Electric Vehicles Took Off. Car Makers Weren’t Ready

“Now I’m thinking, ‘Can I afford to keep waiting for this?’ ” said Mr. Figueroa, who lives near San Bernardino, Calif.

A few years ago, auto executives weren’t sure there would be enough buyers for plug-in electric models. Now, they worry they can’t build them fast enough, while they intensify a multibillion-dollar rush to accelerate timelines and bring factories online.

EVs account for only about 6% of overall U.S. vehicle sales. But that percentage has tripled in the last two years, while sales of other types of vehicles have declined, according to research firm Motor Intelligence.

General Motors Co.

, Ford,

Rivian

Automotive Inc. and other auto makers say they have waiting lists of longer than a year for their new electric models.

In July, five of the six fastest-selling vehicles in the U.S. were electrics or plug-in hybrids, which pair a battery with a gas engine, according to data from consumer site Edmunds.com. EVs sold in 19 days on average in July compared with 47 days a year earlier—and went four days faster than internal-combustion vehicles, Edmunds data show.

“With EVs, right now it’s like, ‘You build it, and they come,’ ” said Steven Center, operations chief for

Kia Corp.’s

U.S. business. He has been surprised by strong demand for the Korean auto maker’s recently released electric SUV, the EV6 SUV, which has a backlog of three to six months. “We’re trying to electrify the lineup as quickly as possible.”

Federal and state tax breaks have helped stoke consumer demand for EVs. The recently signed law dubbed the Inflation Reduction Act extends until 2032 a $7,500 federal tax credit, in place since 2009. It expands availability of the subsidy to some buyers while also imposing income and price caps to qualify, as well as domestic-manufacturing requirements.

The pressure is on auto makers to grab EV market share early and narrow the gap with front-runner

Tesla Inc.

Executives from GM, Ford and VW have all said they believe they can pass Tesla. Over the summer,

Volkswagen AG

ousted Chief Executive

Herbert Diess

in part for stumbling on a software strategy that delayed some EV rollouts.

Car companies find themselves behind in the supply-demand balance in part because many lowballed early EV production volumes, hesitant to go big on a technology that carries skinnier profit margins than internal-combustion vehicles. When EV demand took off during the pandemic, it caught many auto executives off guard.

The industry is rolling out its first significant influx of EVs, including pickup trucks, sporty SUVs and off-roaders—vehicles that have resonated with buyers to a greater degree than the small, utilitarian EVs of the past decade. Rising gasoline prices have also stirred interest.

But it can take more than a year to boost factory production beyond original targets, often requiring new factory equipment and getting thousands of suppliers to line up more parts.

And auto makers found themselves hampered by insufficient supplies of critical parts. Electric cars use more computer chips than internal-combustion-engine vehicles and are especially affected by a chip shortage that has hobbled the auto industry. “There was an assumption that, ‘If EVs end up selling well, we can ramp up our production,’ ” said

Mark Wakefield,

managing director at consulting firm AlixPartners LLP. “That hasn’t been possible in the last two years.”

Batteries are another bottleneck for auto makers straining to increase EV output. Locking in contracts for battery cells on short notice from among a handful of global cell manufacturers presents a big challenge, said Darren Palmer, Ford’s head of EV programs. When Ford decided last year to double Lightning production, it had a task force scouring the world for supplies, he said.

GM has marketed a new slate of models that its executives say will quickly give it the broadest electric portfolio in the U.S. market. But the launch of the first two of those entries—the GMC Hummer pickup truck and Cadillac Lyriq SUV—has been slower than comparable new vehicles from rivals. The company has been making both the Hummer and Lyriq at rates of less than a dozen a day, people familiar with the matter said, despite waiting lists that stretch into the tens of thousands.

Output at the Detroit factory where the Hummer is made, and at GM’s Lyriq plant, in Tennessee, has been constrained by battery supplies, a GM spokesman said. The batteries needed to increase vehicle production should flow with the recent opening of an Ohio battery factory GM built with partner

LG Energy Solution,

he said.

“Unfortunately, the production isn’t there because we’re ramping up the supply chain,” GM finance chief

Paul Jacobson

told analysts in August.

Chasing Tesla

Auto makers’ pivot toward battery-powered cars coincided with the meteoric rise of Tesla’s valuation, which is more than twice that of

Toyota,

VW, GM and Ford combined. Tesla accounted for about 70% of all U.S. EV sales in the first half of this year, research firm Motor Intelligence estimates.

Makers also are responding to tougher tailpipe-emissions standards globally and the influence of green-conscious investors.

But some executives from traditional car companies acknowledge they were too cautious on their early plans for electrics. “We sat around and said, ‘Who really wants an electric truck? We don’t know,’ ” said Mr. Palmer, adding that Ford determined manufacturing targets around three years ago.

Ford in 2020 completed a relatively small factory alongside its oldest plant, near its Dearborn, Mich., headquarters, to produce about 40,000 Lightning pickups a year. Executives doubled the target last year as the wait list grew. In January, they doubled it again, to a planned annual rate of about 150,000 trucks by summer 2023.

“The cement had barely joined to some of the walls,” Mr. Palmer said, “and we were already expanding.”

VW’s Mr. Diess, during his four-year tenure, had outlined big plans for VW’s shift to electrics, earmarking tens of billions of dollars for EV technology. Mr. Diess marveled publicly at Tesla’s progress and hosted Tesla Chief Executive

Elon Musk

last year to speak via videoconference to a few hundred VW managers.

But VW suffered delays in getting some new EV models out, partly because of problems with new software. The snags raised doubts among some VW board members about his ability to execute the company’s transition—and led to his departure—the Journal has reported.

At GM, CEO

Mary Barra

has been pressing her team to accelerate several EV programs from earlier plans, including the recently launched Cadillac Lyriq SUV and a plug-in version of its top-selling gas vehicle, the Chevrolet Silverado pickup truck, she has said. “Every vehicle I look at, I’d like it to be out faster,” Ms. Barra said in a June interview.

Startup EV makers such as Rivian and Lucid Group Inc. have had an especially tough time launching new models. Rivian cut its production forecast earlier this year, citing parts shortages. CEO RJ Scaringe in August told Wall Street analysts that the company’s lone factory, in Illinois, hadn’t been able to schedule full work shifts because of trouble getting components, saying output would improve through the year. A Rivian spokeswoman said the company has stood by its reduced forecast since March despite continued supply-chain challenges.

Lucid, with an electric sedan that some reviewers have compared favorably to Tesla’s Model S, has said it has at times been unable to secure parts that normally are in ample supply, such as carpet and glass. Lucid in August halved its estimate for 2022 production, to between 6,000 to 7,000 vehicles, the second time this year the company reduced its forecast. Lucid declined to comment.

Battery arms race

Long-term, a big challenge will be batteries, say analysts who predict that shortages of battery raw ingredients could curtail auto makers’ production plans as early as mid-decade. In this sense, too, the rest of the industry is chasing Tesla, which has spent more than a decade developing a battery supply chain and jointly operates a factory with partner

Panasonic Holdings Corp.

Within the past year, GM, Ford, Toyota Motor Corp. and others have signed deals to build more than a dozen new U.S. battery factories. Panasonic Holdings Corp. is eyeing Oklahoma for a roughly $4 billion battery-cell plant after outlining plans for a similar facility in Kansas, The Wall Street Journal reported in August.

Much of the battery-cell production and processing of key minerals is done in China and elsewhere in Asia. While provisions in the Inflation Reduction Act aim to shift more of that activity to the U.S., it will likely heighten the competition for supplies, car executives and analysts say.

Prices for nickel, lithium and other battery raw materials have shot higher in the past year, prompting some auto makers to raise prices. Some are striking deals with mining companies to extract and process those and other raw materials—a significant departure for auto makers, which for decades have had little involvement that far up the supply chain.

Ford is investing about $7 billion into construction of three battery plants, two in Kentucky and another in Tennessee, where it’s also building an EV truck factory. In July, it outlined prospective deals with battery-material suppliers, from Australian mineral processors to a Louisiana graphite producer.

Ford CEO

Jim Farley

in July warned that only half of the battery raw materials the auto industry needs to achieve its long-range EV sales targets are available today. “This is why speed to securing supply is so critical and strategic,” Mr. Farley told analysts during a July conference call.

GM has struck deals with a Korean company to jointly build a factory in Canada for battery raw materials, and signed a supply agreement to extract lithium from a California lake.

GM’s EV plan is central to the investment strategy at Dallas-based Frontier Investment Management Co., which owns about 2.8 million GM shares, said Richard Sowden, principal at the firm: “We believe that the manufacturing expertise of existing large auto companies like GM gives them a huge advantage.”

Hurdles to broader adoption, Mr. Sowden said, include a lack of affordable EVs and availability of chargers. EV prices have risen more sharply than the broader car market. Ford recently increased the price of its most popular electric vehicles—the Lightning and Mustang Mach-E—by as much as 18%. Rivian raised prices earlier this year and recently dropped its least-expensive model.

U.S. buyers paid about $66,000 for an electric vehicle on average in July, up 28% from a year earlier, according to research firm J.D. Power. The average price paid for non-EVs rose 12% in that period, to about $45,000.

Earl Stewart, a Toyota dealer in Florida, said there is strong customer interest in the recently introduced Toyota Bz4x electric SUV but scant availability. He said mass-market adoption of EVs will require more models, including affordable ones. He drives a Tesla Model S Plaid, he said.

“Until they bring the prices down,” he said, “it will just be people like me who can afford to buy EVs and who want to be the first on the block to drive one.”

Write to Mike Colias at [email protected]