Car wars: Analyst predicts GM, Ford will surpass Tesla EV sales by 2025

Detroit — Bank of America's annual "Car Wars" study predicts General Motors Co. and Ford Motor Co. will surpass Tesla Inc. in electric-vehicle sales by 2025 as traditional automakers claim more of the market pioneered by the Texas-based EV maker.

It's been an open question for years whether the more than 100-year-old legacy automakers are the leaders of the past. As industry disruptor Tesla secured enormous valuations, questions arose whether the traditional makes would have the knowledge, dexterity and ability to make the transformation.

The industry may soon have an answer, said John Murphy, senior auto analyst for the bank's global research. Tesla's more than 70% market share in EVs could drop to closer to 11% in the next three years, as competition increases from legacy and startup competitors. Meanwhile, GM and Ford are expected to approach 15% by then with new EV offerings.

"He's introducing product at a slower rate," Murphy said of Tesla CEO Elon Musk. "He doesn't have a full product portfolio, so there's huge opportunity for manufacturers to shoot the gap and catch up a bit."

New vehicles drive share

Ford's forecasted replacement rate of its showroom with new vehicles is the highest in the industry for model years 2023 to 2026 at 23.7%, which could help boost its overall vehicle market share, according to the analysis. GM's replacement rate of 22.4% is just under the industry average of 23%.

The study didn't break out a replacement rate for Tesla, which doesn't update its vehicles on a model year schedule. It's also delayed the launch of its Cybertruck repeatedly. Murphy said Tesla moved too slow in its expansion, which he predicts will lead to it falling behind in the coming years.

"One of the biggest mistakes that whenever they look back at this in five to 10 years," he said, "is that Tesla didn't take greater advantage of the free money it could have gotten, raise much more, open capacity faster, grow much faster and shut the door. He didn't. He didn't move fast enough. He didn't recognize what was going on in the market. He had tremendous hubris that they would never catch him, they would never be able to do what he's doing, and they're doing it."

GM plans to spend $35 billion on EVs and autonomous vehicles by 2025 and expects to be the leading EV seller in the United States by mid-decade with 400,000 produced vehicles. Ford says it will have spent $50 billion on electrification by 2026 when it will produce 2 million annually. It expects to be No. 2 in EV sales by mid-decade.

Jeep maker Stellantis NV is investing $35.5 billion into electrification and software by 2025, but even with plans to offer 25 all-electric nameplates by 2030, it risks market share in the coming years with a 16.5% replacement, the lowest of major automakers, according to "Car Wars." Nissan Motor Co. Ltd. isn't much superior with a 17.8% rate.

As a result, customers looking to catch a deal are most likely to catch it from those companies, Murphy said, as the average transaction prices near $43,000 compared to the usual mid-$30,000 because of depleted inventory from a global semiconductor shortage.

"If you were to look at the risk of there being price spoilers in the market relative to all this great pricing driving profitability right now, the ones you really need to watch is Stellantis and Nissan," he said. "There's a lot of risks there because they don't have the great products that a lot of the rest of the industry is putting out."

Holding back EV adoption

The automakers are funding their EV investments with profits from SUVs and trucks. By model year 2026, however, there will be more than 180 crossover nameplates, the most models ever to exist in a segment, and 90 trucks. That competition could eat into profits even as those segments continue to represent a larger slice of the pie.

"There's a big, big risk as far as the potential for profit erosion as crossovers and trucks become less profitable over time," Murphy said. "It's not going to erode the profitability and cash flow is enough to where they can invest in EVs in the future. And maybe that's the kind of thing that puts our earnings estimates at risk and potentially puts some pressure on stocks, but I don't think it's going to change their investment profile or the desire to push out as many EVs as possible."

Based on the rollout of those EVs, capacity and production volumes, EV adoption would be about 20%, Murphy said. Throw in additional incentives like the up to $12,500 tax credits for union-made vehicles in the United States proposed under President Joe Biden's Build Back Better plan, those projections could increase to 25% at a cost of $500 billion.

"I don't know if it's politically palatable to go out there and say, 'I need half a trillion dollars to incentivize EVs ramping up' when ... it would still be going to higher-end consumers," Murphy said. "But you have to also remember that the U.S. is in a competitive technological race with both Europe, a little bit friendlier, but in a very significant technological race with China on this, and the faster that China goes and leapfrogs U.S. companies, the greater the risk is China's going to be able to enter the U.S. market and be competitive, take share from U.S. companies, potentially US.. workers."

Those penetration projections, however, don't factor in the rapidly increasing price of EV material costs. The material costs for the major systems of an internal combustion engine total about $20,000. For an EV, they're about $32,000. Over the past year, that difference increased by $1,000 for the first time in at least six years. That difference makes penetration by 2025 closer to 10%, Murphy said.

"You're already seeing these prohibitive raises or increases in the raw material costs going into EVs," he said, "and that creates a real challenge for what the industry is going after — and the reality of what we'll actually be able to sell in the market."

bnoble@detroitnews.com

Twitter: @BreanaCNoble

Staff writer Kalea Hall contributed.