At the beginning of the year, Tesla reduced prices in various markets around the world, including reductions of up to 20% for its top-selling models in the U.S., to make more Tesla EVs eligible for subsidies under the Inflation Reduction Act (IRA). The Act provides a $7,500 or $3,750 tax credit for cars under $55,000 and trucks and SUVs under $80,000. With the subsidies acting as a catalyst, EV sales recorded 259,615 units in the U.S. in Q1 2023, a whopping increase of 44.4% year-over-year (179,732 units compared with 259,615 units), and the EV market share reached 7.2% in the U.S.
After Tesla, let's look at the performance of traditional carmakers. Toyota underwent a year-over-year decline of 8.8% in sales (469,558 units compared with 514,592 units) in Q1 in the U.S., but EVs (Mirai, bZ4X, and Lexus RZ) grew 256% (2,551 units compared with 715 units). It is noteworthy that EV sales only accounted for 0.5% of Toyota's total sales. Volkswagen, on the contrary, experienced a 4.4% increase (67,853 units compared with 64,993 units). Although only one EV model, the ID.4, was sold in the U.S., EV sales grew as much as 254% (9,758 units compared with 2,755 units) and already accounted for 14.3% of brand-wide sales.
As for Korean carmakers, Hyundai's sales grew 15.5% in the U.S. in Q1 2023 (184,449 units compared with 159,676 units), with EVs (including IONIQ 5, IONIQ 6, Kona EV, and NEXO) accounting for 4.2% of the brand's total sales. Hyundai has announced that it will invest another 24 trillion KRW (18.2 billion USD) in the development of 31 EV models (17 under Hyundai and 14 under Kia), with concentrated efforts to sell 3.5 million EVs and become one of the top three EV manufacturers in the world by 2030. In terms of actual performance, Hyundai's EV models, IONIQ 5 and IONIQ 6, have won the World Car of the Year for two consecutive years. Plus, the Group is fully committed to EV R&D. Given these auspicious conditions, it makes sense to expect Hyundai's EV sales to grow.
The U.S. sales results for Q1 clearly show the potential rise and fall of some traditional carmakers amid the exponential growth of EV sales. We also see that thanks to the $7,500 EV subsidy in the U.S., top-selling EVs can save traditional carmakers that seize the opportunity, like Volkswagen, from sinking into a quagmire of declining sales. However, despite the three EV models available in the U.S., the competitiveness of Toyota causes legitimate concern when other EV products are brought in for comparison.
The price cuts ignited by Tesla in early 2023 have had different effects across the globe, and consumer demand, market maturity, as well as policy and regulatory requirements differ from market to market. In the U.S., where the supporting policy enables tax credits, manufacturers have adopted purposeful price cuts. Specifically, Tesla has adopted five price cuts so far in 2023, with explicit intent to expand its EV market share while elbowing out latecomers.
In the Chinese market, Tesla adopted a 20% price reduction at the beginning of the year to attract customers and keep the momentum for EV purchases, as the new energy vehicle incentive policy was revoked after 11 years of implementation. This price reduction proved to be a strategy recognized by Chinese consumers with actual purchases. EVs claim a market share of more than 10% in China, an indisputable fact imposing significant pressure on brands that primarily produce gasoline vehicles. In early March, the Hubei government supported the local automaker, Dongfeng Motor Corporation (headquartered in Wuhan), with local subsidies and prompted a frenzy of price cuts by other brands to defend market share, all in the aftermath of Tesla's price cuts.
According to previous analysis of auto market experts, vehicle production will exceed sales by 5 million units by 2023, with most of the sales shifting from traditional gasoline vehicles to electric models. This gap of 5 million units indicates that a fierce price war is inevitable. Keeping the stock of gasoline vehicles low will be the way to survive. Whoever ascends to the strategic pinnacle first will gain greater market advantage.
I would also like to point out that the difference in manufacturing costs between traditional gasoline car manufacturers and Tesla is so immense that some traditional car manufacturers have taken steps to lower costs by laying off employees when they transition to EVs. Ford of Europe GmbH, for example, announced in mid-February that it would lay off 3,800 employees (out of a workforce of 34,000 employees) in three years to metamorphose into a lean EV production organization. Later in mid-March, the company announced that it would lay off about 1,100 employees at its Valencia plant in eastern Spain as the plant transitions to EV production.
It is no coincidence that U.S. auto company GM also announced in early March that it would lay off about 500 employees in the U.S., whereas Stellantis announced in late March that it would lay off 600 employees at its Slovakia plant in order to shift the production of clean EVs to Spain and the production of its best-selling internal combustion engines to Morocco. Meanwhile, the Slovakia plant will be converted to assemble the Citroën C3 series in 2023 and the Opel Crossland from 2024. Such unavoidable layoffs will be seen in other auto brands. Similarly, new EV brands whose sales have not achieved economies of scale will have to find ways to reduce costs if they wish to survive this battle. A clear example is Rivian. The company, announcing in early February that it would be cutting its workforce by 6%, is seeking to increase production while reducing costs in an increasingly competitive EV market.
On the other hand, traditional carmakers are scrambling to invest heavily in EVs for more market share and consumer attention. In addition to the aforementioned 24 trillion KRW investment by Hyundai Motor Group, Volkswagen announced a five-year investment plan worth 180 billion euro in mid-March, with two-thirds of the budget to be spent on battery manufacturing, software development, and the procurement of critical raw materials for vehicles. Ford announced in July 2022 that it expected to invest 50 billion USD to build EV production bases, battery module R&D centers and other hardware facilities worldwide by 2026, aiming to increase annual EV production capacity to 600,000 units next year and to 2 million units in 2026. Japanese car manufacturer Toyota stated last October that it would invest 70 billion USD in the production of EVs and batteries, and that it would aim for a sales volume of at least 3.5 million pure electric vehicles in 2030. At a press conference in early April, new president Sato announced that Toyota would launch 10 new pure electric models by 2026, with annual production expected to reach 1.5 million electric vehicles in the said year.
From the above investment amounts and sales targets, we can foresee the realization of increasingly affordable EVs and prevalent charging facilities in three years, and that's music to the ears of consumers.
About the author - Kenny Liu
Graduated from Dept. of Aeronautics and Astronautics, Cheng Kung University in 1988, started his auto industry career since July 1990 after two year military service. Starting as a service engineer and a temp technician, product marketing specialist in Peugeot/ Daihatsu, marketing and dealer channel specialist in VW LCV from March 1992, then field manager in GM Taiwan from Feb. 1994, sales and service / parts head in Ford Lio-Ho from Sep. 1998 till retirement in May 2019. Kenny then started to work for JLR Taiwan as sales/service head and consultant/ lecturer. After that, he was invited to work at a Suzuki dealer of Taipei as the general manager until April 2022.