Subaru recently released their electric vehicle strategy for the next five years. If you saw it, well I’m sure, like me, you would have realized that this is a company on the ropes. They don’t know it, but unfortunately, their existence in this world could be very short-lived. That is just an objective reality. Why? Well, when you’ve seen their plans, you’ll realize they’re planning to fail.
Now, of course, Subaru is not alone. The Japanese automotive market is in trouble. I mean, big trouble. And unfortunately, Japan is the country in the world that is most dependent upon the automotive industry than any other country. That means the Japanese economy will be in tatters within the next ten years. I’ve talked about why this is exactly how this will happen.
Subaru, though, while they are a Japanese company, the majority of their sales are not in Japan. In fact, 75% of their vehicle sales are in North America, primarily the United States. Of course, 75% and that is a big problem for them. Now, it might be okay today. Their sales aren’t bad right now, even though they’re not really growing or anything like that. They are making enough profit to get along. But that will end very soon. Why do I say that? Well, Subaru plans to build a dedicated electric vehicle assembly plant eventually. In fact, not until 2027 do they plan to begin construction of this plant. Meaning it’s most likely that this plant won’t be producing electric cars until 2030.
Here’s the real thing. Here’s the real kicker. Even if Subaru does manufacture EVs at that plant in Japan in 2030, those vehicles obviously will not qualify for the$7500 tax credit. In fact, Subaru would have to ship them from Japan all the way to the United States already putting them on the back foot. Then the vehicles wouldn’t qualify for the incentives. That’s a tough position to be in. And it essentially means Subaru will not be up to mass manufacture EVs until 2030 at the earliest. I don’t expect by then that they will exist as we know them today. For starters, not many people realize this reality. Subaru is actually a very small company, a very small company that is almost entirely dependent upon Toyota for their future. In fact, however, unfortunately for the company, they slashed their annual output target by nearly 10% yesterday amid ongoing fallout from a semiconductor shortage that continues to hamper automakers around the world. The carmaker said the shortages were most acute among parts for immediate delivery in the spot market and expected a lack of supply to last at most until June. However, Subaru says they now plan to produce 880,000 vehicles in 2023. That’s down 9.3% from a previous forecast of 970,000. So you can see Subaru is a pretty small company. They’re planning on producing 880,000 vehicles this year. That’s a small fraction of the total automotive market. Now, one thing you would be thinking might save them Toyota owns 20% of the company. And therefore it kind of makes sense that Subaru is so dependent on Toyota for electric vehicle production.
But that, my friends, is the biggest problem. Toyota themselves don’t even have a future dedicated electric vehicle platform. They don’t even have one. Now they have the BZ4x platform, but that’s based around a gasoline-powered vehicle and it’s woefully uncompetitive. Now, Subaru released their EV strategy yesterday. They say that they’ll have multiple EV offerings coming as soon as 2025. However, those won’t be manufactured in the United States. That would be manufactured by Toyota and are very unlikely to qualify for EV incentives. Meaning they’ll have a $7500 disadvantage versus their competition. That will be a very hard-mounted decline, obviously. Now, Subaru claimed that by working together with Toyota, they can much more easily ramp up EV production. The thing is though, Toyota is having a very difficult time of it themselves. So I’m not sure how that’s going to be helpful during Subaru’s recent quarterly earnings announcement senior vice president of corporate planning at the automaker Tomoaki Emori shared via automotive news, “When we look at the US market situation, we will need to offer several models in our EV lineup. We have shifted our weight toward that in development.”
Now, he didn’t say what that means. Are they developing a platform? Are they developing a car? Because the tricky part here is that if Subaru is dependent on Toyota for their EV production, which they’re saying they are. Well, what exactly are they going to use? Because Toyota doesn’t even have an EV platform itself. Now, the VP went on to add that “The US comprises 75% of Subaru’s total global sales. In order to move forward while following Market trends and legal and environmental expectations regulations, an electrification strategy is necessary.” So here’s their strategy, if you call it that. Beginning around the mid-2020s, Subaru aims to begin making its own EVs in-house alongside its Ice vehicles in Japan. By 2027, the automaker will have its own EV-specific assembly line in Japan.
So as far as we know, Subaru doesn’t plan to make EVs in the United States, meaning they’ll actually always have a minimum of a $7500 disadvantage versus their competition. Personally, I think that’s a completely insurmountable mountain decline. And the reason being, automotive gross margins are actually very, very small. On average, they’re around about 8%. Well, if you’re looking at a car price of, say, $50,000, there’s your 8%. In fact, considering the reality that Subaru will have to ship these all the way across the ocean to the US probably cost around $2500 per car. We’re now looking at a $10,000 disadvantage. And that’s not actually factoring in one other component. That is that because those batteries are not manufactured in the United States, it won’t qualify for battery incentives, which General Motors, Ford, and likely Tesla will, meaning it will now have closer to a $12,000 US disadvantage. If we look at the reality it is this, Subaru sells 3 out of every 4 cars that the company sells are bought in the United States, where they will have a $12,000 disadvantage on the future EVs that they plan to make in 2027, maybe. Well, at least that’s when their factory will begin production of a factory. And then they’ll have to wait a couple of years until they’re ready to produce EVs. Of course, within the next 6/7/8 years, the disruption will be virtually complete. Subaru will have completely lost market share in the one country that they depend on completely. They clearly have no strategy for the US car market, and they’ve revealed as much when they said what they said yesterday.
Personally, I used to love the Subaru brand growing up as a kid, I loved the WRX. I loved the Imprezas. I loved many of their cars. The legacy, The liberty. I had a Liberty GT that I Did some work on and tuned that up and made that powerful. And it was a lot of fun, even though I did blow a turbo. Unfortunately, though, it’s very likely that Subaru will have lost about 90% of their sales in the US by the time they even begin selling EVs on mass in the US. I don’t see how it is possible for them to continue paying their debt bills and the bills they’ll need to pay in order to actually build this multi-billion dollar factory in Japan in the first place when they’re selling so few cars. The most likely outcome is that Subaru, the brand, will be purchased by not Toyota, because they’ll be in their own financial strife themselves, and they already are with nearly $200 billion of debt, but by a Chinese company. Maybe Geely, maybe one of those. That is the most likely scenario, and that’s just simply being objective.
