The EV industry has been growing rapidly, driven by increasing consumer demand for environmentally-friendly transportation, government incentives, and advancements in technology. However, despite the strong market potential, many EV manufacturers are still struggling to turn a profit. While this has raised concerns about the long-term viability of EVs and the broader sustainability of the industry, can OEMs overcome these challenges to build a sustainable and durable business model?
Current EV Industry Numbers
Despite the rapid growth of the EV market, most OEMs are still struggling to make a profit, mainly due to the high costs of production. As a result, many EV makers are losing approximately $6,000 on each EV they sell.
In the case of Ford, the American car manufacturer reported an overall revenue increase of 12% and year-end profits of $4.3 billion, while the EV division recorded a loss of nearly $4.7 billion. This led to the company’s CEO, James Farley, attributing much of this loss to the high pricing of EVs, which is a significant deterrent for consumers facing inflation and high interest rates. Indeed, during Q1 2024 alone, Ford lost over $100,000 for every EV it produced, double the amount compared to 2023. Furthermore, the company projects that its EV unit could face total losses of up to $5.5 billion in 2024.
Reducing costs to match those of internal combustion engine vehicles remains a significant challenge for the EV industry. Currently, manufacturing a combustion engine’s drivetrain costs about 10% of what it takes to manufacture an EV one. Consequently, Farley acknowledged that while it’s ‘undeniable’ that EVs will eventually need to turn a profit, achieving this could take years. This is particularly stark in comparison to China, the world leader in EV production, where manufacturers benefit from more affordable battery production. Therefore, while companies like Ford must be able to lower their production costs to compete and sustain profitability, this is being hindered by various factors.
Slow-to-Come Profits
High Component Costs
One of the main reasons why EV manufacturers are not profitable is the high cost of production. Indeed, EVs require expensive components, particularly batteries, which can account for over 30% of the total cost of the vehicle. Although innovations in battery technology are gradually starting to change this, the demand for higher capacity and improved performance is keeping prices high. As a result, batteries remain the most significant and expensive component of EVs, making it challenging for manufacturers to lower overall production costs, hence retail price.
Limited Economies of Scale
In contrast to traditional automakers, many EV manufacturers are still in the early stages of production and lack the economies of scale that come with mass production. Producing vehicles at a smaller scale means higher per-unit costs, making it difficult to achieve profitability. In the case of Volkswagen, EV sales increased by 48% year-over-year in the first half of 2023, yet higher investments and the costs of setting up teams led to an operating loss of 0.4€ billion.
High Upfront Investments
Manufacturing EVs requires substantial upfront investments in infrastructure, such as manufacturing plants, charging networks, and R&D facilities. While these investments are necessary to compete in the long term, they can also lead to losses in the short term. As a result, OEMs such as Ford are changing their strategy and reducing their investments on future manufacturing capabilities. Indeed, while Ford was planning on building a $3.5 billion new EV battery factory in Michigan, in late 2023, it decided to scale back its plans, with a reduction of at least $1 billion as the company adjusted its investment strategy. Additionally, the footprint of the factory shrank to just over 500 acres, down from the 730 acres originally planned, which had already been reduced from the 950 acres, when Ford first announced the project in February 2023.
Intense Competition
The EV market is becoming increasingly crowded, with new players entering the space and established automakers ramping up their EV offerings. This puts pressure on pricing, leading to lower margins for EV makers. Indeed, a price war has been intensifying between EV makers, with particularly fierce competition coming from Chinese firms. Tesla CEO, Elon Musk, recently noted that “Tesla prices must change frequently in order to match production with demand.” Reflecting this strategy, Tesla reduced the prices of the Model Y, Model X, and Model S vehicles in the US by $2,000 in Q2 2024, alongside price cuts in many other countries across Europe, the Middle East, and Africa.
Supply Chain Disruptions
Over the past few years, the global supply chain has faced significant disruptions. Due to geopolitical tensions, material shortages and a pandemic, these disruptions have impacted battery prices and EV makers’ ability to source key components, leading to production delays and increased costs. Furthermore, EVs demand roughly six times the amount of metals and minerals compared to internal combustion engines, with a growing portion of these materials required for battery production.
Making Profits with 3D Current Collectors
Addionics 3D Current Collectors present a significant opportunity for EV manufacturers to enhance profitability. Indeed, with their 3D structure, they allow for more active material to be embedded at the same time as reducing the amount of inactive material. This leads to an improved battery performance while simultaneously driving down production costs, which benefits both manufacturers and consumers.
By being chemistry-agnostic, this makes Addionics 3D Current Collectors compatible with both current and emerging battery chemistries. Indeed, as a drop-in solution, they seamlessly integrate into existing manufacturing processes without adding extra costs. Therefore, this technology paves the way for substantial cost reductions and increased profitability, enabling EV manufacturers to deliver high-performing and more cost-effective EVs to the market.
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