Why electric vehicles are losing some of their spark headed into 2023

If you’re looking for a good primer on what to expect in the New Year, check out today’s Term Sheet from Fortune’s Jessica Mathews, who asked dozens of VCs, private equity investors, and tech executives for their 2023 predictions. Their prophecies covered a wide range of tech ventures, including social media, A.I., the metaverse, and crypto.

For today, though, I’m still looking back at the past three weeks. While this typically dormant period didn’t generate much news, a few developments extended the shadow looming over a once-scorching sector: electric vehicles.

This time last year, the EV industry couldn’t have been hotter. Tesla was coming off a record-breaking year and promising to continue delivering cars at a breakneck speed. Investors were still buzzing about upstarts Rivian and Lucid following their blockbuster IPOs. Legacy automakers were finalizing plans for massive investments in EVs.

Yet in the past few weeks, the prospect of EVs flooding the streets within the next decade has dimmed a bit, a rare blip in the rush to electrify auto fleets.

The pessimism started one week before Christmas, when Toyota president Akio Toyoda declared that a “silent majority” of auto industry leaders are questioning the wisdom of abandoning gas-engine and hybrid models. Toyoda has been a relative grinch when it comes to EVs in recent years, but his late December comments marked the first time he invoked the broader industry’s skepticism about the shift.

“That silent majority is wondering whether EVs are really okay to have as a single option,” Toyoda told reporters on a visit to Thailand, according to the Wall Street Journal. “But they think it’s the trend so they can’t speak out loudly.”

Toyoda’s stance received some support two days later, when KPMG’s annual survey of auto industry executives in developed nations showed declining confidence in EV adoption. On average, the 900-plus executives predicted EVs would account for about 20% of new vehicle sales by 2030 in their countries, a sharp drop from forecasts last year of roughly 45%.

“You can be long-term optimistic, but near term, you’ve got to be very realistic,” Gary Silberg, KPMG’s global head of automotive, told CNBC. “It’s not rainbows and butterflies and euphoria anymore. It’s game on.”

Then, two weeks later, industry leader Tesla released 2022 sales data that disappointed Wall Street and raised more questions about EV demand. The Elon Musk–led company reported delivering about 1.3 million cars last year, a 40% year-over-year increase that fell short of the company’s 50% growth target. 

Tesla can attribute some of the miss to a lackluster global economy and high inflation rates, which are causing customers to spurn higher-priced EVs. Still, investors are increasingly worried that rising EV manufacturing costs and growing competition—particularly in Chinese markets—are weighing on demand. 

“The Cinderella ride is over for Tesla, and Musk now needs to navigate the company through this Category 5 dark macro storm,” Wedbush Securities analyst and longtime Tesla bull Dan Ives said Tuesday.

Consumer and investment trends still favor EVs. Automakers aren’t pulling back on EV spending, pushing forward with plans to plow tens of billions of dollars into building production capacity. Legislators continue to craft tax credits and other government incentives designed to speed up the transition to electric. Car buyers are slowly but surely ditching their internal combustion engines, with EVs accounting for 5% of all new vehicle sales in the U.S. last year.

The holiday doldrums, however, suggest the road to widespread EV adoption isn’t as bright as it once was.

Want to send thoughts or suggestions to Data Sheet? Drop me a line here.

Jacob Carpenter

NEWSWORTHY

It’s dump day. Salesforce announced plans Wednesday to trim its workforce by 10% and sell some company-owned real estate in response to a slowdown in revenue growth. The enterprise software giant, home to roughly 80,000 employees and owner of workplace chat app Slack, said the cutbacks were necessary after it hired too aggressively amid a sales boom during the pandemic. Salesforce shares rose 4% in midday trading Wednesday following the pre-opening-bell disclosure.

Gotta give them an option. A leading European Union regulator delivered a long-awaited ruling Wednesday that could upend Meta’s targeted advertising business across the 27-nation bloc, the New York Times reported. Ireland’s Data Protection Commission found that Meta violated the EU’s landmark data privacy law by requiring Facebook and Instagram users to accept personalized ads based on their online activity, warranting a $414 million fine. Meta officials said they plan to appeal the decision, which could force the company to make targeted advertising optional for users.

Organized labor FTW. Video game testers at Microsoft subsidiary ZeniMax Studios have voted to form the tech giant’s first labor union, the Associated Press reported Tuesday. The Communications Workers of America confirmed most of roughly 300 quality-assurance employees supported the union, which will become the largest organized labor group in the video game industry. Microsoft has said it will accept the unionization vote results, taking a less aggressive stance against organized labor than some tech titans.

Losing its luster. Apple’s market cap fell below $2 trillion on Tuesday, dropping to its lowest point amid a six-month swoon in the company’s stock price. The iPhone maker’s shares have slipped 27% since mid-August, weighed down by manufacturing issues, weakening consumer electronics demand, and global economic uncertainty. Apple’s valuation once again topped the $2 trillion mark after shares rose 2% in midday trading Wednesday.

FOOD FOR THOUGHT

Some zing for Bing? Microsoft is getting ready to cash in on its $1 billion OpenAI investment. The Information reported Tuesday that the tech giant aims to integrate OpenAI’s smash chatbot, ChatGPT, into its Bing search engine later this year. Microsoft officials hope the addition of ChatGPT, which produces remarkably detailed and humanlike responses to user queries, will help Bing better compete with Alphabet-owned search industry behemoth Google. Details of Microsoft’s plans for melding ChatGPT with Bing aren’t fully known, though two sources familiar with the matter told The Information that the chatbot could answer some search queries in place of providing a page of links.

From the article:

OpenAI built GPT to quickly respond to written questions with text that mimics a human, but the software isn’t meant to continuously scrape the web or provide real-time information like a search engine does. That’s why Bing will still rely on its own technology to produce most search results. 

But GPT could improve the way Bing presents the results to users, such as by generating text that summarizes the results in a more intuitive way.

IN CASE YOU MISSED IT

Elon Musk has destroyed more than half of Twitter’s value in a little over 2 months, investor filing suggests, by Luisa Beltran

Elon Musk plans to open Twitter’s gates to all kinds of political advertising to ‘facilitate public conversation around important topics,’ by the Associated Press

Tesla’s biggest bear says the company has reached the end of ‘hyper growth’ mode—and it’s beginning a totally different chapter, by Will Daniel

Crypto took such a beating in 2022 that U.S. regulators have teamed up for the first time to sound the alarm to banks tied to the industry, by Chloe Taylor

5 great crypto stories you missed over the holidays, by Jeff John Roberts

FTX’s Sam Bankman-Fried pleads not guilty to criminal fraud charges, by Ava Benny-Morrison, Chris Dolmetsch, and Bloomberg

There’s only one time tech layoffs have ever happened faster than right now, by Chris Morris

BEFORE YOU GO

The bayou and the bees. Hiding dirty magazines under the mattress might soon be back in vogue for Louisiana teens. The Pelican State this week became the first in the nation to require age verification on adult websites, The Verge reported Tuesday. Under the new law, Louisianans must enter an official record with their age, such as a driver’s license or employment document, into a digital tool that links with websites where more than one-third of content is pornographic. Louisiana legislators said the law will improve online safety and help curb child exploitation. However, digital privacy advocates argue those potential benefits are outweighed by concerns about data leaks and misuse of user information. Skeptics also note that tech-savvy teens can circumvent the rules by using a virtual private network.