Ford announces it will move forward with a scaled back plan for its Marshall, MI electric vehicle (EV) battery plant as manufacturers adjust to a fluid EV operating environment. The International Union of United Automobile, Aerospace and Agricultural Implement Workers of America (UAW) has ratified contracts with Detroit's Big Three, marking historic gains for employees. Nissan, Honda, Hyundai and Toyota announced notable increases to non-unionized factory employee compensation as pressure to unionize heightens. Domestic inventory levels slip as the dust settles from the six-week UAW strike.
In regulatory news, the Biden Administration announced support for broader unionization of automotive workers. Honda announced a significant recall on 149,000 vehicles related to possible engine damage. GM announced a recall of its self-driving robo-taxis after an accident involving a pedestrian.
Additional November insights are included below.
Financial Performance
October U.S. light vehicle sales increased approximately 6 percent year over year, slightly below Bloomberg consensus estimates. Vehicle mix continues to remain near record levels, trending toward large vehicles as light truck sales are up more than 1.2 million units year to date. Average transaction prices fell by 0.7 percent in October compared to the previous year. Continued effects of the six-week UAW strike, inflation, higher interest rates and other macroeconomic issues may provide for a disappointing Q4 for auto sales. However, expectations are for a continued recovery in 2024 through 2028.
Industry Update
October inventory levels ended at 2.15 million units, a 91,000 unit increase from last month. Days' supply (DS) closed at 44, approximately 3 percent below the five-year average and an improvement over the last several months. Inventory at Detroit's Big Three decreased slightly month over month by approximately 3,000 units, suggesting a minimal impact of the UAW strike on production through October. The increase in total units was primarily driven by Japanese and Korean automakers.
Industry Focus — Detroit's Electric Future
The future of EVs for Detroit's Big Three automakers continues to evolve in the face of rapidly changing macroeconomic conditions, competitive pressures and consumer demand. The recent ratification of the UAW's new labor contracts adds further cost strain for EV platforms that already had long runways to profitability for GM, Ford and Stellantis.
While interim cost-saving measures were taken throughout the course of the UAW's more than six-week strike against the Big Three, longer term capital decisions and operational strategies are beginning to take shape. Delays to EV-related investment, manufacturing cuts and a renewed focus on affordable EVs are expected to continue to dominate the news cycle for the Big Three's electric future.
Pumping the brakes on capital deployment
With more than $120 billion in aggregated committed investment toward EV and EV battery manufacturing (see our prior analysis on the 'Great Recapitalization' here), Detroit's Big Three remain firmly committed to a shift toward an EV-centric future. The recent ratification of record-breaking UAW contracts and a weakening consumer demand environment led to announcements by Ford and GM related to delays on specific EV-related capital projects:
Low-cost options increasingly important
With a number of dramatic price actions taken this year for EV manufacturers — including Tesla's near 30 percent price reduction on certain models — low-cost options have become a particularly important part of EV strategies in a difficult macroeconomic environment for consumers.
A recent Bloomberg study showed that the average price of electric vehicles had decreased by more than 22 percent in September 2023 compared to the same period a year ago, compared to less than a 1 percent decrease for the entire automotive industry in the same period. While broader consumer demand is weakening, demand for entry-level EVs remains. Third quarter earnings for both GM and Ford included vehicle-level delivery data that highlighted continued growth for lower-priced EVs:
Detroit's strategy for EVs has focused on electric trucks and SUV models to date and is expected to continue down that path. Across GM, Ford and Stellantis, only four sedan model EVs are expected to be launched through 2027, with most of the development focused on crossover utility vehicles (CUV), sport utility vehicles (SUV) and trucks:
Demand slowdown a sign of things to come, or a short-term blip?
Consumer demand weakening has been apparent through both manufacturers' deliveries and inventory on dealers' lots. A recent Cox Automotive study showed that, as of October 2023, the average dealer that carried EVs had 88 days' supply compared to 39 days' supply for the same period last year. By comparison, internal combustion engine vehicles currently average approximately 60 days' supply, a 14-day increase compared to last year for the same period.
While price has been a contributing factor for consumers cooling off EVs, range anxiety and charging network challenges remain a significantly more difficult problem for automakers to solve in the near-term. Consumer sentiment caused GM to shift its strategy around the launch of its new Chevrolet Equinox EV; the model was supposed to launch at a base price of $30,000 and a range of approximately 250 miles on a single charge, but consumer feedback led the company to adjust the base price to $35,000 with a range of nearly 320 miles.
While the current demand slump for EVs has sounded panic alarms across the industry, the U.S. remains on track for significant growth — albeit less exponential than the last several years. Cox Automotive expects U.S. manufacturers to sell more than one million EVs this year; it took the industry five and a half years to sell its first million EVs, and another 18 months to reach its second million.
Regulatory Landscape
GM driverless vehicle recall: GM announced a voluntary recall of 950 driverless cars after one of the company's robo-taxis collided with a pedestrian. Cruise, the self-driving division of GM, announced it would perform maintenance on the vehicle's collision detection system to address the issues it identified. Cruise and other driverless vehicle manufacturers have faced intense scrutiny surrounding the safety of their vehicles.
Biden Administration continues push for better labor deals: At a recent UAW rally in Belvidere, IL, President Joe Biden said he hoped to see renewed contracts and unionization at other domestic vehicle manufacturers like Toyota and Tesla. The UAW has yet to endorse the Biden Administration as the 2024 election approaches, but it is expected an endorsement will follow the recent ratification of the Detroit Three labor deals.
Honda recall: Honda will recall 249,000 vehicles affected by a manufacturing defect that causes engine damage. Models affected include the Pilot, Ridgeline, Odyssey and certain Acura TLX and MDX vehicles from model years 2015 to 2020. Honda has issued 16 recalls this year, affecting nearly 3.3 million vehicles.
Stay connected to industry financial indicators and check back in December for the latest Auto Industry Spotlight.
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