Electric vehicles are facing problems. A potential solution might lie in a lesson from luxury car buyers.
Rivian Automotive
shares are down about 21% over the past three months. Ford and
Tesla
shares are off about 11% and 5%, respectively. Shares of charging company
ChargePoint
are down 71%. The
S&P 500,
for comparison, is up about 2% over the same span.
Sales of battery electric vehicles, however, are up almost 50% this year compared to this time last year. Luxury EV sales were up more than 40%, a little slower, but that portion of the automotive market is already significantly penetrated with battery-powered cars and trucks.
Roughly 775,000 luxury vehicles were sold in the U.S. during the third quarter. More than 25% of those were EVs. The average price of a new luxury car in the U.S. is $63,000, according to Cox Automotive.
EVs only accounted for about 3% of non-luxury sales. Auto makers and investors need to understand why luxury vehicles dominate the EV sales mix. Is it simply easier to sell an EV to a higher-end customer? It might be.
Take General Motors, for example.
In the third quarter, GM sold about 674,000 vehicles in the U.S., including about 36,000 Cadillac models. GM sold about 3,000 Cadillac LYRIQ electric SUVs in the quarter, amounting to 8.5% of the brand’s sales. Excluding Cadillac, EVs made up 3% of GM’s total sales.
That’s impressive as Cadillac has only one EV model. The trend of higher luxury EV-sale penetration isn’t just a Cadillac phenomenon. Luxury brand
BMW
sold 93,931 EVs in the third quarter globally, accounting for about 15% of all sales.
Selling EVs “comes down to range, design—exterior and interior—and the price value equation,” Cadillac Vice President John Roth tells Barron’s, adding that luxury vehicles simply have an easier time meeting the last part of that equation.
What auto makers need now is affordable EVs in the non-luxury segments of the market.
Cadillac is expanding its EV lineup with the OPTIQ and an electric Escalade. Both should be on the road around the end of 2024.
The LYRIQ starts around $57,000. A gas-powered Escalade can cost $100,000. The battery-powered version will be more than that. Details of the OPTIQ have not been released, but it will be smaller than the LYRIQ.
Roth is excited about the OPTIQ. “I love the OPTIQ,” he says. “It’s all about the spirit of fun-to-drive.”
As for range, Roth said 300 miles per charge is the number that will get more car buyers to consider an EV, luxury or not. Both the LYRIQ and Escalade have 300+ mile ranges. Compare that with one of the cheaper EV offerings from GM, the Chevy Bolt. Its range is 259 miles.
Now take Tesla, which is, and has been, considered a luxury brand by automotive data providers. Tesla accounted for about 4% of total U.S. car sales in the third quarter, about 50% of all EV sales, and about 70% of all luxury EV sales. The Model 3 and Model Y make up most of that volume.
The price of all Tesla models averaged about $56,000 in the second quarter of 2022. That’s the highest its been in years. After significant price cuts, Tesla’s average car price was about $44,000 in the third quarter of 2023.
Tesla vehicles have a wide price range. The Tesla Model 3 starts at $39,000. The Model X starts at $69,000.
Still, the average price for a non-luxury car in the U.S. is about $44,000—the same price as the average Tesla.
And with a federal tax credit—which only applies to cars under $55,000 and SUVs and light trucks under $80,000—a Tesla Model 3 starts at about $31,500.
Tesla could—and probably should—spend some time marketing its 3 as an entry-level EV.
Cadillac, for its part, is expanding its lineup which should push EV penetration of its sales higher.
In the end, exciting drivers is what selling cars is all about. Car makers have excited luxury car buyers. Now they need to attract regular car buyers with cars that excite and are affordable.
Write to Al Root at [email protected]
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