Above – wait and see what happens when Tesla releases a 25k EV.
Below, Princeton’s Jesse Jenkins has an excellent rejoinder to all the “EV doom” headlines.
Legacy automakers indeed experiencing turbulence, but overall picture remains. EV transition in “S-Curve” mode.
What does it mean that EV sales are “slowing”? Year-on-year growth rates have been ~60% in each of the last several months. That’s a rate fast enough to double sales in about 18 months. It’s hard to see growth that fast as “slowing” sales.
The best (and only) quantitative evidence presented for the dominant media narrative is this data, as presented in a WSJ piece yesterday here: dealers for traditional OEMs (Ford, VW etc) are taking more time to move EVs off the lots.
Dealers are also increasing discounts to help move EVs off lots. Of course, trendline is up for avg discounts on ALL vehicles (ICE & EV), and this data excludes EV-only makers like Tesla & Rivian who dont use dealer networks, so this is really a story about incumbent automakers.
So what is going on here? Is this a disaster for the EV transition? Has “federal policy failed” to spark an EV transition? Is this a “blow to President Biden” as the press invariably codes everything in an overtly partisan way? I don’t think any of that is true..
I think the main story here is not of cooling consumer interest in EVs or a slow-down of the EV transition, but rather the confluence of two other major factors: (1) Tesla’s succesful defensive price war and (2) rising interest rates.
First, Tesla had a substantial head start in cost of production with very large margins and basically the whole EV market to themselves for a LONG time. As soon as traditional OEMs got into the EV biz & new start-ups like Rivian & Lucid launched, Tesla aggressively dropped prices.
This ate into Tesla profitability, but appears to be an effective defensive price war. Tesla margins before were obscene! Selling Model 3s as if they were competition for BMWs not Civics! But Tesla has focused on driving costs out of production & have a decade head start on OEMs.
Tesla’s price war hit their rivals at exactly the same time that interest rates were spiking (thanks Fed!) making the cost of financing or leasing ANY new vehicle rise substantially. That’s the second big part of this story.
Combine interest rates w/a large ramp of new EV supply & what had looked like a fat market for EVs where every car made sold in days & OEMs could snag premium prices (& dealers could charge markups) has quickly transformed into a cutthroat market where aggressive pricing is key.
Both of these two key factors seems to have caught traditional OEMs off guard & forced a rethink of strategy. In particular: a major refocus on reducing cost of production. To compete, they’ll have to get better, faster & develop cost-saving manufacturing methods like Tesla has.
Contra to headlines, NONE of the OEMs are scrapping plans for huge investments in new EV manufacturing or models. Hyundai/Kia & Volvo are continuing at same pace w/strong growth. Details on the UAW deals show Big 3 all continue to plan multi-billion $ for new EV mfg & models.
And, of course, US EV sales have been growing at ~60% year-on-year each of the last several months, a pace that is fast enough to double the market in about 18 months. We probably crossed 1 million EVs sold year-to-date in September & are on pace for >1.4 million by end of year.
Meanwhile, the upshot of all this is that EVs are getting more affordable as well. Prices are falling. Dealer markups are gone. The EV tax credit is spurring cheap lease deals. And avg EV sales price in Sept was $50,683, barely higher than the avg for all new vehicles ($48,000).
In January, the personal EV tax credit will be available to buyers at the point of sale for the first time too. And in 2024, we’ll start to see the more affordable Volvo EX30 & Chevy Equinox EVs hit market & join the Bolt, Tesla Model 3, Rio/Niro & Ioniq 6 in the <$40k segment.
Meanwhile, 2024 will also see Tesla’s extensive Supercharger network open up to non-Tesla’s, virtually all automakers adopting NACS chargers natively in MY2025 vehicles & beyond, and the Infrastructure Bill’s NEVI grants will FINALLY start to flow in earnest to build out chargers
So while the current moment presents a real challenge for the incumbent OEMs — the runway to land their EV transition plans just got a lot shorter & more challenging — the overall trends ahead are more affordable EVs, better charging networks, more models, and more competition.
As GM’s Mary Barra said: “As we get further into the transformation to EV, it’s a bit bumpy.” But that doesnt mean the journey is slowing. Sales of EVs will keep growing rapidly, new models will expand market, & competition will make it all more affordable. This is all good.