The volume of production shutdowns is slowing globally as of late, but the latest trend does not signify the end of further delays. Automotive inventory dropped in April after building in the prior month, but sales performance was better than projected.

In this issue, A&M analyzes issues critical to consumer adoption of electric vehicles (EV) as the selected topic for the May Industry Focus.

In transaction news, EV companies Polestar and Atlis Motor Vehicles are on track to go public via IPO in the coming months, and automakers continue to use partnerships to bolster vehicle capabilities.

In regulatory news, the U.S. government will spend $3.1 billion to support domestic manufacturing of critical metals used in EVs.

Additional May insights are included below.

Financial Performance

Auto Forecast Solutions’ (AFS) latest numbers show that shutdowns and delays have resulted in 1.7 million lost vehicles globally during calendar year 2022. Production cuts have slowed in recent weeks in North America and globally, but this trend is not expected to be long-term as the chip shortage will continue to affect global output through 2022. The latest AFS estimates suggest approximately 2.5 million total cars and trucks will be affected by chip-related disruptions in 2022.

In addition to OEMs, suppliers are feeling immense financial pressure as inflation and production volatility are squeezing sales and margins. After two years of major headwinds, suppliers had hoped for some relief, but the latest quarterly results show that these pressures have not improved. While OEMs can raise prices, focus on selling more profitable vehicles, remove certain vehicle features, and strategize around semiconductor availability, suppliers do not have the same flexibility. In addition to an intense focus on cost reductions, most suppliers are approaching their customers for pricing relief to address significant inflation that has been felt across the board, but most especially in materials, freight and transportation, and labor costs.  OEMs are working with suppliers to avoid widespread failure by providing cash injections or pricing relief, and suppliers hope these concessions are enough to sustain operations until financial pressures ease.

Industry Update

Automotive inventory decreased by 70,000 units in April, resulting in approximately 1.16 million total units. This translates to a days’ supply (DS) that is 53 percent below the five-year average at 26 DS. With the continuation of production constraints due to ongoing global events, inventory levels are expected to remain depressed through 2022, with no meaningful restock until at least 2023. The industry will likely sell through all units on hand, and the supply constraints result in lowered projections in sales for the remainder of 2022.

New light vehicle sales in the U.S. declined 22 percent year-over-year in April with a 14.3 million seasonally adjusted annualized rate (SAAR) of sales. April sales represent a month-over-month increase and the highest SAAR year-to-date. However, April sales are likely the product of the heightened inventory levels from March, and not indicative of a near-term uptick in sales as supply remains constrained.

Industry Focus – EV Customer Acceptance

As the automotive industry is transitioning to electric vehicles (EV), there are a variety of obstacles to overcome for a successful shift. For the prior Industry Focus, A&M explored the effects of continued semiconductor shortages and heightened demand for raw materials. In the May Industry Focus section, A&M analyzes some of the customer acceptance issues EV makers are trying to navigate and strategize on how to endure the current industry conditions.

Vehicle Pricing

EV interest is at an all-time high, with vehicle registrations rising 60 percent and the percent share of total light vehicles doubling in the electric category for the first quarter of 2022. Although the substantial increase in consumer interest is exciting for the EV transition, the average transaction price for an EV is approximately $10,000 higher than the industry average. While this price may be reduced if the vehicle is eligible for a $7,500 non-refundable tax credit, the current EV purchasing landscape functions with most buyers being wealthier than the average American. Additionally, the average monthly loan payment on new EVs saw a 4.9% bump to $774, while the average lease payment rose 50% to $688. The current pricing may keep prospective buyers out of the market and deter widespread EV adoption.

Currently, domestic EV prices range from approximately $30,000 to $200,000, with varying amounts of distance capabilities. As the industry matures, EV prices may be reduced due to higher volumes and streamlined production processes, supply chain stability, and a heightened focus on affordable EVs in place of luxury models.

Additionally, EVs are estimated to have a lower cost of ownership due to lower fuel and maintenance costs. A consumer reports study found that EV owners spend approximately 40 percent as much as gas-powered vehicle owners on fueling costs. It should be noted that commercial charging stations can be 2-3 times more expensive than at-home charging stations, so savings may differ based on fueling habits. In addition, an electric motor has fewer moving parts than a traditional engine, which leads to less wear and tear and requires less maintenance. A study performed by We Predict showed that after three years on the road, maintenance costs for EVs were over 30 percent less than that of gas-powered vehicles. Further price and ownership cost reductions will be critical, as an all-EV future is much more attainable with a higher degree of affordability in new electric vehicles.

Charging Infrastructure & Challenges

The goal of reaching 50 percent EV sales by 2030 will require millions of vehicles to be charged both at home and in public simultaneously, which is not feasible given the current charging infrastructure in the U.S. Currently, 80 percent of EV owners in the U.S. charge their cars at home. As a result, the development of public charging stations is essential to support a growing number of EVs on the road.

Current EV charging dynamics are highly variable based on the type of charger used and the vehicle model. For example, certain EVs can charge up to 80 percent in the span of a half hour with a Level 3 commercial charging station, while other chargers and vehicles could take up to 12 or more hours. In addition to the wide range of charge timing, not all EV models are compatible with all Level 3 chargers, which only adds to fueling inconvenience. The U.S. public charging network is becoming more robust, but with notable challenges in reliability and performance. These issues include connectors that are rendered non-functioning due to network connectivity issues, broken plugs, unresponsive screens, and payment system failures. A study conducted in California’s Bay Area found that only 72.5 percent of chargers were operational. With an average range of approximately 200 miles per charge, EV charging must prioritize convenience for mass adoption to occur.

Subsequently, the Biden Administration has established The Bipartisan Infrastructure Law, which expects to create 500,000 chargers and includes $5 billion in funding for states to build a national charging network. The legislation also features funding for various grants to develop EV batteries domestically, further advancing the progression to an EV-centric future in the United States. Additionally, the U.S. government wants EV charging to be an interoperable experience based on any car, similar in concept to ICE vehicles stopping at any gas station. For a seamless transition like this to occur, the process of charging EVs must maintain the convenience structure that is seen today.

Other Customer Improvements

Automakers continue to identify strategies that will improve charging capabilities and the EV ownership experience, such as a tactical charging methodology and a heightened focus on consumers in the EV creation process. For example, Volvo is piloting a new project in collaboration with Starbucks to provide 60 charging stations at 15 coffee retail locations on the route from Denver to Seattle. Volvo has successfully identified an attractive niche in the charging space, to provide a charging experience full of amenities. Chrysler launched Project Ingenuity, which switched gears into a more “customer-centric” brand and the result has fostered better relationships and a greater understanding of the customer’s EV desires. Lastly, Stellantis has leveraged the talent of college students to award prizes and jobs for the development of software applications to possibly include in future vehicles.

Transaction Activity

In recent transaction news, unfavorable market conditions have failed to halt the IPO momentum with, Swedish EV manufacturer, Polestar, planning to go public in June, and EV startup Atlis Motor Vehicles announcing intentions to go public as soon as this summer. Additionally, powertrain company Vitesco will supply Hyundai with electric-drive modules after signing a $2.1 billion contract with the automaker. Lastly, EV startup Bollinger Motors and engineering services company Roush are partnering to manufacture commercial EVs.

See below for additional detail on recently announced transactions.

• General Motors is partnering with Red Hat to advance their software platform and improve the overall customer experience in the OEM’s vehicles. The partnership plans to produce an updated and common technology system without sacrificing safety.
• Stellantis agreed to purchase the Share Now car-sharing business from BMW and Mercedes-Benz. The acquisition gives Stellantis competitive positioning in the global car-sharing market, while allowing BMW and Mercedes to concentrate on mobility alliance software.
• Plastic Omnium has agreed to acquire the North American and European lighting units from the lighting supplier Varroc for $634 million. Plastic Omnium is hoping to gain market share and improve capacity utilization while Varroc has aims to focus on the two-wheeler sector and EV product lines globally.
• Mercedes is partnering with the Faurecia-Aptoide joint venture for their infotainment technology system. Faurecia is aiming to solidify their market position, and Mercedes was able to oust tech giants to enhance their vehicles’ entertainment systems.

Regulatory Landscape

U.S. Battery Development Plan: The Biden Administration stated the U.S. will spend $3.1 billion to support domestic manufacturing of key metals used for EVs and energy storage. The funding will present grants for lithium, cobalt, and nickel, raising competition and reducing reliance on foreign nations. Additionally, the U.S. launched the $45 million Electric Vehicles for American Low-Carbon Living program to further accelerate domestic EV Battery development and benefit all Americans. 

EV Battery Recycling Policy: The Alliance for Automotive Innovation recently released a policy framework for the reusing, repurposing, and recycling of EV batteries. The legislation is purposed to sustain the EV battery economy, create jobs, and reduce importation of critical minerals. The policy is stated to anticipate challenges and supply chain demands, to ultimately build out a fully comprehensive approach for a net-zero carbon future.

GM Partnership for Safety: General Motors and Inrix, Inc. have announced their partnership to deliver safety solutions and data to various U.S. officials. The partnership has yielded a cloud-based application that uses crash, vehicle, and vulnerable-road-user information to measure the effectiveness of roadway safety products.

Autonomous Vehicle Deployment: U.S. Transportation Secretary Pete Buttigieg announced the priority of getting autonomous vehicles on the road but added that legislative action from congress is needed for expanded testing and employment. Previous attempts to pass legislation regarding autonomous vehicles have not been successful, leaving the autonomous vehicle industry to navigate various state and local laws.

Stay connected to industry financial indicators and check back in June for the latest Auto Industry Spotlight.