California has taken a big step forward in the electric car revolution banning
the sale of internal combustion engine vehicles in the state by 2035.
So what do investors need to know about how this will affect the industry.
From oral it's going to Jessica CALDWELL.
She is executive director for Insights with Edmunds.
Jessica thanks so much for joining us. Let's first talk about the state of the
market. I mean we have been seeing so many
tassels on the road certainly where you are for years and years.
And everyone's talking about the new Ford Lightning as well as a number of
other start up electric car companies like Lucent for example.
But how much of the market really is electric right now across the United
States. It's not a big percentage if you look at
battery cells. This year they're around 5 percent of
pure E.D.. So not a big percentage.
And this is the technology we've been talking about for over a decade.
We've seen these cars but it finally feels like now we're kind of on the cusp
of something big. We don't know exactly what the effect of
that is yet but it definitely feels like the products are finally coming.
And I think the question here is our consumers ready to pony up to spend the
money. We know the past few years have been
quite difficult in that regard. And to kind of see if infrastructure
will support increased sales. But if we look at the market as it is
it's still a very small percentage of total new vehicle sales in terms of
spending the money we've started to see price increases.
Right. Ford is raising prices for the marquee.
It's already raised prices for the lightning and not unsubstantial amounts.
We're talking about 3 4 7 8 thousand dollar price increases.
These vehicles I think at least the smaller ones were affordable before.
But the bigger ones like the trucks can get up to one hundred thousand dollars.
Are they making any margin on those. Yes.
I mean I think that's what it's all about really.
I mean there's been so much demand for these vehicles this year.
I mean I don't even think you can get on a reservation list right now for a
lightning. So if you really want one it's it's
pretty hard out there. So I think they're probably responding
to the demand that they see. I mean we've seen a lot of price
increases also for Tesla products over the course of the past year.
And just the market in general I mean if we look at new vehicle prices they
really have skyrocketed. I mean the average new vehicles about
forty seven thousand dollars right now which feels much higher than it ever has
been historically. And new even evils are over 60 thousand
dollars. So it is not a cheap game to to buy a
new vehicle particularly newbie. Fortunately for now you get seven
And a lot of local markets also give you some sort of tax rebate.
How long is that going to last. I mean I've heard that starting next
year you're gonna have to buy cars that are made in America in order to get that
and that you're going to have to buy cars that have battery components also
made in America. Yes DAX is where it starts to get really
tricky because not only are there requirements for the vehicles themselves
and their components like their boundary the boundary elements as well as where
the vehicle is assembled. There's also requirements on income
levels. So if you're someone that is you know
you're a married couple and you make over 300 thousand dollars which may seem
like a lot of money but if you think about these vehicles are a hundred
thousand dollars. It really is it you're not going to be
eligible for those rebates which is you know a bit difficult and the same thing
for the used vehicles. So that's what's interesting and new.
Is that what we're going to start seeing used rebates for these.
I'm about four thousand dollars. Again income requirements.
So all of a sudden this this market which didn't really have too many rules
in terms of the rebates is going to get really strict.
And it's going to be pretty hard to figure out if your vehicle qualifies.
There's going to have to be VIN Decoders to figure out if your vehicle has the
battery the battery components and the vehicles.
Automakers have a few years to ramp up to get these things set in place.
Obviously this cannot change overnight but it's still going to be a tough
challenge for them as well as consumers because as of right now none of the
electric vehicles comply with the new regulations in terms of you know the raw
materials coming from the U.S. or the batteries being built in the US
they're going to have to change that. Are they do you think those companies
building car car electric cars in the US like GM like for like BMW.
Are they going to have to revamp the way they source these materials.
Yes. A lot of the companies there's a lot of
pressure on them to revamp the where they source these materials.
I mean we know that there's a lot of factories being built as we speak.
Are back factories building factories very soon.
So that's definitely something that's in play.
But in terms of sourcing some of these minerals the mining that goes into it
that's a little bit different. That's something that takes from what I
understand a very long period of time. You can't just change that overnight.
I mean none of these things are. Change overnight.
But that is even more sensitive to do time.
So yes in terms of where they get these natural resources they're going to have
to put a lot more effort into it which is tough.
I mean it's not they don't have to be 100 percent next year.
There is a time frame associated with it.
It's like 40 percent and 60 percent 100 percent eventually.
So they do have a bit of a time window but that seems like that is going to be
quite challenging and not something that they would have absolute control over.
I mean automakers their specialty is designing building vehicles not
necessarily figuring out where these resources come from and sourcing them
and doing everything that involves that. That's that's definitely been a
challenge to what is already a challenging scenario.
Let's talk about Jessica the players here.
I mean Tesla seems to have an advantage still in terms of the range.
I guess that's the battery plus the software.
But how long do they hold on to that. It's going to be challenging for Tesla
to hold on because they've kind of been this big fish in a small pond for a very
long period time. They have the cool brand factor which
you cannot underestimate. But as we know that doesn't last
forever. And all of a sudden we have a lot of
competitors are finally getting serious and making cool cars.
I mean even somebody like Honda with their iconic fight we see Tesla shoppers
looking also at Hyundai. And what world did that seemed like that
was going to happen a few years ago in terms of brand.
And we see that now. So I think that there's still going to
be fine. There is still going to make a lot of
cars sell a lot of cars. But in terms of their market share of
the market of course that's going to slow tremendously over the course of the
next decade. Who would have guessed 10 years ago that
everybody would want a key or tell you ride.
But they're pretty awesome in terms of the incumbents.
You know GM has the bull. Plus they've brought out the Hummer.
Kind of a barbell strategy there. They're coming out in the middle with
other offerings. The Silverado is one I'm looking forward
to. Forward of course has the mock E and
they've got the lightning which is the most talked about electric car since a
Tesla BMW has some exciting products. Dodge even announced a new I think
Challenger that's going to be electric. Which one do you think is going to lead
the charge as this ramps up. I think initially because they've spoken
the most about it. They have the platform the ultimate
ultimate platform. I think GM is sitting in a good place
which they're very upfront about the vehicles.
We know that there's a blazer and equinox.
It is supposedly coming out for thirty thousand dollars which can really change
the market a lot. If they can get two volumes we know the
Silverado is coming in the Cadillac lyric even the stylistic a bit expensive
but it's going to create some excitement.
So I feel like I've talked the most about building high volume vehicles at
lower price points which is what this market means.
Some of the other automakers that have you know some really cool cars and cool
concepts. But I feel like GM is probably hitting
volume niches at this point a bit better than the others.
What about the startups Jessica especially companies that seem to be
struggling to produce the kind of the kind of quantities that are necessary to
stay in this industry. Which ones do you think will survive.
That's a tough question. I think all of them are a bit tenuous to
be honest just because we know that it's challenging for these automakers that
have been around for decades if not over 100 hundred years making cars to to
operate in this environment to change especially in light of some of the new
requirements on what the Inflation Reduction Act that's gonna be tough for
these established automakers that have very deep supply chains relationships
all those things needed to make this work successfully.
So some of these new players. I think that it's hard for them to be in
volume. I think that's going to be the struggle.
Even someone like Ribbon who product is called CAC but that love the vehicles.
But even competing against a GM and Ford at what they can offer in terms of price
points is going to be tough. So they're going to have to rely a lot
on brand being new being fresh somebody like Vin Fast as well kind of having you
know different spin to the market which will appeal to a certain sector.
I just think it's hard to get into volumes with those type of players.
They've got to actually deliver the product.
And if you want lucid or if you want to Ballinger or a canoe you're going to
have to wait a long time if not forever. The cyber truck is one.
I know people have been waiting years for this to come out.
Is it ever really going to come from Tesla.
Who knows. I mean yes I feel like we've seen this
ages ago. It was like anything that happened.
Pre pandemic feels like it was a hundred years ago.
And that was certainly in this category. I think eventually I mean it's probably
hard for Tesla to prioritize considering there is so much demand on the other
product. I just don't know what why.
Maybe you put the resources into that if you can barely kind of keep up with what
you have. I think more importantly they probably
have to work on refreshing on some of the existing models like the Model 3 the
model s pretty long and to at this point.
But I do think the cyber truck will eventually come.
Not sure if it's going to be an exact model that we we saw you on drive around
and try to crush the doors. But it feels like it will come.
I just I mean honestly who knows when.