Why Automakers’ EV Ambitions Aren’t Paying Off Yet

The Roadblocks on the EV Highway

The global transition to electric vehicles (EVs) is in full swing—or at least that’s what automakers had hoped. From billion-dollar factory investments to ambitious production goals, the automotive industry has staked its future on EVs. Yet, the road ahead is proving to be rockier than anticipated. Factories are underperforming, consumer demand is lagging, and the cost of transition is weighing heavily on automakers and their suppliers.

Factory Utilization: The 80% Profitability Threshold

For any automaker, the magic number for factory profitability is around 80% utilization. This means factories need to produce at least 80% of their maximum capacity to break even or turn a profit. Before the pandemic, most factories hovered around this threshold. But today, factory utilization rates for many automakers have fallen drastically, especially in EV plants.

Car factory utilization by region

For instance, General Motors’ EV factories are operating at just 24% capacity, while its internal combustion plants are near 82%. This gap highlights a significant challenge: traditional vehicles like the Ford F-150 and Chevy Silverado are still selling robustly, while EV sales have not grown at the expected rate to justify the massive investments in EV infrastructure.

Overcapacity: A Global Dilemma

The problem isn’t confined to North America. In China, home to around 140 EV brands, only a fraction of these companies are projected to be profitable by 2030. To offload their surplus, Chinese manufacturers are flooding global markets with EV exports, adding to the industry’s oversupply woes.

Meanwhile, North American factories are running at an average of 70% utilization—better than the global average but still far below the pre-pandemic norm. Underperforming plants, like GM’s Fairfax plant in Kansas or Ford’s Louisville factory, are emblematic of a larger issue: too much capacity and too little demand.

Stranded Capital and Financial Risks

The shift to EVs has created a phenomenon known as “stranded capital,” where investments in factories, supply chains, and technology aren’t yielding the returns automakers had hoped for. S&P Global Mobility estimates that 65% of a vehicle’s value comes from its suppliers, meaning the financial risks extend well beyond automakers. Suppliers have mobilized significant resources to support EV production, but many are seeing their investments falter as EV volumes fall short of projections.

This financial uncertainty poses a risk not just to individual automakers but to the broader industry ecosystem. Automakers and suppliers are now grappling with a harsh reality: EVs are simpler to manufacture but require a massive upfront investment that’s hard to recoup without scale.

Hybrids: The Surprising Winners

While many automakers bet big on pure EVs, Toyota and Honda have emerged as winners with their hybrid-first strategies. Both companies have historically excelled at inventory and capacity management, avoiding the pitfall of overbuilding. Hybrids, which combine internal combustion engines with electric motors, have proven to be a popular and practical alternative for consumers hesitant to make the full leap to EVs.

Toyota’s sparse EV lineup contrasts sharply with its dominance in hybrid sales, which far outstrip its competitors. This cautious, long-term approach has allowed Toyota to weather the storm while others struggle to balance demand with their all-electric ambitions.

Flexibility in Platforms: A Costly Compromise

One of the most significant hurdles for automakers is managing multiple powertrains—gasoline, hybrid, and electric—simultaneously. Historically, automakers developed single platforms that could be used across multiple vehicle models to spread costs and achieve economies of scale.

However, EVs require entirely new platforms tailored to their unique requirements. To adapt, many companies, such as GM and Volkswagen, are now designing flexible platforms that can support gas, hybrid, and electric powertrains. While this approach provides more leeway during the transition, it’s an expensive compromise.

Moreover, plants designed exclusively for EVs are now being retrofitted to accommodate internal combustion vehicles, a costly and inefficient process. By 2029, the number of plants producing multiple powertrains is expected to double, further complicating the economics of automotive manufacturing.

The Long Road Ahead

For years, the industry envisioned a seamless transition from gas-powered cars to EVs. But reality has proven far more complex. Automakers are finding themselves in an awkward middle ground, juggling investments in multiple powertrains while trying to manage costs and meet consumer demand.

The pure EV plant may eventually emerge as the industry standard, but for now, automakers face tough decisions. Should they build specialized EV plants and risk idling them, or invest in flexible facilities that may not bring costs down fast enough?

What’s clear is that the road to electrification is filled with unforeseen challenges. While the transition is inevitable, the timeline and costs remain uncertain. Automakers must navigate this transition period carefully, balancing innovation with financial sustainability. Only time will tell which strategies will succeed—and which will leave companies stranded in the dust.