Axios examines Ford’s EV debacle, and not always unsympathetically:
Seesawing government policy can wreak havoc on companies.
True, true, but it would be nice to see some sort of acknowledgment that the government should not have been in the business of “forcing” American car manufacturers to make, and American consumers to buy, electric vehicles (EVs) in the first place. If Washington had wanted to do something to encourage innovation in electric automotive technology — which in its basic form has been around for over a century — then that would have been fine, if modest and mainly focused on the science and engineering. Instead, the government went far, far further.
For the Trump administration not to have reversed course would have been an example of the sunk-cost fallacy at work (even if many of the costs were borne by third parties). The attempt to switch car buyers to opt for a technology that was not, so far as the mass-market and the backing infrastructure was concerned, ready for prime time was an example of mandated malinvestment or, if you prefer, central planners doing what they do.
Axios:
Ford says its strategy pivot, while expensive, was driven by many factors — not just regulatory changes — including low EV demand, high battery costs and even customer complaints about the limitations of an electric pickup truck.
“Low EV demand” is something of a giveaway. But Ford had been in a fix. Regulatory pressure was forcing it to make cars for which there was only limited demand, and it had accepted huge amounts of taxpayer funding to do so. Should Atlas, so to speak, have shrugged? Well, let’s just say that that is easier said than done.
Axios quotes Andrew Frick, president of both the traditional and EV divisions, on Ford’s new strategy: “Ford is following the customer.” Novel! Frick added, “We are looking at the market as it is today, not just as everyone predicted it to be five years ago.”
Everyone?
I wonder. Certainly there were those within the industry who questioned whether the route to EVs pushed by climate policymakers was right, feasible, or both.
The Wall Street Journal, December 17, 2020:
Toyota Motor Corp.’s leader criticized what he described as excessive hype over electric vehicles, saying advocates failed to consider the carbon emitted by generating electricity and the costs of an EV transition.
Toyota President Akio Toyoda said Japan would run out of electricity in the summer if all cars were running on electric power. The infrastructure needed to support a fleet consisting entirely of EVs would cost Japan between ¥14 trillion and ¥37 trillion, the equivalent of $135 billion to $358 billion, he said.
“When politicians are out there saying, ‘Let’s get rid of all cars using gasoline,’ do they understand this?” Mr. Toyoda said Thursday at a year-end news conference in his capacity as chairman of the Japan Automobile Manufacturers Association.
He said if Japan is too hasty in banning gasoline-powered cars, “the current business model of the car industry is going to collapse,” causing the loss of millions of jobs.
In terms of cars sold, Toyota was then (and is now) the largest auto company in the world.
In January 2022, Carlos Tavares, the then CEO of Stellantis, commented that “electrification is a technology chosen by politicians, not by industry. . . . Given the current European energy mix, an electric car needs to drive 70,000 kilometres to compensate for the carbon footprint of manufacturing the battery and to start catching up with a light hybrid vehicle, which costs half as much as an EV.”
The Financial Times reported that Tavares:
often likens carmakers to lightbulb manufacturers as they moved from incandescent bulbs to LED lights. He notes that low-energy bulbs, an interim step, were once considered the future, but they were fundamentally compromised: inefficient, expensive and dim. Had the bulb-makers of the world been forced by regulators to go “all in” on these substandard products, the industry would have collapsed when better technology eventually presented itself.
That was less than five years ago, but it’s reasonable to think that Tavares had held those views for a while. Shortly before then, Toyota chairman Akio Toyoda had claimed that a silent majority of the auto industry shared his concerns about going all-in on “pure” EVs. I wrote at the time that I was not sure about there being a majority but that Toyoda’s “claim that many are reluctant to “speak out loudly” because they thought that the shift to such vehicles was “the trend” rang true.
Toyoda also said this:
I believe we need to be realistic about when society will be able to fully adopt Battery Electric Vehicles and when our infrastructure can support them at scale. Because just like the fully autonomous cars that we were all supposed to be driving by now, I think BEV’s are just going to take longer to become mainstream than the media would like us to believe. And frankly, BEV’s are not the only way to achieve the world’s carbon neutrality goals.
Back to that FT report from December 2021:
“It is absolutely unrealistic to expect that every customer in the world will have sufficient access to charging infrastructure in 2030,” says BMW’s sales chief Pieter Nota, in a thinly-disguised reference to the date when arch-rival Mercedes plans to switch to electric-only sales in Europe.
And from the same month, here’s the CEO of Honda as reported in Inside EVs in response to a question about his company’s strategy in North America:
We feel there’s a rush to electrification, particularly after Mr. Biden took office. But it’s still going to take some time. So we don’t want to focus too much effort onto it right now and wear ourselves out.
At this point, I don’t think we should be doing it alone. We should team with partners like General Motors and then build to a certain volume to ensure business feasibility. That’s the strategy we have for the initial period in North America. Once we reach a certain volume, we will consider rolling out Honda original products. And not just EV products.
Axios quotes David Steinert, a partner in the automotive and industrial practice at AlixPartners, a consultancy. He warns that more big EV investments like Ford’s are going to wind up as stranded costs.
Stranded costs are not so different from “stranded assets,” talk of which was very common among ESG advocates as they urged companies to pull out of fossil fuels a few years back.
Not the best advice, but ESG is what it is.