Increasingly, headlines across the internet read, "(Insert automotive company) sells out of EVs for 2022 in the United States." Automotive companies including Volkswagen Group, Ford, Mercedes and even Tesla are struggling to meet customer demand given ongoing supply chain issues, battery availability, chip shortages and increased interest in EVs exacerbated by rising gasoline prices. This means individuals and commercial fleet buyers may need to keep waiting, in some instances, until 2023. In the case of commercial fleets, this may even delay meeting annual corporate sustainability targets.
However, what is the reality behind these headlines? Specifically, the question that comes to my mind is: If drivers and commercial fleets want more EVs, why not produce fewer gasoline vehicles and prioritize EVs?
According to recent research by Canalys, global EV sales rose by 109 percent in 2021, with an estimated 6.5 million EVs sold worldwide last year. While that does include fully electric and plug-in hybrids, EVs continue to increase in market share, even if the percentage of total car sales they account for is still comparatively low. In 2021, EVs represented 9 percent of all passenger car sales, growing from 4.1 percent in 2020.
Manufacturing an EV is very different from manufacturing a vehicle that runs on an internal combustion engine. The supply chain, assembly line and design of an EV are different, and achieving scale seems to be the hardest part.
For a legacy automotive company, that means building new assembly lines or adjusting existing ones to accommodate structural differences in manufacturing internal combustion engine vehicles compared to EVs. The most obvious switch is the installation of a battery along the chassis or the use of an entirely new chassis with an integrated battery along the base, often referred to as a "skateboard chassis."
In addition, continued supply chain issues related to semiconductor shortages and a whole list of other issues including the scale at which raw minerals such as lithium are extracted and refined, in some ways explain why EVs are selling out for an entire year or more. Simply put, it is complex to make an EV, especially when moving from making only internal combustion engine vehicles.
Even Tesla may finally be feeling certain supply-side issues, as it pushes back customer deliveries. In the past, Tesla has managed to skate by many supply chain troubles felt by its competitors due to its strategic planning, EV expertise and vertical integration. Such planning and expertise have allowed Tesla’s sales to soar while other automakers struggled to produce vehicles. However, Tesla CEO Elon Musk recently went as far as to say that Tesla may soon stop taking orders of certain vehicle models because the delivery estimates are more than a year away.
In speaking with Corey Cantor, electric vehicle associate at BloombergNEF, I was given further insight into what is potentially going on with certain legacy automotive companies as EVs continue to sell out. Cantor stated, "For many of these companies, this is still early in the stage of development for the new generation of EVs … so it just takes time to get the supply chain set up, the battery components, to go into each vehicle."
With all that being said, what are the numbers, in reality, for these legacy automotive companies? Let us look at Volkswagen and Ford, as they seem to be in the news on this exact topic.
In the first quarter of 2022, Volkswagen of America sold 64,993 vehicles in the U.S., of which only 2,755 were its all-electric ID.4. Comparing the ID.4, VW’s main all-electric SUV vehicle (not counting other brands under the Volkswagen Group, such as Audi and Porsche) to the Tiguan: The company produced and sold more than six times the number of Tiguans than ID.4s, selling exactly 18,233 Tiguans.
Taking stock of Ford’s EV ramp-up in the U.S., there is a similar narrative in Q1. Ford sold 412,984 vehicles. Its Mustang Mach-E, Ford’s mainstream all-electric SUV EV only accounted for 6,734 vehicles. (The results don’t include the new F-150 Lightning, which started delivering recently.) How did the mainstream SUV models fare? Ford produced and sold 39,962 Escapes, 26,412 Edges and 42,736 Explorers — in the case of the Explorer, that’s more than six times the number of Mach-Es.
A select group of automotive companies has made bold commitments or set ambitious goals to shift towards EV production and sales. Over the past couple of years, major automakers, including General Motors and Daimler/Mercedes-Benz, have set goals to stop producing internal combustion engine vehicles by a certain date in the next decade or more — 2035 in the case of General Motors and 2030 for Daimler/Mercedes-Benz.
Ford and VW seem to also be moving in the right direction, but not evenly and at different speeds. As an example, VW recently shared it is planning to discontinue 60 percent of its gas- and diesel-powered models in Europe by 2030 to shift priorities to EVs. Additionally, VW has stated that by 2030, 55 percent of its U.S. car sales will be fully electric. In the case of Ford, it recently announced that it will split its EV and legacy automotive brands into separate units as it recognizes the need to produce more EVs. However, as of now, it has only committed to going all-electric and plug-in hybrid in 2026 in Europe.
As I look at the sales numbers for Q1 ... and then headlines that EVs are sold out, I can’t help but think — move more quickly to produce less gasoline vehicles, and shift resources to produce and sell more EVs.
As such, the narrative that EVs are selling out is a complex one. On one hand, the process of manufacturing an EV is different from producing a gasoline-powered vehicle. Additionally, there are also real supply chain issues reverberating across the entire automotive industry that have made it difficult to meet demand. Thus, it seems understandable why EVs are selling out.
However, on the other hand, it is also clear there is enough production capacity within the legacy automotive companies to meet the demand for models the industry should be phasing out if these companies are really focused on reducing transportation-related emissions. Of course, it is unrealistic to assume they can flip a switch and be all-electric tomorrow as manufacturing transitions take time to ramp up.
"It is easy to set a target, but it is hard to meet that target … and these commitment dates come up a lot quicker than one might think. The numbers always tell: You (automaker) are selling these cars. How many are EVs now, and how many were EVs a year or two ago," said Cantor, while still remaining optimistic that in the next few years, all this ongoing planning and prepping by automakers will allow them to significantly grow EV sales into the territory that Tesla is operating in the U.S. That is, selling hundreds of thousands of EVs each quarter.
Time will tell how quickly legacy automotive companies transition away from internal combustion engine-powered vehicles and towards all-electric, especially automotive companies that have committed to a certain target date. But as I look at the sales numbers for Q1 from Ford and VW and then headlines that EVs are sold out, I can’t help but think — move more quickly to produce less gasoline vehicles, and shift resources to produce and sell more EVs.
When do you think automakers will achieve scale and meet growing EV demands? Send me your thoughts at [email protected] or tag me on LinkedIn and Twitter.
