The Big Year for EVs Gets Off to a Bumpy Start

The latest bad news came Wednesday when Tesla—the world’s most valuable automaker—warned of notably lower growth this year and left investors with few answers on how it will slow its profit-margin erosion.

The downbeat remarks followed data earlier this year showing a slowdown in EV sales growth in the U.S., automakers delaying or cutting back on plans and anxiety rising among dealership owners.

Investors will get more details about the state of the EV market when General Motors reports Tuesday and Ford Motor the following week.

This year was supposed to be an important one for EVs and a turning point for an industry that has spent the past few years pledging a move away from the traditional combustion engine.

Carmakers made a hard turn to electrics in recent years to meet tougher environment regulations to reduce tailpipe emissions and woo Wall Street investors as market valuations for Tesla and other EV-only startups soared.In addition, the Biden administration has thrown its weight behind the technology, allocating tens of billions of dollars to build out the public charging network and motivating domestic battery production.

But within the past several months, signs have emerged that the EV push might have gotten ahead of U.S. consumers.

Several automakers have postponed investment in EVs and some are reconfiguring plans to sell more hybrids, which are considered a more interim step for consumers who don’t want to abandon the gasoline engine.

Ford, in January, slashed production of its electric F-150 Lightning, a pickup truck that has generated major buzz since its launch. Rental-car firm Hertz this month said it was dumping about one-third of its EV rental car fleet, replacing the cars with gas-engine vehicles.

On Friday, Swedish electric-car startup Polestar cut about 15% of its global workforce in response to what it described as “challenging market conditions" and lower volume expectations in 2025.

While EV sales increased 47% in the U.S. last year—outpacing the broader car market—the rate of growth slowed from the prior year, according to research firm Motor Intelligence.

Elizabeth Krear, an EV analyst at J.D. Power, said the first three weeks of 2024 have also started slowly for EV retail share, in part because of restrictions introduced on Jan. 1 that narrowed the number of battery-powered models eligible for a $7,500 tax credit.

Still, the firm forecasts EV share in the U.S. could grow this year to reach an average of 12.4% of the retail car market. Car executives are also optimistic as prices for EVs come down and the range of options expands that sales growth will pick up again.

“There’s still buzz, but I’m not seeing people ready to replace their Kia Telluride or Chevy Tahoe—that big SUV they use to take kids to hockey—with an EV," said St. Louis-area car dealer Brad Sowers.

Many of the passionate EV buyers, who were willing to pay a premium for a battery-powered car, are now gone, he said. They have been replaced by more-discerning customers, asking a lot more questions about charging times and battery life and range, Sowers added.

Tesla Chief Executive Elon Musk has pointed to high interest rates and expensive monthly payments as denting demand for EVs. The electric-car maker’s challenges have helped to erase more than a quarter of Tesla’s market value in 2024.

In a departure from the past, Musk didn’t specify in Tesla’s most recent earnings call a target for Tesla’s growth this year, only saying it would be lower than in 2023. Analysts polled by FactSet project Tesla will increase global deliveries this year nearly 16%, far below its long-held goal of 50% annual growth on average.

“We have lots of people who want to buy our car but simply cannot afford it," he said Wednesday. “It’s pretty straightforward."

Musk confirmed a mass-market car was still coming, with production to start in late 2025 at Tesla’s factory in Texas. While he didn’t give many details, he has previously talked about offering such a car with a price point of about $25,000.

At the same time, he warned the launch could be bumpy because Tesla is relying on technology that has never been used before to build its next-generation vehicle.

“That will be a challenging production ramp," he added. “We will be sleeping on the line."

Meanwhile, BYD and other Chinese automakers that have concentrated on lower-priced EVs are rapidly expanding outside their home country, challenging Tesla and its rivals in Europe and other parts of the world.

Hyundai Motor and affiliate Kia have also benefited from having cheaper EVs in their lineup. The two sibling car companies together leapfrogged GM and Ford last year to become the No. 2 seller of battery-powered cars in the U.S.

Competition, though, continues to intensify with car companies releasing a barrage of new electric models. At the end of December, there were more than 50 battery-powered models on sale in the U.S., according to S&P Global Mobility, and that number is set to roughly double this year.

Still, for many consumers, electric vehicles remain a tough sell, in part because the battery range is limited and the availability of places to plug in is still lacking.

Car dealers are getting nervous they could end up stuck with unwanted EVs. Inventory levels for electric vehicles are rising, and automakers are having to resort to price cuts and discounts to stimulate buyer interest.

On Thursday, dealers representing about 5,000 stores sent another letter to President Biden saying the charging infrastructure remains scattershot and unsold EVs are piling up on their lots.

This was the dealers’ second letter to the White House in less than two months as a deadline looms to complete tougher auto emissions standards that are aimed at accelerating the industry’s transition.

“Mr. President, we share your belief in an electric vehicle future," the latest letter says. “We only ask that you not accelerate into that future before the road is ready."

Write to Ryan Felton at ryan.felton@wsj.com and Christina Rogers at christina.rogers@wsj.com