At times, the growth of the U.S. electric vehicle market looks quite positive. After all, EV sales have shown progressive year-on-year increases for the last few years, and this is not only taking place in the U.S., but globally as well. But as is the case in many instances, growth is relative. If expectations aren’t satisfied, and EV sales targets aren’t met, then positive figures mean little. As it turns out, this appears to be the case for the U.S. electric vehicle market. Not only are EV car manufacturers shifting gears but so are major U.S. rental car companies as well. Due to a number of electric vehicle market challenges, some are cutting current losses in hopes turning things around.
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In support of this claim, Hertz recently announced that it was selling off a third of its current EV fleet. Faced with depreciation of the electric vehicles owned along with high repair costs, the company made the hard decision. But Hertz isn’t the only company in the U.S. electric vehicle market reevaluating their position. And foreign competition for domestic EV manufacturers is contributing to these reassessments. As such, it is clear that electric vehicle market challenges are ahead for the coming year. And it seems, at least for the U.S., that the EV market won’t be as hot as it has been. If this is to turn around, then several things will have to change in the coming months.
The U.S. Electric Vehicle Market Today
In examining statistics, global EV sales in 2022 weren’t so bad. In total, 10.2 million electric vehicles were sold. These sales were supported by advancing adoption of EVs in many countries. Of those leading the way, China, Germany, and Norway topped the list. The percentage of all vehicles that were electric reached the mid-30s for China and Germany. And for Norway, electric vehicles now comprise 90% of the cars on the road. This is not the case for the U.S. electric vehicle market. Currently, only 9% of all passenger vehicles are EVs, up from only 7.3% in 2022. Given a number of electric vehicle market challenges in the U.S., EV sales are simply not keeping pace with others abroad.
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Within the U.S. electric vehicle market, car manufacturers recognize the slowed EV sales growth. Earlier this past year, General Motors announced it would not be meeting EV sales targets in coming quarters. While GM did see a 20% YOY increase in EV sales, electric vehicles still only reflect 3% of all car sales for the company. As such, GM announced it would be scaling back on EV production, and Ford Motor Co. did the same. Tesla still leads the pack within the U.S. despite electric vehicle market challenges. But it significantly dropped its EV prices this past year, suggesting it too is looking to incentivize sales. This doesn’t mean that adoption of electric vehicles is coming to a halt. It simply shows that in the U.S. projections may have been a bit unrealistic.
Downstream Market Effects on Hertz
The electric vehicle market challenges in the U.S. aren’t just limited to car manufacturers. In addition, rental car companies that have invested in EV fleets are similarly dealing with pressures. Specifically, Hertz rental car company just announced it would be selling off a third of its current electric vehicles this year. Offering them at a deeply discounted price, Hertz stands to lose big on its prior investment. According to estimates, the company will experience a $245 incremental net depreciation as a result of this decision. This is a significant setback for Hertz, especially since it had previously announced sizable EV purchases in the coming months. This included buying an additional 65,000 EVs from Tesla as well as 175,000 from GM. Given the most recent decision, this isn’t likely to happen.
The problems for Hertz began with shifts in the U.S. electric vehicle market that started early in 2023. Many of its EV customers were using the electric vehicles for Uber driving, especially as gas prices increased. This resulted in notable depreciation of the vehicles based on miles driven. However, more importantly, Tesla’s cutbacks on its electric vehicle prices similarly affected Hertz. Suddenly, the lower price meant Hertz’s entire EV inventory depreciated to a much lower value. This, combined with escalating EV repair costs, prompted Hertz to start reducing its EV fleet. This reflects how the current electric vehicle market challenges in the U.S. are having widespread impacts.
Addressing Electric Vehicle Market Challenges
In looking at other countries where EV sales are progressing, a variety of strategies have been pursued. EV tax incentives and subsidies are common, which enables greater affordability for consumers. While the U.S. electric vehicle market has some such supports via the Inflation Reduction Act, they tend not to be as robust. At the same time, a lack of fast-charging EV infrastructures contributes to issues in addition to general prices. Compared to a new gas-powered car, EVs in the U.S. run nearly $4,000 more on average. With a median price over $50,000, this results in notable disparities among who can afford an electric vehicle. And with rising repair costs and a limited used EV market, adoption of EVs will continue to be slow.
Among the electric vehicle market challenges in the U.S. is also foreign competition. Presently, Chinese electric vehicle manufacture, BYD, is by far the leader in global EV sales. In this past November alone, BYD sold nearly 300,000 electric vehicles. While Chinese trade barriers may prevent them from accessing U.S. markets, Chinese cars will inevitably spread to other countries. This too will place price pressures on domestic EV manufacturers. Indeed, the U.S. electric vehicle market appears to be slowing. But that’s simply not the case in other countries. As such, bold business solutions may be needed to invigorate existing EV sales domestically. For now, however, it seems the entire EV industry within the U.S. is less robust than previously.
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