Affordable EVs May Not Be Profitable: 'Just Not Realistic'

Tesla went to great lengths to make the Model 3 profitable. When it finally did, it was a sweet victory. The electric sedan boasted profit margins of 20%, but it was no easy feat—and it took time to reach that kind of scale.

Now, several automakers are attempting to mass-produce even cheaper EVs, betting that they’ll succeed. But can they endure the brutal journey it takes to get there?

This kicks off the Friday edition of Critical Materials, your daily round-up of news and events shaping up the world of electric cars.

Also on today’s dance card: how a quiet county in Georgia is experiencing sea change as Hyundai and its suppliers rush to bring its giant $7.6 billion EV factory to life. Plus, we examine why China is disputing Europe’s anti-subsidy tariffs on EVs made in China at the World Trade Organization.

30%: Cheap EVs: Great For Consumers, Bad For Profits?

The first and second waves of early EV adopters are behind us. Those buyers already have their Teslas, Nissan Leafs, and Chevy Bolt EVs. Now, to win over the next wave—everyday working-class people for whom cost, range, and charging are make-or-break factors—automakers need to step up their game.

Affordable EVs are on their way. General Motors is working on the next-generation Ultium-platform based Bolt EV. Ford’s “skunkworks” team, which CEO Jim Farley recently said is no longer an accurate name because it has expanded to over 300 members, is working on the electric successors to the Fiesta. Tesla has promised “several affordable models” from next year onwards.

Now the question looms large. These EVs might become a reality, but will they be profitable? Some analysts are bearish about that prospect.

Here’s what experts told Investor’s Business Daily:

"Looking at the economics of a lower-cost, mass-market EV," said CFRA Research equity analyst Garrett Nelson, "they are going to be money losers for these companies."

Nelson dismissed the idea of an unsubsidized $25,000 electric car that can generate profits. He said it is "just not realistic" given sharp cost inflation after the coronavirus pandemic.

"It's about where the sweet spot is for demand," said Dan Ives, an equity analyst for Wedbush Securities. "It's similar to what we are seeing in China, where when you get to these price points, that is where you can drive mass demand, and you can go after a subset of the market that hasn't been (sold) yet on electric vehicles."

"It's ultimately going to be around price points and the models and the technology resonating with customers," Ives cautioned. "Cheap in itself is not going to move the needle."

One analyst predicted that even Tesla’s future budget EV could bleed money. However, Tesla may have a lifeline: Full-Self Driving (FSD) subscriptions, which can generate revenue over time. It might even license the technology to other companies.

Add to that Tesla's expanding Supercharger network and booming stationary energy storage business and the company could have plenty to lean on. That’s not even counting the big bet on AI, robotaxis and humanoid robots—but that’s a different story.

It’s true that rivals with far less EV expertise may face a longer and more grueling path to profitability. But I'm not as bearish as the analysts. With lithium prices plummeting, EV costs are expected to drop significantly by the end of the decade.

There’s a real focus on driving down costs, especially with the looming threat of cheap Chinese EVs entering the U.S. Structural battery packs, giga castings and a more flexible and start-up-like approach to EV manufacturing may reap benefits.

Above all, I’m optimistic about the future of range and charging. Range anxiety is already fading and charging infrastructure continues to grow. Those two things will sort themselves out over time, assuming government support continues after the November elections.

The real game-changers for these smaller EVs will be software and design. Nail those, and you've got a winner. If not, tough luck. Making EVs was never easy.

60%: Hyundai, Suppliers, Rush To Bring EV Plant To Life

Fourteen months ago, a vast stretch of land in Bryan County, Georgia—about the size of 15 football fields—was just barren land. Now that space is quickly becoming home to the largest economic development project in Georgia’s history.

This is where Hyundai Motor Group is erecting a $7.6 billion EV factory, what it calls the “Metaplant.” For a quaint town with a population of 157, change is coming. And it’s coming fast as Hyundai and its suppliers seem on track to hire thousands of people to build assembly lines and parts factories.

Here’s more from the Atlanta Journal Consitution:

Since announcing their projects, the suppliers have been on the clock to build their facilities, hire their workers and meet Hyundai’s demanding timeline.

Mike Simpson, vice president and business unit leader at KBD Group, said his firm was paid $111 million to build Ajin’s 850,000-square-foot facility near Register. During the 13-month construction period, his company had to overcome raw material shortages, like steel and concrete, because so much was being built across Coastal Georgia at the same time. The same applied to labor.

“With the Hyundai work being so close to the Hyundai project, it limited people that we could get that would be interested in our job,” Simpson said.

Hannah Mullins, the executive director of the Candler County Industrial Authority, said her agency held a job fair this summer to find workers for DAS Corp.’s $35 million seat manufacturing plant in Metter. About 750 people showed up.

This AJC story is a must-read if you’re curious about the impacts of gargantuan, government-backed clean energy programs. The Hyundai factory’s first phase spanning 15 million square feet has rattled the quaint rural towns outside of Atlanta. But as the AJC reports, the locals are hungry for jobs.

Now there seems to be a chaotic rush to support the influx of workers, build housing for them and upskill them so that at some point in the future, a Hyundai or Kia dealership near you will have a compelling enough electric model that you can drive home and feel good about.

90%: China Goes To WTO To Dispute EU Tariffs

Trade tensions between two of the world’s biggest trading partners are soaring. In June, the European Union slapped import tariffs of up to 38% on cars made in China. Beijing has been vocally unhappy about it ever since. Now it wants to dispute the EU’s decision at the World Trade Organization.

“The determination in the preliminary ruling of the European Union lacks a factual and legal basis, seriously violates the rules of the WTO, and undermines the overall situation of global cooperation in the fight against climate change,” a spokesperson for China’s Ministry Of Commerce said in an official statement.

“We urge the EU to immediately correct the wrong practices and jointly maintain China-EU economic and trade cooperation and the stability of the supply chain of the electric vehicle industry chain,” the spokesperson added.

There are contradictions on multiple levels within the EU’s own EV policies. European countries are enticing Chinese automakers for investments to boost local economies, add thousands of jobs and, above all, sell cars that don’t cause respiratory and other health hazards.

Plus, German automakers are deeply invested in China with JVs and new partnerships in battery manufacturing and self-driving tech.

100%: How Will Carmakers Make Money In The Future?

Legacy automakers rely on volume sales of affordable models, along with high-margin SUVs and trucks, to keep their profits flowing. That’s as of today.