EkaLore uses the Alien Invader framework to look at companies that seemingly come out of nowhere to dominate a market space. As a group, they come from another market or geography, confound their competition by not playing by the “rules,” and suck the most profitable business out from underneath their competition.
There is much discussion of Tesla’s price cuts and possible reductions of sales in the global electric vehicle (EV) market due to Challenging Times. This release looks at the possible strategies being looked at by Tesla instead of the details of the price cuts in different markets. EkaLore looks at Tesla’s marketspace behaviors as an Alien Invader – instead of a legacy vehicle manufacturer.
There are different signals in the global EV market affecting estimates of per-manufacturer revenue, market penetration, and economics of vehicle production. Many different vehicle manufacturers will see very different effects from the same macroeconomics, technology waves, and market space demands. We’ve talked about Challenging Times affecting many sectors of the global economy, and here, EkaLore will focus on the conflicting tales in the EV market space.
Global capabilities and capacities to manufacture EVs (or hybrids) see distinct pressures apart from the global Challenging Times. Japan, Germany, and the US (Tesla) see global exports and revenues as critical for EV/hybrid production and are affected by currencies, local production costs, and material availability. To further complicate matters, domestic market space focused locales like China and India have multiple national objectives in play. Media and analyst attention has focused on multi-national, governmental, and manufacturer strategies affecting investment and product decisions. The pressures on specific tactical actions by a manufacturer are more difficult to examine.
The single key factor to place each manufacturer’s actions (strategic and tactical) in perspective is margin per vehicle. In the case of traditional/legacy global manufacturing operations, it's most likely for EV products to be negative once investment in platforms and overhead are included.
For example, in the USA geography (although the exact breakout numbers are yet unclear), it’s likely GM and Ford are building pickup truck products with negative margins. Instead of making a healthy profit on each pickup truck unit, the EV models will lose money. This is a two-bang loss as the healthy profit (operating cash flow contribution) is gone, and an economic subsidy has to take its place. In the EU geography VW, BMW, MB, and Stellantis are still building factory capacity, platforms (product lines), and brands. Toyota is closely re-examining its vehicle platforms as long-planned strategies and actions are being assessed, evaluated, and overturned as global events overtake prior planning. Toyota is executing on a joint venture with BYD (China) on EV technologies. In China, it’s likely many small volume EV manufacturers may not see survival let alone success. In India, the lack of critical electric infrastructure (generation, distribution) will hamper success. Margins will be a key driver to manufacturer and product platform viability even as investment capital becomes scarce and expensive.
Manufacturers seeking to emulate Tesla’s success are still building productive capacity to become viable producers at scale. Rivian and Lucid together did not produce 25,000 units in the USA geography. Published estimates (Reuters) point to per-vehicle costs at Rivian and Lucid of 2.5-2.7 times the revenue earned not factored for high startup and factory-line investment. Initial MSRP prices for these luxury segment vehicles are more than 30% above the average USA costs per EV/hybrid unit (where Tesla has by far the greatest market share). Mercedes EQ series only sold 12,421 units in 2022 in the USA.
GM and Ford have said they will limit the production of EV trucks (driven by losses per unit). GM announced to investors at production/sales of less than 50,000 units (mainly Chevy Bolts) in 2022 with a 2023 target of up to 350,000 EV units. GM has disclosed to investors that it is missing EV profit margins thru 2024. Ford is expanding production capacity to a run rate of 150,000 units/year (EV trucks) in 2023. Ford expects to lose up to $15,000 per truck unit instead of margins of $10-15,000 per unit. In separating the internal combustion engine (ICE) from newer EV models, Ford has already begun layoffs in the ICE sector. Business models are challenged as Ford is negotiating new relationships with its dealer network to transform the buying experience and cash flows from EV sales. In the cases of these two traditional manufacturers, the transition to EVs will be painful, with slim or no margins until unit volumes achieve scale.
Meanwhile, in China - To Be continued – Look for a new post at www.ekalore.com/alien-invaders
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