SECTION 45W of IRA offers tax credits for the purchase of EVs such as the Ford Lightning Pro. Those credits are distinguished from consumer credits.   -  Photo: Chris Brown

SECTION 45W of IRA offers tax credits for the purchase of EVs such as the Ford Lightning Pro. Those credits are distinguished from consumer credits. 

Photo: Chris Brown

Parts availability, component production, semiconductor shortages, and supply chain logistics continue to affect vehicle output, but these dynamics aren’t getting worse. That was one of the takeaways from both Ford and General Motors’ third quarter earnings calls.

Both Ford and GM also addressed vehicle affordability, demand for EVs and commercial vehicles, and how each company will benefit from the Inflation Reduction Act (IRA) — including what Ford CEO Jim Farley called “an overlooked benefit” for commercial customers.

Supply Chain, Production & Inventory

Regarding semiconductors and overall challenges from the supply base, “It's still very tight. … Even a small hiccup usually has an impact,” said Mary Barra, General Motors’ chairman and CEO on the company’s call. However, resolution on these issues is “trending in the right direction.”

OEMs had been forced to produce vehicles with missing parts and park them as they await missing components. Barra gave an update: During the quarter GM completed and shipped nearly 75% of the unfinished vehicles that were being held in June. This completion is “well ahead of the plan,” Barra said.

“We're still very much in a production-constrained world as an industry against where demand is,” said Paul Jacobson, GM’s CFO.

Jacobson noted higher dealer inventory due to a combination of higher production, clearing out company inventory, and logistical challenges in getting vehicles to dealers. He doesn’t see big increases in vehicle production happening anytime soon. GM is planning for a 15 million seasonally adjusted annual rate (SAAR) for 2022. (Cox Automotive just pegged SAAR at 14.3 million based on October’s numbers.)

At Ford, Farley noted that while the chip crisis is easing — slightly — a review of almost 300 suppliers exposed “a number of” non-chip suppliers that are still struggling to ramp production. Farley pointed to the tight labor market, as well as suppliers that during the pandemic “had not invested in maintenance or in their facilities and tooling, and so they’re not able to ramp as we expected,” he said.

Both Ford and GM saw massive spikes in raw materials costs. Those costs have started to come down, though they’re being offset by increased commodity and logistics expenses.

Said Farley: “I think we’re all trying to work through the macroeconomic environment; how far are things going to slow down, how quickly will that drive easing of commodity prices? Will that also drive an ease in the whole logistics chain?”

These remain question marks, with further guidance hopefully coming on the full-year calls.

Speaking of manufacturing in this supply-constrained world: GM’s midsize trucks, Chevy Colorado and GMC Canyon, will be all-new next year as 2024 models. However, as a result of pressures to streamline manufacturing complexity, cab and bed configurations will be reduced on Colorado and Canyon from three to one, and engine options reduced from three to one too.

The new models will get Silverado and Sierra's 2.7-liter turbo engine. According to GM, this will result in more horsepower and torque than the outgoing gas powertrains and a 1- to 2-mile per gallon mpg improvement.

Vehicle Affordability & Demand for EVs

Farley was asked about new vehicle transaction prices staying high while trade-in values are coming off the peak, which squeezes vehicle affordability. He said this dynamic hasn’t affected commercial vehicle or EV demand, which are still “through the roof.” Order banks continue to grow despite the headwinds. “We continue to have to close out order windows for our commercial vehicles because of the demand,” he said. “Same for EVs, as we’ve taken prices up.”

On the retail side, the affordability issue has led to a slight uptick in 84-month customer financing and “some of our competitors coming in with higher spending now on incentives.”

But it hasn’t led to an alarming shift in model mix or turn rates on high-volume vehicles such as F-150. The shift has been within a model spec: “In the past, Lariat has turned faster than XLT, and that’s reversed,” Farley said. “It’s really subtle right now.”

Farley said demand for EVs from commercial customers is “more robust than the retail side, even though we’re completely sold out in both.” With the growth in EV sales, Ford is moving the sales model to a single e-commerce platform, “ultra-low” inventory, and “non-negotiated pricing.”  

Ford’s commercial division, Ford Pro, is also rolling out 1,200 mobile service units this year to perform scheduled maintenance and parts replacements where fleets domicile their vehicles.

GM was able to work through the massive Chevy Bolt recall last year, and Bolt EV and EUV are selling at record levels today. GM is raising production from about 44,000 vehicles in 2022 to 70,000 vehicles in 2023. According to Barra, “demand is at record levels.”

The plan to keep the entry-level Bolt — when Nissan is sunsetting the Leaf — plays into a tried-and-true brand loyalty strategy. If GM can maintain its average customer loyalty rate of 64%, then Bolt buyers could be upsold into other, more expensive Ultium platform vehicles to the tune of 100,000 future customers, Barra said.

GM is also banking on another strategy for customer acquisition, the rental market: GM’s deal with Hertz for up to 175,000 EVs over five years will put huge segments of the U.S. population behind the wheel of an EV for the first time, converting a portion into buyers.

Over at GM’s commercial EV division, BrightDrop remains on target to get its Zevo 600 van into fleet customers (other than FedEx) by mid-2023.

BrightDrop's Steve Hornyak and Brad Beauchamp stand in front of the BrightDrop Zevo 600, which remains on target to get to fleet customers (other than FedEx) by mid-2023.  -  Photo: Chris Brown

BrightDrop's Steve Hornyak and Brad Beauchamp stand in front of the BrightDrop Zevo 600, which remains on target to get to fleet customers (other than FedEx) by mid-2023.

Photo: Chris Brown

Moving Targets for EV Sales

OEMs are pouring billions of dollars into supply chain improvements on the EV side, particularly in battery production. For GM that means transitioning sourcing of cells for its Ultium battery platform from offshore to four U.S. factories within the next two years.

In GM’s 2021 full-year earnings call in February, Barra said the company plans to deliver 400,000 EVs in North America through 2023. In the latest call, “due to a slightly slower launch of cell and pack production than we expected,” GM is downgrading that estimate to 400,000 EVs to be built by the end of the first half of 2024.

On questioning, Barra also said that GM’s plan to get its Ohio battery plant up and running — which is the size of 30 football fields — was “aggressive” and was hampered by employee training and the integration process with its new partner, South Korea’s LG Energy Solution.

Side note to the 30 or so new independent electric vehicle OEMs: Producing vehicles is hard, even for an incumbent automaker such as GM with its vast resources.

However, Barra reaffirmed the larger goal to deliver over 1 million units of annual EV capacity by the close of 2025. Ford is on track for a global (not just North America) run rate of 2 million EVs a year by 2026, Farley said.

Ford started construction on three domestic battery plants: Blue Oval City in Tennessee, and the two BlueOval SK battery plants in Kentucky. Farley said Ford is strengthening the EV supply chain and is “making great progress” in securing raw materials, the ability to process them, and gaining the needed battery capacity.

Will those new battery plants be up and running in time to meet the rush of new EV models and make those ambitious sales projections?

An Overlooked IRA Benefit for Fleets?

Moving battery production stateside will also allow automakers to take advantage of the Biden administration’s new clean energy tax credits within the Inflation Reduction Act (IRA), which have benefits to automakers and suppliers for domestic vehicle, component, and battery production, and include credits for the purchase of those vehicles.

Ford and GM devoted time on their calls as to how they’d take advantage of IRA — which is worthy of a separate blog. For now, we’ll concentrate on one benefit that Farley said “is often overlooked” and not being covered by the media, “but it’s super important for Ford.”

SECTION 45W of IRA, the Commercial EV Tax Credit, provides $7,500 for vehicles under 14,000 lbs. GVW, or Class 1 to 3 and up to $40,000 for vehicles in Class 4 to 8. This is available not only to commercial customers but also government fleets as well. For fleet customers, taking advantage of this credit before IRA was complicated. It involved the taxable liability of the titleholder, which for fleets is often the lessor and was dependent on the lessor passing through a portion or all of the credit to reduce lease payments.

This new benefit appears to be a point-of-sale claim, making claiming it more straightforward. As well, Section 45W is distinguished from the retail credits in that there are no restrictions on battery sourcing or manufacturing.

Another small but noteworthy benefit for fleets: Plug-in hybrid vehicles (PHEVs) with an internal combustion engine and at least a 15-kWh battery — such as the Toyota Prius Prime — would also qualify for a 15% credit. 

“I think this will have a dramatic impact on the adoption of EVs,” Farley said, “and that’s only going to accelerate our speed to market and our scaling of those vehicles.”

About the author
Chris Brown

Chris Brown

Associate Publisher

As associate publisher of Automotive Fleet, Auto Rental News, and Fleet Forward, Chris Brown covers all aspects of fleets, transportation, and mobility.

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