Some companies are racing to convert entirely to electric vehicles, but others see caution flags
Most car executives agree that a transition to electric vehicles is inevitable. How rapidly to make the switch is a central question, one that is driving divergent strategies.
Traditional auto makers have pledged to gradually transform their vehicle lineups to EVs, but timelines vary. If car makers get ahead of consumers on EV rollouts, that could inflate their costs and hurt sales of gas-powered vehicles, profits from which are needed to fund investments in electrification.
At the same time, lagging behind rivals in EV offerings could cost car makers the chance to establish themselves in a key growth area over the next few decades, executives say.
“We don’t want to risk missing the market,” Volvo AB Chief Executive Jim Rowan said during an earnings call this month. The Swedish auto maker is among those seeking to rapidly evolve into an electric-only manufacturer, saying it will offer an all-EV lineup by 2030. Last year, 11% of Volvo’s vehicle sales were electric.
Electric vehicles last year accounted for nearly 10% of global sales, much of it driven by Tesla Inc. and other EV-only players, according to research firm EV-Volumes.com. For many legacy auto makers, electrics were an even smaller part of the business. And while Tesla’s profits have surged, legacy car makers largely lose money on EV sales, because of high battery costs for their early offerings.
Across industries, companies are grappling with a fundamental tension of how quickly to move their business models away from fossil fuels. BP PLC, which for years championed a green revolution, this month said it would slow its transition to a lower-carbon business model and boost oil-and-gas production.
Meanwhile, governments from Beijing to Sacramento are pressing companies to decarbonize their operations. Last week, European Union lawmakers approved a law that will effectively ban sales of gasoline- and diesel-powered vehicles starting in 2035. California has set the same phaseout date.
Green-minded investors also are agitating for aggressive efforts to reduce emissions. And traditional car executives have seen how richly investors rewarded Tesla and some other newcomers that have an all-electric strategy. Tesla’s stock valuation as of Tuesday was $659 billion, according to FactSet, more than that of General Motors Co., Ford Motor Co., Toyota Motor Corp. and Volkswagen AG combined.
Car executives from traditional auto makers point to factors partly outside of their control that could slow the industry’s rollout of EVs, including the availability of the key minerals needed to produce EV batteries and the readiness of electric grids.
The decision on how rapidly to pivot to EVs is a big one for a relatively small auto maker such as Subaru Corp. The Japanese auto maker must gauge how widely its customers will ultimately embrace plug-in vehicles, said Tom Doll, chief executive of Subaru of America Inc.
His brand’s customer base has long been known for its green bent. And regulators worldwide are pressing the industry to move faster, he said.
“We’re all feeling the pressure,” Mr. Doll said earlier this month. “We have to make sure that the market is really going to tip toward it.”
Many consumers, particularly those in the U.S., are concerned about range issues, executives and analysts said. And while the Inflation Reduction Act has spurred investment in public infrastructure to let drivers recharge vehicles away from their homes, reliability of existing chargers is spotty.
So far, car companies and suppliers have committed spending more than $525 billion globally through 2026 to fund the transition to battery-powered vehicles, according to consulting firm AlixPartners LLP.
Click for an inside the EV battery-making process graphic
GM and Ford are among the large global car companies with the most far-reaching EV ambitions. Ford has said it expects half of its vehicle sales to be fully electric by the end of the decade. GM is targeting 2035 as the phaseout of internal-combustion-engine sales for all but its heaviest vehicles.
Meanwhile, Toyota, the world’s largest auto maker by vehicle sales, has been earmarking less money than its rivals toward development of fully electric models. It instead wants to offer an array of choices, including its specialty, hybrid vehicles, which combine a gas engine with a small battery and electric motor to save fuel.
Akio Toyoda, Toyota’s departing chief executive, has frequently shared his concerns around whether the industry is too narrowly focused on EVs, calling himself a spokesman for the industry’s “silent majority.”
Last month, Mr. Toyoda said he would step aside as chief executive in April and to make way for a successor who has pledged to have an “EV-first mind-set” for building out its future lineup. Even so, Toyota’s incoming chief executive, Koji Sato, has said the car maker remains intent on pursuing a strategy that doesn’t depend entirely on EVs.
Carlos Tavares, chief executive of Stellantis NV, the maker of the Jeep and Ram brands, has been similarly hesitant about racing ahead too fast. In particular, he has raised concerns about regulators pushing car companies to convert to battery-powered cars too quickly, and has said that a potential shortage of raw materials needed for the batteries to produce enough EVs could cause the industry to fall short.
“I don’t know if people will adapt to a new lifestyle as fast as the car companies have adapted to a new technology,” Mr. Tavares said Wednesday during a call with reporters to discuss 2022 financial results.
Mike Manley, chief executive of AutoNation Inc., a publicly traded dealership group, said auto executives have been talking more with dealers over the past year about what the pace of the EV transition should be. It isn’t an easy answer, he said, because there is uncertainty about the pace with which consumers will warm to battery-powered vehicles.
“At the end of the day, if it’s a problem” for the car companies, he said, “it’s a problem for us.”
Write to Ryan Felton at ryan.felton@wsj.com
