In an email to CleanTechnica on March 9, Colin McKerracher of Bloomberg New Energy Finance [paywall] offered this startling observation: “There are growing signs that global auto sales will continue their comeback from the pandemic, chip shortage, and other supply chain snarls. As the recovery takes shape, it’s becoming clearer that sales of internal combustion vehicles are unlikely to ever return to pre-pandemic levels.” This same week, GM has announced it is offering to buy out salaried employees in the US. Is there a connection?
“Calling peaks is generally a no-win endeavor,” McKerracher said. “The call will either be correct but seem obvious after the fact, or wrong and cause for years of mockery. But with 2022 data now available, BNEF is confident the global market for internal combustion vehicles peaked in 2017 and is now in structural decline (emphasis added).” (Note: CleanTechnica‘s Max Holland reported on peak fossil fuel vehicle sales in February 2019, four years ago.)
In 2017, 86 million internal combustion passenger vehicles were sold, including traditional hybrids like the Toyota Prius. Battery electric and plug-in hybrid models accounted for just over 1 million sales combined. Sales of cars powered by internal combustion engines were down almost 20% from that peak to 69 million in 2022, while plug-in vehicles sales increased to 10.4 million.
Even adding in plug-in hybrids doesn’t change the picture very much, BNEF says. The market still would have peaked in 2017, as global sales in 2022 amounted to 72 million cars sold, which is still 16% off the high from] five years earlier. The trend in China is even more pronounced. Plug-in vehicles made up 26% of vehicle sales in 2022, while combustion models were off 28% from their 2017 peak. BNEF is expecting plug-in models to be around a third of all passenger vehicles sold in China this year. In Europe, sales of internal combustion vehicles are down significantly from their peak.
Can Anything Reverse The Trend?
Forecasts for oil demand issued just a few years ago still assumed steady growth in sales of ICE vehicles well into the 2030s BNEF says, but that prediction is no longer valid. While sales of motor vehicles in Asia, India, Africa, and South America are increasing, many of them are plug-in hybrids or battery electric cars. Countries including Thailand and Indonesia are pushing to become hubs for battery and EV production.
It’s a similar story in India, where EVs are on the ascent and the government has big ambitions to build up a domestic industry. Sales went from 15,000 in 2021 to almost 50,000 in 2022, and BNEF is expecting the strong growth to continue this year.
While demand for gasoline won’t end any time soon, BNEF says its modeling shows overall oil demand from road transport will peak in 2027 — just four years from now. It expects the global combustion vehicle fleet to remain fairly stable for the next three years before starting to decline in earnest from 2026 onward as the EV fleet swells. Once the fleet turns, it will be almost impossible to reverse, and that will have ramifications for oil demand and emissions. “Assuming combustion car sales did crest in 2017, another set of peaks won’t be far behind,” McKerracher says.
GM To Offer Salaried Employees A Golden Handshake
General Motors announced this week it is offering buyouts to most of its US salaried workforce and some global executives in order to trim costs as it makes the transition to electric vehicles. The Associated Press says the company declined to say how many salaried workers it is targeting with its Voluntary Separation Program but confirmed the move is intended to accelerate attrition to meet its goal of $2 billion in cost cuts by the end of 2024. GM has about 58,000 salaried workers in the US.
Is there a connection between the BNEF report of “peak ICE” and GM’s decision to cut the number of salaried employees? Oh, you bet your sweet bippy there is. The conundrum for the auto industry is how to sell enough conventional cars to pay for the transition to electric cars. It’s a tough act to pull off because the companies don’t know if they’re on foot or horseback as my old Irish grandmother liked to say.
Unlike Tesla, which makes no conventional cars, GM, Ford, Volkswagen, Mercedes, BMW, and every other carmaker on the planet needs to use the profits from selling conventional cars to fund the transition to electrics. Not all of them will still be in business by the time the current decade ends.
The $2 billion in cost cuts GM announced during its fourth quarter earnings call also are being made in part to prepare for any potential economic downturn or recession company CEO Paul Jacobson told the Wolf Research conference in February. He said the cost cuts would be accomplished in part by filling only strategically important jobs vacated due to attrition. “We want to be cautious because we don’t want to ignore the macro signs that are out there, because I don’t want to be up here a year from now saying, ah, we missed it,” Jacobson told the conference.
Guidehouse Research e-Mobility analyst Sam Abuelsamid told AP the cost cuts may be needed because there’s significant risk of a slowdown in auto sales just as automakers are starting to increase production that was hobbled by a global shortage of computer chips. “Up to this point the auto markets have been pretty lucky because there has been so much pent-up demand over the last couple of years,” he said. “Over the course of this year, it’s going to get to the point where that supply and demand even out.”
The “Voluntary Separation Program,” or VSP, will be offered to all U.S. salaried employees who have spent five or more years at the company as of June 30. Outside of the U.S., the automaker will offer buyouts to executives with at least two years of time at the company, according to a report by CNBC. GM expects to take a pretax charge of up to $1.5 billion related to the buyouts, according to a public filing Thursday. The majority of the charges are expected to be all-cash and occur during the first half of the year, the company said.
CEO Mary Barra wrote in a letter to employees this week that the program is “designed to accelerate attrition in the US,” which will help the company avoid “involuntary actions” in the future. The buyout offer comes after the Detroit automaker said last week it would terminate about 500 salaried positions globally. The last time GM offered such a large buyout program was for roughly 18,000 North American salaried employees in 2018-2019.
“Employees are strongly encouraged to consider the program,” GM said in an emailed statement to CNBC. “By permanently bringing down structured costs, we can improve vehicle profitability and remain nimble in an increasingly competitive market.” Eligible employees interested in the VSP program must sign up by March 24. Those who elect to take a voluntary package and are approved will depart the company by June 30.
Another part of the cost reduction process will involves reducing the complexity of its vehicles and having more sharing of components between both internal combustion and electric models. GM plans to cut discretionary spending company-wide and focus on growth initiatives to make benefits of its cost cutting come faster.
CleanTechnica readers won’t be surprised by either the BNEF news or the GM announcement. The EV revolution is in full swing and there will be winners and losers. Tesla stands to be one of the winners — assuming Elon Musk learns to shut up and build the cars he is promising — but every other automaker is flirting with financial disaster and the risks are increasing month by month.
One could see the GM VSP program as a positive sign. My colleague Jo Borrás said in the executive dining room today, “The GM downsizing is probably a good sign. The electrification of the brand means fewer engineers are needed, along with fewer plant managers, team leaders, etc. You don’t need to design 16 different engines and source parts for a dozen transmissions when everything is Ultium.” You probably have your own opinion on all this and we invite you to share it with us in the comments section.
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