Electric vehicles (EVs) have received a tremendous amount of hype over the last decade. With champions of these sustainable modes of transportation like Elon Musk, that’s not surprising. Tesla has demonstrated that consumers are open-minded when it comes to these technologies, and as a result, they lead the EV market, with others trying to catch up. But when it comes to EV sales, things aren’t as grand as they should be. Amidst rising inflation and interest rates, there’s been a substantial EV sales downturn despite increasing EV incentives. As a result, many EV manufacturers are worried this sector may not be as sustainable as they once thought. And some are aborting their EV pursuits altogether for the time being.
There’s little question EVs offer a more environmentally friendly mode of transportation. Likewise, compared to their gas-powered comrades, energy efficiency and sustainability are key advantages. But there remain some serious barriers to purchase for consumers, and these are resulting in a significant EV sales downturn. Dealers and manufacturers are addressing one of these barriers involving EV costs through discounts and increasing EV incentives. But other hurdles remain, and confidence in an all-EV landscape is waning. This doesn’t necessarily mean the EV sales market won’t continue to progressively grow. But the projections by those in the industry may have indeed been too lofty.
“When it comes to EV sales, the market is likely heading into its Trough of Disillusionment … where collaboration across many parties will be necessary to push through. Building EVs is one thing, and many in the industry are proving excellent at that skill. Selling EVs is something different altogether.” – Cox Automotive report
Ups and Downs of EV Sales
Earlier this year, few would have predicted an EV sales downturn. In the U.S., more than 300,000 EVs were sold to consumers during the second quarter of this year. That was a notable record, jumping nearly 50% compared to the same quarter in 2022. Likewise, this was accompanied by a growing share of the automobile market by EVs from 5.7% to 7.2%. But by the end of June, there were some telltale signs that things were changing. Specifically, dealer inventories (excluding Tesla) nearly doubled from 53 days to 100 days. And Tesla’s share prices had fallen by 60% after lower earnings’ reports. These trends have since continued despite increasing EV incentives to purchase and other noted promotions.
A significant number of consumers are still considering purchasing an EV despite this EV sales downturn. In fact, recent surveys suggest 51% actively think about buying a new or used EV. But used EVs comprise only 1% of available vehicles. And new EV sales continue to sit at only 8% despite this consumer enthusiasm. At the same time, dealers are less-than-optimistic about an all-EV future. According to dealer surveys, less than a third see such a vision coming to fruition. As their inventories build up despite increasing EV incentives, they are witnessing the challenges of the market. For many, the recent downturn isn’t that unexpected.
“After studying this [EV market] for a year, we decided that this would be difficult as a business, so at the moment we are ending development of an affordable EV.” – Toshihiro Mibe, CEO of Honda
A Change in Attitude
Amidst this EV sales downturn, many major manufacturers are backing off their earlier projections. For example, General Motors had initial targets of producing 100,000 EVs in the second half of 2023. They also predicted roughly 400,000 EVs in the first half of 2024. Now, neither figure looks to be realistic, and as such, they are revising their projections. This is the same for other major companies in the EV sales market including Tesla and Mercedes-Benz. After increasing EV incentives failed to make a substantial impact on consumer behavior, there was little choice to be reassess. And current predictions are much more conservative for EV sales in the coming year than previously.
While major players in the EV sales market are adjusting their expected performance, others are deciding to back off completely. Honda, which had been planning to collaborate with GM on EVs, announced putting these plans on hold. Given the notable EV sales downturn, Honda’s CEO believes the risks are simply too high at present. Until consumer issues are better addressed related to EV use, Honda is going to sit on the sideline. Toyota’s chairman shares similar concerns about the EV sales market as well. Though not aborting EVs altogether, they too no longer embrace a short-term vision of an all-EV market.
“This [EV market] is a pretty brutal space. I can hardly imagine the current status quo is fully sustainable for everybody.” – Harald Wilhelm, CFO at Mercedes-Benz
Addressing Consumer Barriers in the Future
Beyond the economic climate, consumers have long cited key issues when it comes to EV purchases. Indeed, nearly a tenth of consumers have pulled the trigger and bought an EV. But this is a small fraction of those who actively think about doing so. The most notable hurdle is that of cost. EVs are more expensive, which deters many from buying. However, despite increasing EV incentives and discounts, buying behaviors haven’t significantly changed. For one, many consumers would prefer a used EV from a cost perspective, and few exist. But at the same time, other issues exist that account for the recent EV sales downturn.
(Revisit this Bold story on how transportation infrastructure is linked to economic growth.)
Other key issues influencing consumer purchasing of EVs relate to transportation infrastructure and lifestyle considerations. The paucity of charging stations concerns many potential EV buyers and deter them from making a purchase. At the same time, embracing an EV lifestyle involves a change that some aren’t ready to pursue. Plugging in routinely rather than a familiar stop at the gas pump might not seem like a big step. But without increasing EV incentives to do so, this too poses purchasing barriers. These are the key issues EV manufacturers and dealers must address to overcome the recent EV sales downturn. Eventually, this will likely happen. But it might just be years down the road instead of right around the corner.
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