The large profit margin SUVs are necessary for a company to achieve scale to then be able to produce the smaller cheaper stuff. Fixed costs like the factory, tooling, training, designing, that all takes a lot of money up front before even selling a single vehicle, and the smaller and cheaper the vehicle coming out of that production pipeline is, the longer the payback period will be. And when we’re talking about billions of dollars in cost, it’s hard to remain solvent when interest payments on the debt grow exponentially over time.
It’s why before tesla there had not been an American auto company startup for like 70 years, Tesla almost went bankrupt, and Rivian is just starting to head in the right direction. Lucid is probably fucked and they’re mostly Saudi owned these days anyways, and the rest of the US EV startup space ranges from a joke to a scam.
What legacy automakers already have in staff and part of the production line established is actually kind of useless when they have to wait to establish their electric motor, battery, and chassis production, which probably just means a new factory anyways. Give it a few years and the cheaper smaller stuff will come, because right now AFAIK only tesla actually has the free cash flow to fund an EV economy car at scale. Everyone else is still sinking billions establishing any EV production at all, and interest rates aren’t helping the speed of their progress either.
There’s more than one way to skin a cat. The Chinese EV companies that have come up in the last few years use a diversity of business strategies, not all involving high margin SUVs. BYD’s cars, for example, are spinoffs of its battery manufacturing business.
BYD was selling ICE vehicles up until March of 2022, and their current split is somewhere around 50/50 BEV/hybrid so they’re still not a full EV company. Their lineup is still being supported by their existing infrastructure, subsidized by the already established supply chains for ICE that they can incrementally cannibalize while building up the EV part of the company. It’s a good blueprint for legacy auto, but not for an EV startup. That is even before mentioning the very generous subsidies and incentives for electrification provided by the national, provincial, and city governments to producers and consumers. Not to say there is anything wrong with that, because I believe the US also needs that level of investment into electrification, but my point is that it’s not the same business model.
“Car companies needs SUVs to survive financially!” is not a thoughtful response. It can easily be disproven by looking at the first 60 or so years of the automobile industry before SUVs were even a thing. The SUV takeover is a pretty recent phenomenon which has taken shape over the last twenty years.
But it was based on light truck exemptions from CAFE standards, so they can be cheaper to build and sell at a higher margin. But now average buyers don’t want anything smaller for fear of being run down by all the trucks and suvs.
The large profit margin SUVs are necessary for a company to achieve scale to then be able to produce the smaller cheaper stuff. Fixed costs like the factory, tooling, training, designing, that all takes a lot of money up front before even selling a single vehicle, and the smaller and cheaper the vehicle coming out of that production pipeline is, the longer the payback period will be. And when we’re talking about billions of dollars in cost, it’s hard to remain solvent when interest payments on the debt grow exponentially over time.
It’s why before tesla there had not been an American auto company startup for like 70 years, Tesla almost went bankrupt, and Rivian is just starting to head in the right direction. Lucid is probably fucked and they’re mostly Saudi owned these days anyways, and the rest of the US EV startup space ranges from a joke to a scam.
What legacy automakers already have in staff and part of the production line established is actually kind of useless when they have to wait to establish their electric motor, battery, and chassis production, which probably just means a new factory anyways. Give it a few years and the cheaper smaller stuff will come, because right now AFAIK only tesla actually has the free cash flow to fund an EV economy car at scale. Everyone else is still sinking billions establishing any EV production at all, and interest rates aren’t helping the speed of their progress either.
There’s more than one way to skin a cat. The Chinese EV companies that have come up in the last few years use a diversity of business strategies, not all involving high margin SUVs. BYD’s cars, for example, are spinoffs of its battery manufacturing business.
BYD was selling ICE vehicles up until March of 2022, and their current split is somewhere around 50/50 BEV/hybrid so they’re still not a full EV company. Their lineup is still being supported by their existing infrastructure, subsidized by the already established supply chains for ICE that they can incrementally cannibalize while building up the EV part of the company. It’s a good blueprint for legacy auto, but not for an EV startup. That is even before mentioning the very generous subsidies and incentives for electrification provided by the national, provincial, and city governments to producers and consumers. Not to say there is anything wrong with that, because I believe the US also needs that level of investment into electrification, but my point is that it’s not the same business model.
Aaand just like thst the actual thoughtful response is downvoted in the comment section. This places becomes more reddit each day.
“Car companies needs SUVs to survive financially!” is not a thoughtful response. It can easily be disproven by looking at the first 60 or so years of the automobile industry before SUVs were even a thing. The SUV takeover is a pretty recent phenomenon which has taken shape over the last twenty years.
But it was based on light truck exemptions from CAFE standards, so they can be cheaper to build and sell at a higher margin. But now average buyers don’t want anything smaller for fear of being run down by all the trucks and suvs.
I’m not sure you understand economies of scale and profit margin.