Seemingly on a weekly basis, automakers from around the world have been ramping up their investments in battery-car technology, development and production — with a new study estimating the industry will invest more than $515 billion through the end of this decade.
The number of battery-based vehicles has begun to grow exponentially, with more than 50 expected to be available in the U.S. alone by the end of calendar year 2022, a fourfold increase from the end of the 2021 model year. The rate of growth is even greater in some markets, such as Europe and China.
The challenge manufacturers face will be getting a return on these hefty investments, however. Currently, only one carmaker is earning money on its battery-electric cars, and Tesla is itself investing heavily, with new factories set to open in Texas and Germany this year.
Spending ramps up rapidly
The pace of spending has accelerated rapidly, just since the beginning of the pandemic. General Motors CEO Mary Barra early in 2021 announced a major expansion of its program, adding new BEV models, a total of four North American battery plants and a target of going completely electric by 2035.
Ford now plans to double the capacity at its battery pickup plant at the iconic Rouge manufacturing complex in Dearborn, Michigan, and will build the even larger Blue Oval City in Memphis, with three new battery plants giving it capacity to power more than 1 million BEVs.
Volkswagen has repeatedly upped its spending target, which now stands at around $110 billion, making it the global leader from an investment standpoint. But even companies that have been reluctant to bring all-electric models to market are responding to competitive pressures. Toyota now plans to spend more than $15 billion, with 13 BEVs, as well as a broad range of plug-in and conventional hybrids, due to market by 2030.
“Once a few manufacturers announced EV programs, everyone else had to announce their own or be viewed as being left behind.” Brian Maxim, head of global powertrain forecasting at AutoForecast Solutions, told the Reuters.
Precise numbers are hard to come by
The exact total the industry plans to spend is a matter of debate, and there are plenty of guesstimates. In June, AlixPartners put the total at about $330 billion. But a new study by Reuters pushes far beyond, to about $515 billion through the end of the decade. TheDetroitBureau.com’s own estimate has been in that range, though the Reuters study offers a more complete breakdown across the industry.
The list includes a number of startups and regional manufacturers — some with extensive global aspirations. Vietnamese startup VinFast will, for one, unveil two new all-electric models next week at the LA Auto Show, both planned for sale in the U.S. and other key markets.
The question many analysts — and industry planners — ask is whether the industry can achieve reasonable returns for all this capital. Until recently, the industry was highly skeptical. At one point, former Fiat Chrysler CEO Sergio Marchionne asked shoppers not to buy the battery-powered Fiat 500e because the company lost thousands of dollars on each one it sold.
Demand on the rise
But the economics appear to be changing at a time when demand is on the rise. The U.S. saw sales of BEVs double during the first half of 2021, with demand continuing to grow. The year is expected to see all-electric models alone account for 3% of new vehicle sales, up from less than 1% in 2018. In the UK, BEVs topped 15% of the market in September. That month, British motorists bought nearly as many all-electric vehicles as they did in all of 2019.
Tough new regulations provide a carrot and stick. Manufacturers face strict new emissions and fuel-economy mandates, with Britain, Canada and Norway among the countries set to ban internal combustion engines. California is one of several states planning similar moves. But potential buyers also can benefit from sales and tax incentives. The U.S. Congress may soon bump givebacks from the current $7,500 to as much as $12,500.
For the moment, Tesla is the only company turning a profit building battery-electric vehicles. But, with production costs expected to slide, other automakers are growing more upbeat. GM CEO Barra last month predicted GM will double revenues this decade, and boost margins to somewhere between 12% and 14% by going electric.
Whether the figure quoted by Reuters proves to be accurate remains to be seen. There could be reasons why some manufacturers trim back on spending plans. But most analysts believe the trend will be to further up expenditures — all the more so if sales of battery-powered vehicles continue to grow and more products start to turn a profit.