A Two-Speed Electric Car Market Is Heading for a Crash

The world’s auto industry is accelerating in two directions at once. Unless those contradictions are resolved, carmakers risk running themselves off the road.

In China and Europe, the transition to electric vehicles is gathering pace. Battery-powered autos made up nearly a quarter of sales in both markets in August, according to Morgan Stanley, with plug-in hybrids lifting the total share to 38% and 28%, respectively.

Things look very different in the US and India, where penetration is struggling to break north of 10%, and in Japan, where it’s on life support at 3%. Honda Motor Co. said last week it was dropping plans to build a sub-$30,000 EV with General Motors Co., while GM and Ford Motor Co. and have pushed back targets for boosting sales of battery vehicles. Even Elon Musk has been talking down the prospects that Tesla Inc.’s Cybertruck will ramp up volumes any time soon.

china eu embracing EVs

You might think a switch away from money-losing electric cars toward the gas-guzzling SUVs and pickups that people are still prepared to pay for was just the tonic for the industry. Price-earnings multiples for carmakers are typically in the low single-digits these days (the S&P 500 is on a far more robust 17.6). Ford, meanwhile, just agreed a 25% wage hike with striking auto workers that will put further pressure on margins and raise the prospects of similar inflation-busting deals at its US rivals. Maybe industry executives could wake up and discover the march of EVs was all a dream?

If only it were so simple. What the industry is getting may be the worst of both worlds: a global market bifurcated between one set of countries rushing to decarbonize, and a second where the electric revolution is looking shaky. That means it will spend longer paying to develop separate gasoline and electric drive-trains, rather than making a clean switch from one to the other.