Automakers are delaying spending on electric vehicles as demand declines

Normally, a 50 percent increase in sales is considered very good. But when the number of electric vehicles sold in the United States grew so much in the third quarter compared to a year earlier, it was a disappointment.

Automakers and analysts expected more. Instead of celebrating, auto executives worried about declining demand for electric vehicles, raising questions about their plans to invest tens of billions of dollars in developing new models and building factories.

In recent weeks, General Motors, Ford Motor and Tesla cited slower sales and signs that the economy was weakening by announcing they would delay those spending. That was a blow to the Biden administration’s plan to fight climate change by promoting zero-emission vehicles, and it cast doubt on whether generous federal tax breaks for electric car buyers were working as well as policymakers had hoped.

“Our commitment to an all-electric future is stronger than ever,” GM CEO Mary T. Barra told analysts on a conference call last month. But, she added, the market is proving to be “a bit bumpy.” As a result, GM is waiting several months before selling some new electric models, including a battery-powered incarnation of the Chevrolet Equinox SUV.

Ford and GM have invested billions in retooling factories and building new factories to produce electric vehicles, batteries and other components. If the car manufacturers have made a miscalculation, the consequences could be serious. (Stellantis, the parent company of Chrysler, Jeep and Ram, has not yet started selling all-electric vehicles in the United States.)

Electric vehicle sales in China and Europe are also growing slower than a few months ago.

Yet sales of electric vehicles are growing faster than any other major car category, and Americans will buy more than a million of them this year, a record. From July through September, battery-powered cars accounted for 8 percent of new cars sold in the United States, up from 6 percent a year earlier, according to Cox Automotive.

But some once-popular models are selling more slowly. Sales of the Ford Mustang Mach-E, which saw a steep price increase a year ago, fell 10 percent in October from a year earlier, Ford said last week.

“There is still a lot of demand for electric vehicles,” Ford CEO Jim Farley told analysts. But he added that increased competition had pushed down prices.

According to Cox, automakers have introduced at least 14 new all-electric models in the past year and increased production of others that were in short supply. Inevitably, some sell better than others.

“Demand is increasing, but not nearly to the extent that supply and production are increasing,” said Rob Cochran, CEO of #1 Cochran Automotive, which owns 34 dealerships in Pennsylvania and Ohio that sell nearly all the major brands. , including Ford, Chevrolet, Hyundai and Volkswagen.

Even Tesla – which dominates the electric car market, with about half of all sales in the most recent quarter – has struggled to sell cars and had to cut prices by thousands of dollars.

Some conservatives have used recent data to argue that electric vehicles are overhyped. Republicans such as Ohio Sen. J.D. Vance have argued that electric vehicles are destroying auto industry jobs and have proposed rolling back policies intended to encourage people to buy battery-powered cars.

A political agenda is driving some of those pushing to halt the rise of electric vehicles, said Albert Gore III, executive director of the Zero Emissions Transportation Association, an industry group whose members include automakers like Tesla and Rivian and charging companies like EVgo and ChargePoint. and suppliers of equipment and raw materials.

“There are a lot of people who would like to conclude that we should be less aggressive with policy,” Mr. Gore said.

Some analysts said the uneven growth was not surprising as electric vehicles move from a niche product to a more mass-market offering. Most car owners are still learning about the technology, and automakers and dealers are figuring out how to best sell to them.

“There were a lot of early adopters buying expensive electric vehicles,” said Tom Narayan, Global Autos Analyst at RBC Capital Markets. “Now you’re at the point where the Main Street consumer is looking at electric cars”

Ford illustrates the mixed signals its sales figures are sending. While sales of the Mach-E rose just 1.5 percent in the first ten months of the year, sales of the F-150 Lightning, a battery-powered pickup, rose 43 percent. Overall, sales of Ford electric vehicles rose 13 percent from January through October, while sales of cars and trucks with internal combustion engines rose 7 percent. Sales of hybrid vehicles, which combine electric propulsion with combustion engines, increased by 19 percent.

Weak Mach-E sales likely reflect competition from the Tesla Model Y more than any broader trend, analysts said. Many buyers may compare the two vehicles, which are of similar size and style. Tesla has lowered the price of the Model Y so that the cheapest model is $2,500 less than the Ford after federal tax credits are applied.

The end of the recent United Automobile Workers strikes against Ford, GM and Stellantis has refocused attention on traditional automakers’ attempts to compete with Tesla.

Electric vehicles played a major role in the UAW negotiations, and tentative contract agreements grant at least some union rights to workers at new battery plants. But the deals will raise production costs and make it much harder for Ford, GM and Stellantis to overtake Tesla, which has no union.

Buyers remain interested in electric vehicles, surveys show, but are struggling to afford them. According to Cox Automotive, the average price paid for an electric vehicle in the United States was less than $51,000 in September. That’s a huge drop from last year’s $65,000. But it’s still too high for many new car buyers, especially as high interest rates have made monthly car payments more expensive. According to Federal Reserve data, the average interest rate on a car loan is over 8 percent, up from less than 5 percent in early 2022.

In recent years, automakers have flooded the market with SUVs aimed at affluent suburban homeowners. And there’s still a shortage of cars priced under $30,000 that middle-class buyers can afford.

“Many automakers rushed vehicles to market,” said Kevin Roberts, director of Industry Insights and Analytics at CarGurus, an online automotive marketplace. “Now they’re getting into a situation of rising interest rates where they’re not priced right.”

Some potential electric vehicle buyers may also be concerned about finding enough places to quickly charge cars during road trips. After the price, charging infrastructure is the most important thing people worry about when considering an electric car, many studies show.

Public charging is also essential for anyone who lives in an apartment or cannot install a home charger, a group that is young. “The younger demographic is more open to electric vehicles than the older demographic,” said Mr. Cochran, the Ohio and Pennsylvania dealer. “It’s usually the younger demographics that live in apartments. The fact that the infrastructure has not been built up is a deterrent.”

At least two of Mr. Cochran’s customers returned newly purchased electric vehicles after discovering there were not enough chargers near their homes, he said.

For people interested in buying an electric vehicle, the good news is that prices will likely continue to fall as automakers expand new factories. Starting in January, dealers can apply federal tax credits of up to $7,500 when a customer purchases a car. Previously, buyers had to wait until they filed their taxes before claiming the credit.

The charging system is also improving, albeit slowly. Parts of Tesla’s fast-charging network, the largest in the United States, will open next year to Ford, GM and other brands. Other automakers build their own chargers. Mercedes-Benz said last week it would install at least 55 stations in luxury shopping centers in the United States and Canada operated by Simon Property Group, a major real estate company.

Automakers have gotten the message that selling electric vehicles is different from selling gasoline cars. “Charging,” says Andrew Cornelia, CEO of Mercedes’ high-performance charging unit in North America, “is still a critical problem that needs to be solved.”