Introduction
I’ve been in the auto industry 40 years, and I’ve never seen this kind of investment. $6.5 billion strictly dedicated to EVs.
Wedbush says spending on commercial EVs should top 1.2 trillion between now and 2030.
In 2022, consumers spent nearly $400 billion on electric cars worldwide. The US is expected to add 1 million new EVs to its roads in 2023, and from 2023 to 2027.
Automotive companies have committed $616 billion in total investments. Meanwhile, these efforts have hit an unnerving speedbump.
Evsales are slowing. I was a little nervous about going all EV because my husband has an EV as well, and to have two EVs in the house, you know, it’s challenging.
I think the main issue is the long-distance-travel. We’ve been kind of in that situation. You do have to plan. Yes. In August 2023, it took about twice as long to sell an EV in the US as it did the previous January.
Gas burning vehicles were still selling briskly. While slightly more than half of consumers say EVs are the future and will eventually replace combustion engines, less than a third of dealers say so.
You have a product that almost every automaker has hinged their future on. The government is really saying, „Look, we got to go with electrification.“
Aber when the rubber meets the road, when people have to make that decision and a lot of money is involved, we’re starting to see that that’s starting to take a bit of a hit.
Tesla has slashed prices dramatically. Sales at some EV-Startups have disappointed, and companies like Ford have ramped up hybrid-production, as demand for their EVs has leveled off.
So what is really going on and why? For those who are in combustion, would you suggest?
Shifting preferences
taking the step as the bridge, so to speak, to a p-hev, a plug in hybrid? Or do you think perhaps going right over that to an electric vehicle? There is a oversupply of electric vehicles in the industry today, that is greater than the demand. This is Jeff Aiosa.
His shop is one of 383 Mercedes-Benz dealerships around the US. It pulls in about $40 million a year, employs about 50 people and at any given time keeps about 70 cars on the lot.
About a third are EVs and hybrids. It’s not that the customer is not considering it or entertaining the purchase.
It’s the reticence to that anxiety that exists relative to the range that the battery can produce.
We are perhaps moving a little bit too fast. Cox Automotive said in July 2023, on average, there’s a 52-day-supply of ICE-vehicles at dealerships.
If they stopped making cars today, a dealer would have enough to last 52 days. Pickup Trucks went from 52 days to turn in January 2023 to just 57 by August.
Meanwhile, the EV supply was closer to 90 to 100 days. No segment has seen a rise as substantial as EVs.
There’s definitely a rise in, you know, how long a vehicle is going to sell a lot. It’s just that the EVs are sitting even longer.
And the fact that we’re seeing it reflected in the used car market as well, that tells us this isn’t just like an isolated incident. Dieses ist etwas, that is very targeted.
Numbers elsewhere suggest enthusiasm for EVs has dampened from a pandemic-era high in 2021. 86 % of US-Buyers were considering an EV.
That number has since fallen to 67 % in 2023. In May 2021, Ford opened reservations for its F-150 Lightning, the fully electric version of the most popular vehicle in America.
It closed them by the end of the year because the company said it had enough reservations for three years worth of production.
But by September 2023, Ford said it was ramping up production of its hybrid F-150 because sales of the lightning had slowed.
We literally had people who would follow car carriers to the store, hoping that when it got here, the car on the carrier that they wanted to buy was available, only to learn that it was already sold.
People are rushing to the dealership. They’re going bananas, paying over mSRP. They’re bidding. Wars are going on.
People are like, I hope that guy doesn’t buy it. If it falls off the truck, I’ll buy it kind of attitude. I mean, just completely by the wayside.
Now, it’s just been a year and the market for EVs is upside down. The softening of sales is not just happening for legacy brands.
The buzzed about luxury EV brand Lucid has seen two consecutive quarters of weaker than expected demand.
Most recently, it delivered 600 fewer of its high-performance, 500-mile-range-luxury-air-sedan than Wall Street had expected in the second quarter of 2023. There are larger economic challenges: Interest rates
High Costs and Uncertainty
They are up, so borrowing money is a lot more expensive. Inflation has reduced purchasing power and supply chains are disrupted.
The inflexible nature of the EV-supply chain is pressuring OEMs to make EVs, despite consumer pullbacks.
Then there are the pressures of meeting government mandates. Think of the lens of the manufacturer, where it typically takes a cycle time of upwards of 7 or 8 years, from inception to showroom, and wheels rolling.
Right. So that’s a big ship to turn. And then back to the mandates, the regulatory pressures.
When you have to meet those, it’s not like you can just throw a switch and convert from combustion to electric.
That may explain why the luxury category hasn’t slowed down as much as EVs have. A luxury mid-size electric crossover, say, will often have a higher transaction price, or even a higher sticker price, than a comparable fuel burning one in the same class.
The average transaction price for a vehicle in the US was about $48,000 in September 2023. The average transaction price for an EV was somewhere between $53,000 and nearly $60,000, depending on whose data you use.
Meanwhile, the EV buyer is changing. Drury says about 40 % of EV-Shoppers are trading in a vehicle they already own for a new one.
That is about twice what it was a decade ago. That suggests that a lot of those EVs purchased a decade ago were supplemental vehicles.
An extra Car. Like if you had a two-car-garage, you got a third. Und part of that was because those EVs, they qualified for lots of tax credits.
You got HOV Access Lane. I know in Southern California that was such a huge thing, that vehicles with that sticker they would sell at a premium.
As a Mercedes-dealer, Jeff Iosa still interacts with a lot of well-heeled customers. Even he has seen evidence of this. The early adopters were very techie and they were very, I want to say, more in the space of luxury.
Last year we added 30 something models in the marketplace to almost 90 plus models today. A more mainstream buyer.
So these are the chargers for fast-charge-charging and home-charging. Aisa sells an EQB, a more mainstream priced EV that retails somewhere in the high $50,000 range.
It’s not cheap, but it’s only slightly above the average vehicle transaction price, and it’s a lot less expensive than the EQE, which can run above $90,000, and the EQS, which can run up to 140,000.
These vehicles won’t be worth nearly as much as, say, an ICE-Equivalent, which has more certainty involved.
You know, there’s not going to be leaps and bounds of technology and improvements in ICE vehicles, but we know there will be with EVs.
Batteries, on average, are warranted for 10 years to give at least 80 % Efficiency. That’s not the case with ICE.
ICE cars: Everybody puts out a good car today and they last well over 20 years. I think there’s an evolving sense of Buyer Remorse.
You see this in televisions, where, you know, every 6 to 9 months, you feel like the same 52-inch-TV is cheaper at Best Buy or pick your location for the same functionality.
Und, you know, especially now that OEMs are lowering prices. At the end of the second quarter 2023, several automakers announced that they’re moving to the Tesla charging standard, also known as the North American Charging Standard, or NACS.
That means there are vehicles stuck on factory floors with an obsolescent charging outlet. Charging is a sore spot for all types of buyers, whether current, past, or prospective.
Diese EV will allow you to plot a course and determine and predetermine when you arrive at different charging stations.
Then there is the government. There’s a fair amount of feedback that we get from customers that say, you know, we just don’t like the government telling us what we should buy.
By 2032, 67.5% battery-electric is aggressive. I think by 2035 all electric is aspirational. I don’t think that that’s going to happen. EVs sitting on lots do not necessarily equal waning
A trend of a blip?
It’d be the number six segment in the industry. So it’s not as if nobody wants them. There’s no demand. However, there is a tremendous degree of regional variation.
While there have always been regional stories in auto pickup trucks in Texas, luxury cars in the northeast.
EV adoption rates pretty closely track to economic metrics: pump prices and home energy rates. If gas prices get up to close to $6, like they are in most parts of California, we’re going to see a lot of consumers there shifting toward EVs.
Meanwhile, in Texas, gasoline prices are almost $2 a gallon cheaper in Texas als they are in California. But there is another reason why inventories have been building.
Tesla, which dominates the EV market, has been hacking away at its prices. In August 2023, Cox Automotive data showed, the average price paid for an electric vehicle was $53,376, down from $53,633 in July 2023, and down from more than $65,000 a year prior.
Again, that decline is driven almost entirely by Tesla. In August, model three transaction prices were down 21 % year over year, while model S was down 17 %.
Model Y dropped 16 % and Model X was down 13 %. At the beginning of 2023, the Model S was priced at $104,990, and the Model X was priced at $120,990.
By September 15th, the price was $79,990 for the X and $74,990 for the S. It’s about two thirds of all EVs sold are Tesla’s because their prices are so aggressive.
So not only do we have fewer consumers looking for an EV in Q2, we actually saw that those that were. It’s very hard to get beyond Tesla with their prices and certainly with their Supercharger-Charger-Network to go buy an alternative.
Ist an unlevel playing field. Wenn you have a manufacturer that sells in the space of vertical integration direct to the consumer and not use the franchise system, it gives some flexibility to the direct seller to be able to adjust their pricing. In the case of Tesla, conveniently below the threshold, so that you can capture more of the incentive money from the government.
Meanwhile, automakers are releasing EVs that are often selling for above $50,000. Ford hiked the starting price of its F-150 Lightning in March of 2023 to $60,000, a 50 % increase over the original $40,000 starting price.
Ford has since cut that to $49,000, but again, that is still $10,000 higher than the automaker had originally planned.
It’s very expensive to bring EVs to market, and in a lot of cases, vehicles that were announced at a certain price point a couple of years ago.
The automaker has not been able to hold those prices in this market, and so those earlier announced prices have have tended to creep higher.
The futureThe
picture that starts to emerge. The EVs that are on the lots do not match what consumers want and what dealers are selling. Don’t get rid of your combustion car.
I would like to see the government reassess their regulatory pressures and perhaps revisit the incentives through the IRA.
Inventory is going to rise, at the same time that the auto industry continues to launch more and more EVs at that $50,000 to $60,000 price point, which is already well saturated.
There is demand for EVs. It’s just that their Teslas and their a lot lower price than what we see. If perhaps we could hit the rewind button and do things differently than we have.
I would like to think that maybe we would have slowed things down, maybe been more in the space of hybrid as a bridge to a more perfected battery technology.
We have been in the space of combustion ICE for over a century, so we have a lot of experience with it. Battery electric is at ground zero.
We don’t know. We don’t know, and we’re still kind of cutting our teeth with it. Clearly, I believe that we’ve moved a little bit too much and too fast.
But there are reasons to be optimistic. The S&P study showed that people were willing to accept charging times of up to an hour and less range on an EV than on an ICE vehicle.
That’s another shining light for EVs. Is, again, this understanding that they’re not necessarily going to get what they get with their typical ICE vehicle, but they are actually willing to accept something less than what they’re getting with their vehicle.
And while the number of buyers considering an EV did fall from 2021 to 2023, it is still higher than it was in 2019.
The analogy that I like to use is we all have smartphones today, and most of us had flip phones. And if I said to you, give me your smartphone and I’m going to give you back a flip phone, it would be like saying, give me your EV, I’m going to give you back a combustion.
And I would say that 90 plus percent of the people, including myself, would say, I’m good, I’m keeping my smartphone, I’m keeping my electric car. You don’t want to go backwards.
