Most automakers not named Tesla, are losing money on every electric vehicle (EV) they sell. Over the past few weeks numbers have surfaced ranging from a $36,000 to $62,000 per Ford vehicle to more than $300,000 on a Lucid Air, according to reports.
In the early stages of the burgeoning electric vehicle industry, investment in the future is costing companies billions.
The point of profitability may be more distant than was predicted a year ago. Some EV manufacturers, like Ford and Tesla, are dropping the prices of their battery-electric models, forcing the rest of the industry to adapt.
Despite a slowdown in EV adoption growth, the adoption is still growing. According to Kelly Blue Book, U.S. car buyers bought 313,086 battery EVs in the third quarter of 2023, a 50.1 percent increase, year-over-year.
The key question is this: When will EVs become profitable?
"EVs are presently more expensive to produce than internal combustion engine vehicles, primarily due to the cost of batteries compared to the cost of an internal combustion engine vehicle's power/drivetrain. As battery technology improves, that cost will decrease, and performance will improve. Consider the battery performance of the first iPhone in 2007 compared to today's iPhone," Tony Salerno, managing director of automotive advisory and analytics at J.D. Power, told Newsweek.
"Eventually manufacturers will achieve scale and profitability, but they are being pressured to accelerate the production of EVs at an unnatural rate due to various government initiatives. For most manufacturers, ICE vehicles are the primary source of profit, so until that paradigm shifts, they will continue to be produced and sold."
For most manufacturers to become profitable selling EVs, Salerno said, two things need to happen. First the cost of production needs to decrease, and second, the adoption rate needs to increase to a point where the aggregate direct profits of EVs sold exceed fixed overhead and research and development costs.
"When each manufacturer reaches that point is difficult to determine currently since we are still in the early stages," he said.
Ford, in this early stage, is the only traditional manufacturer that breaks out its EV business and profits, which allows for a simple math to figure that Ford sold 20,962 electric vehicles in Q3 (beating General Motors, thanks in part to increased Mustang Mach-E production) but posted an operating loss of $1.3 billion.
The company says that the loss is attributable to "continued investment in next-generation EVs and challenging market dynamics." It also said that many North American customers interested in buying EVs are "unwilling to pay premiums for them over gas or hybrid vehicles, sharply compressing EV prices and profitability."
Toyota is taking its time on its way to EVs, saving money in the process. Former CEO Akio Toyoda said last year that the EV market takeover was further away than the media claimed. Current CEO Koji Sato echoed that point this month at the Japan Mobility Show saying that even though battery EVs are the missing piece, "we are not going to launch something imperfect just because there's a deadline. We will ensure they are developed to perfection."
Hyundai Motor Group's Kia brand has found a way to make it work, outpacing Tesla in operating profit margin in the first three months of 2023. It was able to boost profits by cutting costs, leading to the lowest manufacturing cost per car at $19,000 among global carmakers, the Korea Herald reported earlier this year.
Kia expects its margins to increase as a growing number of factory workers at its headquarters are expected to start retiring in 2024, according to Lim Eun-young, a Samsung Securities analyst. The brand lays its success at the feet of Hyundai Motor Group Executive Chair Chung Euisun, who emphasized cost cutting when he was Kia's president.
Lucid, one of the newest EV makers, is still trying to achieve scale. According to a Bloomberg report, Lucid loses a staggering $338,000 per car. The Lucid Air sedan has a price range of topping out at $249,000 for the Sapphire model, though it just introduced its lowest price version yet called Pure, which has a base price of $74,900.
However, because 65 percent of Lucid common stock is owned by the Saudi Arabia Public Investment Fund, and because Lucid is building a plant there capable of 150,000 cars per year, its checkbook should remain open, experts say, though things get murkier by the day.
Lucid spent around $3.6 billion over the past 12 months, according to Bloomberg, but still has almost $5 billion of cash. The Public Investment Fund also holds stakes in Aston Martin and a Chinese luxury brand called Human Horizons.
"The differences in the reported losses on electric vehicles by various manufacturers are most likely due to diverse cost accounting treatments of indirect costs (costs other than direct labor and materials used to build the vehicle) and how they are applied. Therefore, comparisons may not be apples-to-apples," Salerno warns.
Uncommon Knowledge
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
About the writer
Jake Lingeman is the Managing Editor for the Autos team at Newsweek. He has previously worked for Autoweek, The Detroit ... Read more
