According to data provider Cox Automotive, sales of electric vehicles (EVs) in the United States continue to break records. However, there are some worrisome trends that investors and auto makers should take note of.
Cox Automotive recently updated its forecasts for the U.S. automotive market. Initially estimated at 14.1 million units, sales of new cars are now expected to reach approximately 15.4 million units this year. Comparatively, in 2022, sales were around 14.2 million units, and before the pandemic, it was closer to an annual pace of 17 million.
Positive Factors Offset Higher Borrowing Costs
Year over year, strong wage growth and employment rates have helped counterbalance the impact of higher borrowing costs, contributing to the overall increase in sales.
Record-Breaking EV Sales but Lingering Concerns
Despite the positive record-breaking sales figures for EVs, there are concerns within the industry. In the second quarter, approximately 295,000 EV units were sold, representing a significant 48% increase compared to the previous year. While EVs accounted for around 7% of all new car sales, Cox Automotive projects this number will rise to 8% in the third quarter, resulting in roughly 310,000 units — another record-breaking figure.
However, it is important to note that the good news for EVs ends here. Dealer inventories currently stand at around 97 days of demand, significantly higher than the 57 days seen for traditional vehicles. This indicates that the industry has produced an excess of EVs compared to what is being sold. Although EVs are being sold in substantial numbers, they are not moving as quickly as anticipated.
Slower Growth and Production Delays
For example, Ford Motor’s EV sales (ticker: F) have only seen a 6% year-over-year increase through August. In contrast, Tesla’s (TSLA) U.S. sales in the first half of 2023 experienced a 30% growth from the previous year. While production delays contribute to Ford’s slower growth, the strength of demand for EVs is also a contributing factor.
Why Michiganders are Not Buying Electric Vehicles?
According to Cox, electric vehicle (EV) sales are projected to account for 23% of new-car sales in California in the third quarter, but only 3% in Michigan and Ohio, despite the presence of major manufacturers like Ford and General Motors (GM) in the region. The question is, why are people in these states not showing interest in EVs?
One possible explanation could be the impact of cold weather. Extreme temperatures can reduce the range of an EV by approximately 20% to 25%. So, if an EV typically gets 250 miles per charge, it will only get around 200 miles when the temperature drops.
However, there are ways to mitigate this issue and encourage Michiganders to embrace electric vehicles. For example, heating the cabin while the car is plugged in can help improve the overall driving experience. Starting a commute with a warm car not only adds to comfort but also makes the process of activating the heating or air-conditioning system easier, safer, and cleaner since there is no internal combustion engine idling.
It is up to Ford and GM to communicate these benefits to drivers in Michigan and Ohio. Additionally, they could offer incentives or home-charging hookups to further incentivize sales.
As the EV industry moves beyond its early adoption phase, it becomes crucial for manufacturers like Ford and GM to engage in smart marketing strategies and provide attractive incentives to persuade traditional car buyers to make the switch to electric vehicles.
Interestingly, on Tuesday, both Ford and GM experienced a decline in their share prices amidst a weak stock market day. Ford’s shares dropped by 1.1% while GM’s shares fell by 2.3%. As a result, the broader market indices, namely the S&P 500 and Dow Jones Industrial Average, also reported declines of 1.5% and 1.1%, respectively.
In conclusion, it is vital for automakers to address the concerns and hesitations of potential EV buyers in Michigan and Ohio. By educating consumers about the advantages of EVs and providing attractive incentives, Ford and GM can pave the way for a future where electric vehicles become the norm in these states.