- U.S. EV sales are on track to surpass 1 million units by year-end, good for an impressive 50% year-over-year increase.
- Experts are saying that the people who have so far held off buying an electric vehicle are likely price-sensitive shoppers.
- Nearly 3 million hybrid EVs were sold in 2022, good for nearly 30% of all EVs sold.
A casual glance at key trends in electric vehicle markets suggests that the much-hyped EV revolution is very much alive and well. In the U.S., EV sales are on track to surpass 1 million units by year-end, good for an impressive 50% year-over-year increase. This in turn translates to, for the second year in a row, EVs making up nearly 10% of all new cars sold in the country. China remains firmly in the driver’s seat with a third of all new vehicles sold this year being electric while global sales have grown 33%.
But looking below the hood reveals a much murkier reality, and suggests that the halcyon era of rapid EV adoption could be drawing to a close. Experts are saying that the people who have so far held off buying an electric vehicle are likely price-sensitive shoppers, leery of making major adjustments to accommodate an entirely new technology including charging anxieties and home equipment installations.
“EV adoption is looking to move into its next phase — requiring much more mass-market interest — and this larger cohort has to be sold on EVs since they aren’t as enthusiastic and willing as early adopters,” Jessica Caldwell, director of insights at Edmund, has said.
Signs are legion that point to an increasingly beleaguered industry and suggest that electric vehicles could increasingly become a hard sell. Shares of iconic EV manufacturer Tesla Inc. (NASDAQ: TSLA) have been selling off after the company under-delivered in its latest quarterly report. Tesla reported Q3 Non-GAAP EPS of $0.66, missing the Wall Street consensus by $0.07 while revenue of $23.35B (+8.9% Y/Y) missed by $790M. The Austin-based company produced 430,488 vehicles and delivered 435,059 vehicles during the quarter, blaming the sequential decline in volumes on downtimes for factory upgrades.
More alarmingly, Tesla’s margins have been shrinking at a very worrying clip: Operating margin clocked in at 7.6% of sales, a full 200 basis points lower from the previous quarter and incomparable to 17.2% a year ago. Total GAAP gross margin was 17.9% compared to 25.1% a year ago and 18.2% in the prior quarter. Tesla has cut prices on multiple occasions over the past year, leading to contracting margins. Falling ASPs are usually the result of increasing competition and waning pricing power. Tesla CFO Zachary Kirkhorn had earlier stated that FY23 automotive gross margin should remain above 20% with average selling prices in the high $40K range, something that is clearly not happening.
Cost remains a major sticking point for buyers of electric vehicles: In August 2023, the average transaction price for a new car (of any powertrain) was $48,451, compared to $53,376 for EVs (for new cars). Luckily, the price of EVs has been declining in-line with falling battery prices. Further, this trend is likely to hold in the coming years as lithium prices continue falling from their recent all-time highs.
Tesla can take small comfort in the fact that it’s in good company.
General Motors (NYSE:GM) has pushed back production launches of several electric trucks and SUVs, including the Chevy Silverado, GMC Sierra Denali EV and Equinox EVs.
Ford MotorCompany (NYSE:F) has put on hold the construction of a new $12 billion EV factory citing slower customer demand.
Honda Motor Co. (NYSE:HMC) and GM have canceled their plan to jointly develop a slate of affordable EVs, saying the economics do not work.
Volkswagen AG (OTCPK:VWAGY) has announced that it will stop making the ID.3 and Cupra’s Born, citing subsidies and competition from China.
Hybrids Remain Popular
Fossil fuel investors will no doubt be pleased to know that hybrids remain incredibly popular in this age of pure EVs, a full 25 years since Toyota Motor Corp. (NYSE:TM) launched the Prius. Nearly 3 million hybrid EVs were sold in 2022, good for nearly 30% of all EVs sold. Hybrids remain popular because they make considerable savings on gas and cut their carbon footprint without the attendant charging anxiety that comes with pure EVs.