctant to lay off so this is not a good long-term development for Ford’s EV plans.
Consumer Costs
Another issue facing EV owners is rising fees and insurance costs which is not helping their case currently. Some states are increasing the yearly fees for EVs. These values are smaller than insurance costs though. Insurance costs have increased substantially as seen below for EVs. Compared to the 17% average increase from 2022 to 2023, EV insurance got more expensive than the average. Since batteries consist of ~50% of the EV cost, damage to the battery is becoming a higher insurance risk. Most of the battery damage claims stemmed from the underbody of the vehicle or mechanical failures.
Data
Now we’ll look at what are the numbers telling us about EV sales in 2023. A record 1.2 million EVs were sold in 2023 which is equivalent to 7.6% of new car sales. Records continue to be set for EV sales with strong sales growth and adoption in certain other parts of the world like Europe and Asia is even stronger. This growth began slowing in Q4 2023, which coincides with some of the anti-EV sentiment. Some organizations have downgraded their forecasts for North American EV sales, but many still project aggressive adoption over the coming decade. Overall, EV sales continue to grow year over year which is strong positive momentum for the industry. Only time to tell whether the slowdown in growth in Q4 will continue or was just a bump. It is worth noting that while many believe EVs are a revolution and growth will continue increasing, growth figures will only get increasingly difficult to hit as the adoption gets higher which is just a function of math and economies of scale.
Conclusion
While there are several concerning points to worry about EV adoption, the fact is that sales are still growing strong. Amidst a slowdown in EV sales growth rate in Q4 2023, a report from Deloitte asked people which vehicle they would like to purchase in 2024. 67% chose ICE which is an increase from the previous year of 58%. Were EVs in a bubble and doomed on this downward trajectory or is this a roadblock that technological superiority will overcome?
Some chalk the anti-EV sentiment up to fossil fuel companies and misinformation, going further to claim the government plays a pivotal role in guiding forward the EV revolution. While of course there is some merit to these claims and there are always information shenanigans going on, I have to disagree with these points.
There are two critical forces at play in my opinion: the economy and technology. Most EV or energy transition analysts have a poor grasp of economics and the state of the economy in my opinion. Even though the stock market is on a tear thanks to the magnificent 7, leading economic indicators (LEI), gross domestic income (GDI), the inverted yield curves, high interest rates, and low consumer savings all point to weakness in the economy and looming recession. Whether we get a recession in 2024 or it is pushed out to 2025 I don’t know, but people will not be excited to purchase a more expensive EV with high interest rates and an environment where people are beginning to see some slowdown. At some point in the business cycle the unemployment rate will inevitably pick up, which will only make the EV transition seem worse for a time. Leading indicators of higher unemployment are shorter working hours and loss of full-time jobs with a subsequent increases in part-time/multiple jobs which are both happening now. Economic factors are critical in this analysis and are a reason for the slowdown in EV sales growth.
As far as technology is concerned, people will purchase what is a better product for what purposes they need. There are clear limitations to EVs that people are running into lately and I’m not just talking about the access to charging infrastructure. People’s experiences this winter did not leave them ecstatic about their EVs I bet. EVs can serve the function ~90% of the time, but the tail-risk events are a problem. Further, much of the northern US experiences cold for a significant part of the year, meaning worse battery performance and issues as we observed in Chicago. EVs are great in many ways, but range takes a very significant hit in the wintertime.
Further, while some people believe EVs are technologically superior to ICEs, from an energy density standpoint this isn’t, nor ever will be the case. Fellow Substack Energy Matters discussed how even taking into account efficiency improvements, a Toyota Camry still gets 16x more milage per pound than a Tesla Model 3. Assuming the best solid-state battery can be achieved, the ICE still gets 5x more mileage per pound. This energy density limitation is a vital factor that is not easily compensated, which is a reason why battery-powered planes will not widely feasible for example.
Lastly, the government should not be playing a pivotal role in my opinion either. This is an idealistic claim as they have already intervened heavily with spending packages, regulations, and aggressive EV goals. For me, the market is competent to decide which is a better product combined with its impact on the environment. People will choose cheaper and better cars over time and need not be coerced by central planners.
EVs will still play an important role going forward in reducing emissions and pollution despite the negative headlines and sentiment as of late. The current anti-EV sentiment is brought to you primarily by a slowing economy and realization of some fundamental challenges, not oil/gas companies and misinformation. Challenges facing EV producers will sort themselves out with which companies are successful in the space like Tesla has been so far. Stay warm out there,
-Grayson
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A friend on FB has been posting sarcastic negative EV memes of late and I finally said that in the big picture oil is a finite resource, especially at the rate we're consuming it (climate considerations aside). So isn't it a good thing that we have all these beta testers on the road these days working the bugs out ahead of time for a oil-less future? It seems to me it's like the beginning of the last century where there were many new car companies or the late 90s with all the dotcoms vying for leadership with new technologies. Lots of ups and downs in these early tech periods.
It's fine to say that market forces are a central consideration for choosing EV or ICE, but only if real costs are considered. The IMF quantifies direct and indirect fossil fuel annual subsidies at ~$1.7 trillion, of which ~$600-700 billion are by U.S.
EVs look a heck of a lot better when subsidies are taken away and the real price for gasoline is $12/gal. The real cost of fossil fuels--including pollution and greenhouse gases--should be considered in any cost assessment of EVs. As it stands now, fossil fuel subsidies are a regressive tax hiding behind suppressed fuel prices, while real and enormous costs get ignored.