Even though sales of electric vehicles are hitting records in the U.S., there are some concerning trends. Investors and auto makers should be paying attention.
Tuesday, the data provider Cox Automotive updated its forecasts for the U.S., saying sales of new cars should come in at about 15.4 million units this year, up from the 14.1 million it had estimated initially. Sales in 2022 came in at about 14.2 million, while before the pandemic, the annual pace was closer to 17 million.
Wage growth and strong employment have helped offset higher borrowing costs, helping boost sales year over year.
As for EVs, sales are still hitting records. Second-quarter unit sales were about 295,000, a record and up about 48% year over year. EVs accounted for about 7% of all new car sales, but Cox forecasts that will rise to 8% for the third quarter. That translates to roughly 310,000 units, another record.
That is where the good news ends for EVs. Dealer inventories are equivalent to about 97 days of demand, compared with 57 days for traditional vehicles, a signal that the industry has produced too many EVs. They are selling in record numbers, but still not as fast as expected.
EV sales at
Ford Motor
(ticker: F), for instance, were only up about 6% year over year through August, while
Tesla
‘s (TSLA) U.S. sales increased 30% from a year earlier in the first half of 2023. Production delays are part of the reason for Ford’s slower growth, but where demand for EVs is the strongest is also an issue.
Cox projects that EV sales will account for 23% of all new-car sales in California in the third quarter, while the figure in Michigan and Ohio—Ford and
General Motors
(GM) country—is projected to be 3%. Both manufacturers have a lot of assembly plants and employees in the region, but people there don’t seem to want EVs.
Cold weather could help to explain that: Extreme weather can cut an EV’s range by about 20% to 25%. If an EV gets 250 miles per charge on average, that will be 200 when the thermostat drops.
That shouldn’t preclude Michiganders from going electric. There are ways to mitigate the impact such as heating the cabin while the car is plugged in. Starting a commute in a warm car is more pleasant, and activating a heating or air-conditioning system with an EV is easier, safer, and cleaner because there is no internal combustion engine idling.
Ford and GM should be explaining that benefit to drivers in Michigan and Ohio. They could also offer additional incentives or home-charging hookups to boost sales.
It makes sense for them to do something. The EV industry is out of the early adoption phase when any cool new model will sell well. It will take a lot of smart marketing and incentives to get traditional car buyers to adopt EVs.
Ford and GM shares dropped 1.1% and 2.3% in Tuesday trading on a weak day for stocks. The
S&P 500
and
Dow Jones Industrial Average
fell 1.5% and 1.1%, respectively.
Write to Al Root at [email protected]
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