Umair Gaines
Electric vehicles (EVs) are becoming more common, but there are signs that demand is not keeping up with production. In the US, there is a growing surplus of unsold EVs, with more than 90,000 full-battery EVs sitting on dealer lots. This is a 342% increase from a year ago, and the current inventory runway for EVs is more than double that of internal combustion vehicles. This trend is not necessarily surprising given the dramatic shift the industry is attempting to make, but it does present challenges for automakers, who are now facing a Field of Dreams moment: they've built the cars, and now they're waiting for buyers to come.
| Characteristics | Values |
|---|---|
| Demand | Not keeping up with production |
| Sales | Expected to surpass 1 million units in 2023 |
| Inventory | Enough to last 92-103 days |
| Price | Falling |
| Tax credit | Not available for many new EVs |
| Waitlists | Waning |
| Supply | Outpacing demand |
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What You'll Learn
Demand not keeping up with production
Electric vehicle (EV) sales in the United States are on track to break the one million mark in 2023, an unprecedented figure for the industry. Despite this surge, there are signs that the pace of sales growth may not be sustainable. Consumers bought a record number of EVs in the second quarter of the year, but inventory is also accumulating on dealer lots. This has led some experts to warn that demand is not keeping up with production.
According to Cox Automotive, there were over 92,000 EVs available in the second quarter of 2023, compared to about 20,000 a year prior. This represents a 342% increase in inventory, with the current pace of sales translating to 92 days for dealerships to sell all their electric vehicles. This is 50% more time than the 60 days that are considered normal and is nearly double the 51-54 days' supply of new vehicles overall.
One factor contributing to the growing mismatch between EV supply and demand is the price of EVs. Consumers are showing more interest in EVs, but they are still wary of purchasing one due to price concerns. The rising cost of new cars in general, coupled with the high price of adding batteries, has made EVs less affordable for many potential buyers. This has led to a "Field of Dreams" moment for automakers, who have built the cars and are now waiting for buyers to come.
Another factor is the perception of EVs as early adopter technology. Many consumers are hesitant to purchase an EV due to concerns about range and the lack of charging infrastructure. While the number of EV chargers is increasing in the US, "range anxiety" remains a concern for potential buyers, especially those who cannot charge at home. Additionally, the eligibility requirements for EV tax credits have changed, impacting consumer buying decisions. Many new EVs are not eligible for the full tax credit, which may influence consumers to choose a different model or opt for a used vehicle instead.
It is important to note that the surplus of EVs is not due to a lack of interest from buyers. Sales continue to boom, and analysts predict that EV sales will continue to grow, even if not at the pace that some had hoped for. The dramatic shift from traditional combustion engines to EVs is a significant change for the industry, and it will take time for the market to adjust. In the meantime, the surplus of EVs may lead to lower prices and more incentives for buyers, making it an optimal time to consider purchasing an electric vehicle.
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Sales growth not sustainable
Electric vehicle sales in the US rose by 48.4% year-over-year in the second quarter of 2023, with consumers buying a record number of electric vehicles. However, there are signs that this sales growth may not be sustainable.
The demand for electric vehicles is not keeping up with the increasing production rate. Dealers are facing a growing mismatch between EV supply and demand, with unsold models piling up. This has resulted in a surplus of electric vehicles, with more than 92,000 EVs currently sitting on dealer lots, a significant increase from the previous year. At the current sales rate, it would take dealers approximately 92 to 103 days to sell all their electric vehicles, which is much higher than the typical 50 to 60 days' worth of inventory that is usually left on lots.
One factor contributing to the slower sales is the decline in sales often observed within a year or two of a new model being introduced. Some EV models are reaching this threshold, leading to a decrease in sales. Additionally, luxury brands and high-end vehicles are particularly struggling to sell new EVs due to their hefty price tags, which make them ineligible for federal tax credits.
Another reason for the surplus is the range of options available to consumers. Hybrid vehicles, for example, have much lower inventory levels, indicating that consumers may prefer a stepping stone to fully electric cars. Additionally, consumers may be hesitant to purchase EVs due to concerns about the range and the charging infrastructure. While the number of EV chargers is increasing, "range anxiety", or the fear of the battery dying on a long trip, is still a concern for potential buyers.
The surplus of electric vehicles has led to a "price war", with automakers lowering prices to compete in the market. This could be good news for potential buyers, as dealers may be forced to lower sales prices if demand doesn't pick up. However, it also raises concerns about the sustainability of the industry's growth.
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Consumers still wary of purchasing
While consumers are increasingly aware of electric vehicles (EVs), with between 39% and 51% of new car buyers considering a battery-powered car for their next purchase, there are several factors that contribute to their hesitation. One major concern is the rising cost of new cars in general, and adding batteries to the mix only exacerbates this issue. Many consumers who are not interested in EVs cite cost as the primary reason for their disinterest. This could explain why Tesla continues to dominate the EV market with its frequent price drops.
Another concern is the perception of EVs as early adopter technology. Despite the growing adoption of EVs, some consumers are still wary of purchasing them due to concerns about their range and the availability of charging stations. This is known as "range anxiety" and can be a significant barrier to EV adoption. However, as more EV chargers are installed across the US and automakers improve their vehicles' ranges, this concern is becoming less of a barrier to EV adoption.
Additionally, limitations on the EV tax credit can also impact consumer buying decisions. Many new EVs are not eligible for the full tax credit, which means that consumers may choose one vehicle over another simply because of its eligibility for a higher tax credit. This can create confusion and hesitation among buyers, leading them to opt for used vehicles or wait for a specific model to become available.
Some consumers also view EVs as a "drastically new" technology that requires a significant change in their personal daily habits compared to driving a gas-powered car. This resistance to change can be a barrier to EV adoption, especially for those who are comfortable with their current routines and are not early adopters of new technologies.
It is worth noting that these concerns about EVs are not unique to the US market. The global EV market is also facing similar challenges, with automakers struggling to sell their electric cars as quickly as they can produce them. However, as the infrastructure for EVs continues to improve and prices become more competitive, we may see a shift in consumer behaviour and a decrease in their wariness about purchasing EVs.
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Excess inventory making dealers eager to sell
Electric vehicle (EV) sales in the United States are on track to break the one million mark in 2023, an unprecedented figure for the industry. However, this surge in sales is not keeping up with the production of EVs, resulting in a surplus of vehicles. This excess inventory is making dealers eager to sell, and prices are falling.
According to Cox Automotive, there were more than 92,000 electric vehicles available in the second quarter of 2023, compared to about 20,000 in the same period last year. This represents a 342% increase in inventory. At the current pace of sales, it would take 92 days for dealerships to sell all their electric vehicles, nearly double the 51-day supply of new vehicles overall.
The rise in EV production is outstripping the rise in demand. While consumers are showing more interest in EVs, they are still wary of purchasing one due to price or charging concerns. Luxury brands and high-end vehicles are particularly struggling to sell new EVs, as many consumers cite cost as the primary reason for their disinterest.
To address the excess inventory, automakers have started lowering prices and offering incentives. For example, Tesla has offered free charging incentives to customers, while Ford has dropped the price of its Mustang Mach-E all-electric SUV and its F-150 Lightning electric trucks. These price cuts put most Ford models under the $80,000 limit to qualify buyers for the $7,500 EV tax credit.
The surplus of EVs could also be attributed to factors such as limitations on the EV tax credit and the perception of EVs as early adopter technology. However, the adoption of EVs is steadily growing, and the increase in inventory may be a signal that dealerships won't be able to charge as much for their cars as they continue to ramp up production.
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Cost concerns and limitations on tax credits
Electric vehicle (EV) sales in the United States have been booming, with a record number of vehicles sold in the second quarter of 2023. Despite this, there is a growing surplus of unsold EVs on dealer lots, indicating that demand is not keeping up with production. This surplus can be attributed to various factors, including cost concerns and limitations on tax credits.
Cost concerns are a significant factor contributing to the surplus of EVs. While consumers are showing more interest in EVs, many are hesitant to purchase due to the rising cost of new cars, which is exacerbated by the additional cost of batteries. As a result, cost is cited as the primary reason for consumers' disinterest in EVs. This has led to a growing mismatch between EV supply and demand, with automakers facing the challenge of selling EVs as quickly as they can produce them.
To address cost concerns, automakers have started to lower prices and offer incentives. For example, Tesla has frequently dropped prices and offered free charging incentives to customers. Following Tesla's lead, Ford reduced the price of its Mustang Mach-E all-electric SUV and F-150 Lightning electric trucks, making them eligible for the $7,500 EV tax credit. These price cuts and incentives have the potential to make buyers more eager to purchase EVs.
However, limitations on tax credits continue to impact consumer buying decisions. The eligibility requirements for tax credits have become more stringent, and many new EVs do not qualify for the full tax credit. This has created a disparity in the market, with consumers favouring vehicles that offer tax credits over those that do not. For example, buyers may choose a Tesla Model Y over a Hyundai Ioniq 5 simply because the former offers a $7,500 tax credit while the latter does not. This limitation on tax credits is influencing consumers' choices and contributing to the surplus of unsold EVs on dealer lots.
The surplus of EVs in the United States has resulted in a buyer's market, with waitlists waning and prices decreasing. This situation is advantageous for potential EV buyers, as they can benefit from the increased availability and more competitive pricing. However, it presents a challenge for automakers, who are facing the reality of excess inventory and the need to adjust their production and sales strategies.
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Frequently asked questions
Yes, there is a surplus of electric vehicles. In the US, dealers have more than 92,000 EVs in stock, which is more than three times the number on their lots a year ago.
There are a few reasons for the surplus of electric vehicles. Firstly, there is a growing mismatch between EV supply and demand. While consumers are showing more interest in EVs, they are still wary of purchasing one due to price or charging concerns. Secondly, the rise in EV production is outstripping the rise in demand. Manufacturers can produce EVs much faster than they can sell them, resulting in a surplus of unsold electric cars.
Luxury brands and high-end vehicles are particularly struggling to sell new EVs. Models like the GMC Hummer EV, Audi Q8 E-Tron, and Genesis Electrified G80 sedan have more than 100 days' worth of supply, with the latter having a 350-day supply.
The surplus of electric vehicles could lead to a decrease in prices as dealers try to move inventory. This could be good news for potential buyers of electric vehicles as they may be able to take advantage of lower prices and incentives.
While there is currently a surplus of electric vehicles, the market is still in its formative phase. The adoption of EVs is steadily growing, and sales are expected to surpass one million units in 2023. However, it is important to note that the demand for EVs is not keeping up with production, which could impact the growth of the market.
