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.
We're building the future of the electric vehicle.
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 speed
bump. Ev sales 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.
But 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?
And what does it mean for the future?
For those who are in combustion, would you suggest
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.
And coupled with or compounded by the lack of
public charging infrastructure. We're 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.
This is something 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 that 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 one year and the market for EVs is
upside down.
The softening of sales isn't 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
are up and 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 for 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.
There is a specific pricing challenge with EVs.
They tend to be more expensive than their gasoline
counterparts. 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.
And 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 had 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 ten 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. And, 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.
This 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 does not necessarily equal waning
demand. EVs made up a record 8% of US vehicle sales
through early September 2023.
If we looked at EVs as their own segment, we took
everything and put it together. 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 toward EVs.
Meanwhile, in Texas, gasoline prices are almost $2
a gallon cheaper in Texas than 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.
It's an unlevel playing field when 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 that direct seller to be able
to adjust their pricing.
And 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 on 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 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 picture that starts to emerge.
The EVs that are on the lots don't 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.