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More automakers are being forced to rethink their EV plans

Nora Naughton   

More automakers are being forced to rethink their EV plans

A new era of the transition to electric vehicles is on the horizon, and car companies are scrambling to adjust accordingly.

A reliance upon high-priced, luxury EVs that could more quickly usher in profitability for this segment fell apart in recent months as wealthy early adopters started to drop out of the market.

But demand for EVs didn't fall away completely. Instead, a new crop of shoppers entered the market in search of more affordable and practical electric options, and with a preference for hybrids over pure electrics.

After hitting the brakes on EVs at the end of last year, executives are slowly rolling out new strategies as they go back to the drawing board.

Earlier this week, GM CEO Mary Barra said the company – whose high-profile "all-in" EV campaign rolled out in the Super Bowl – would begin to rely on hybrid sales in North America.

Meanwhile, Sweden's Volvo said it was pulling future funding from its EV company Polestar. These strategy changes follow other signs of trouble for EV plans, like Hertz dumping a third of its EV fleet.

Hybrid bets pay off

For the last few years, the automotive industry has been divided into two camps on electric-vehicle strategies.

The first, like GM and Volkswagen, sought to skip hybrids and go straight to an all-electric lineup, while the second, like Toyota and Jeep-owner Stellantis, focused on plug-in hybrids for the near-term with more EVs down the road.

It was unclear until recently which strategy would win out, but GM's move this week is the first sign that industry executives are recognizing a need for hybrids, at least in the near term.

"Deploying plug-in technology in strategic segments will deliver some of the environmental benefits of EVs as the nation continues to build its charging infrastructure," Barra said, while assuring GM's ultimate goal is still to eliminate emissions by 2035. "We are timing the launches to help us comply with the more stringent fuel economy and tailpipe emission standards that are being proposed."

Barra's statement reflects how the EV landscape is changing. This new wave of EV-curious shoppers is much less likely to tolerate the quirks of charging, range anxiety, or other significant lifestyle changes.

Tesla's price war forced change

While changes in customer demands for EVs are a significant driving factor in the recent upending of the industry's plans, there is another culprit: Elon Musk's Tesla.

Musk started a price war last year, flexing Tesla's extremely high profit margins to drive down the prices of his vehicles while still remaining profitable — something Tesla's legacy competitors can't do. While Musk's price war drives down the average price of EVs, legacy car companies are being forced to rethink their path to profitability for battery-powered vehicles.

"This is a pretty brutal space," Mercedes-Benz CFO Harald Wilhelm said on an analyst call late last year. "I can hardly imagine the current status quo is fully sustainable for everybody."

The solution for now appears to be hybrids, which is good news for customers. Demand for hybrids has recently outpaced supply of these vehicles, driving up prices. It's also good news for dealers, who have been eager to get more hybrid models on their showroom floors as demand for pure EVs softened.

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