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Conor Sen

It’s a Bad Time to Stop Making Small Cars

Automakers are financing their electric-vehicle research by selling SUVs, but rising gas prices will turn off consumers.

Expect pain at the pump.

Expect pain at the pump.

Photographer: Scott Olson/Getty Images

The state of the auto industry in 2018 reads like a series of paradoxes. In order to sell cars now so they can invest in the next-generation electric and environmentally friendly vehicles, auto producers are moving away from the production of smaller, more environmentally friendly sedans. And at a time when oil prices and interest rates are rising, creating affordability pressures for buyers, manufacturers are doubling down on expensive, gas-guzzling sport utility vehicles and pickup trucks. From the perspective of automakers both juxtapositions are entirely rational, but investors ought to brace for a transition over the next few years.

At some point over the past year the major auto companies recognized and announced that electric vehicles were the future, and said they were going to invest accordingly. Ford announced in January that it would invest $11 billion in electric vehicle development to bring 40 electric models to market by 2022. Executive Chairman Bill Ford said "that means we're all-in now."