The biggest disconnect in the current auto industry is between consumers who are desperate for cheap vehicles and automakers who would rather drink motor oil than build them. Years ago, I had dinner with a Ford executive who couldn’t have been more clear: You can make good money on pickups and big SUVs, do okay on mid-size SUVs, and lose money on small cars. This is pretty much received wisdom in the business, but it hasn’t stopped frequent cheering for tech innovations that could drive down prices.
The latest centers on a new battery chemistry for EVs. According to Autoblog, a Chinese breakthrough with sodium-ion batteries has put good old lithium on notice. At $10 per kilowatt hour, this design beats lithium iron phosphate (LFP), the cheapest lithium chemistry, by a vast margin: LFP costs $75/kWh.
The sodium-ion marvels are being cranked out by CATL, China’s battery juggernaut. CATL knows what it’s doing, so it’s safe to assume the specs are legit. So what happens if this el cheapo chemistry moves out of its current application, commercial vans, and into passenger cars?
Nirvana for affordable EVs
The obvious answer is a really, really cheap EV, given that batteries are by far the most expensive component. Autoblog also points out that basing battery chemistry on sodium eliminates the volatility associated with lithium. What’s not to like? Well, if you’re an automaker, you’re probably not that excited about the case for an affordable EV, for two reasons.
First, the EV market in the U.S. isn’t growing as rapidly as expected, and everyone except Tesla is losing boatloads of money. Chasing low-margin sales in such an environment isn’t very appealing, given that the scale of the buyership isn’t going to get you to a place where volume starts to improve the business case (and by “volume” I mean sales in the 1 million-units-a-year ballpark).
Second, if you already aren’t going to make money on, say, a $25,000 EV with the lithium battery, cutting the price to $20,000 or below, thanks to a sodium battery, isn’t going to change the profitability math. Everybody just loses in this scenario, from carmakers to dealerships to banks that provide the financing. This is of course why the auto industry in the U.S. has been concentrating on selling $50,000 vehicles.
Don’t give the people what they want
Yes, it’s a glaring mismatch. People are screaming for affordable transportation (gas or electric), but the industry knows it would be financially ruinous to provide it. That hasn’t stopped Toyota, for example, from doing big numbers on Corollas and RAV4s. But it has stopped carmakers from committing to more affordable vehicles, according to Kelley Blue Book. The upshot is that a high-interest-rate environment has made buying a new car something that only more affluent customers are considering. They like expensive, luxury cars, so that’s where the automakers have moved. Fat profit margins are bonus. Don’t expect this to change anytime soon, as the Federal Reserve negotiates the chaotic nature of the Trump economy. And don’t expect the reports about how yet another Chinese EV cost-cutting innovation is dooming Detroit to repeat its past.
