There's been a lot of chatter about buyer appetite for electric vehicles winding down.
Ford and GM have both cut back spending on their ambitious EV projects.
But one of the biggest factors slowing down the EV transition is affordability — not EV technology itself.
Particularly for longtime EV skeptics, it'd be easy to interpret all the recent talk of slowing demand for electric cars as a scathing indictment of the technology — and a comforting reminder that gasoline will always be king.
But EVs don't have a demand problem. They have an affordability problem.
Surveys show there are plenty of people out there who are curious — enthusiastic, even — about going electric. But enthusiasm only gets you so far when snapping up a new EV costs over $50,000 on average. Affordability is only becoming more crucial amid a dwindling supply of early adopters willing to pay up to participate in the EV revolution.
Mike Austin, an EV-industry analyst at Guidehouse Insights, told Insider the market has hit a "trough" in the adoption curve that lies between fanatical early adopters and mainstream customers.
"There's a sort of gap in between before a product really takes off," he said. "We're running out of people that want to spend $60,000-plus on a car or are willing to stretch to get it."
Likewise, dealers told Insider the buyer demographics for EVs have shifted lately — from die-hard fans dead-set on electric propulsion to everyday customers who are weighing their options between EVs, hybrids, and gasoline cars. Lots of those people can't justify the extra upfront cost of going fully electric, the dealers said.
That all makes sense. There's a limited number of people interested in taking a gamble on an emerging technology. Even fewer people are willing to pay extra for the privilege. And right now, that's the offer on the table.
Carmakers are pumping the brakes on EVs
The shift in tone and strategy from some of the automakers most bullish about an electric future has been swift and sharp in recent weeks.
Ford is pumping the brakes on $12 billion in planned EV investments, including a battery factory. General Motors nixed its target of building 400,000 EVs by the middle of 2024 and delayed the opening of a revamped factory that will produce electric GMC and Chevrolet trucks.
Both said they were responding to slower-than-expected growth in EV demand.
It's true that EV demand has shown signs of a slowdown. Although US sales of electric cars have exploded in recent years, increasing for 13 quarters straight, the rate of that growth has tapered slightly. That's pushed some dealers to turn away some EV allocations and forced automakers to pile on incentives to keep vehicles selling.
The EV affordability issue
Still, it's important to remember that the EV segment is a budding market with few options that mostly skew higher-end. A large portion of battery-powered models available in the US are sold by luxury brands like Audi, Porsche, and Mercedes-Benz.
Meanwhile, EVs from mainstream brands aren't as affordable as their gasoline equivalents. A moderately optioned Ford Mustang Mach-E SUV costs at least $50,000, while an electric F-150 pickup with the larger battery pack (which you probably want) costs $70,000. Toyota's lone electric model, the $42,000 bZ4X SUV, will run you some $14,000 more than a trusty RAV4.
Variety is lacking, too. For example, there isn't a single full-size electric SUV with three rows on offer from a mainstream brand.
As automakers work through the immense costs of scaling up new production lines and developing new products, Americans have been left with scant electric options in the sub-$40,000 range and fewer that one could consider genuinely affordable.
(Tesla's aggressive markdowns over the last year have helped, but the average price paid for an EV in September remained out of reach of most consumers at $50,683, per Kelley Blue Book.)
On top of it all, inflated interest rates are driving monthly loan payments to eye-watering levels. In short, there may be plenty of demand for EVs from people who simply can't afford one they like — or don't like any they can afford. Indeed, surveys of potential car buyers show that while roughly a quarter of Americans say they are very likely to buy an EV as their next car, lack of affordability remains a major deterrent.
Ford acknowledged as much in an earnings release on Thursday, saying that "many North America customers interested in buying EVs are unwilling to pay premiums for them over gas or hybrid vehicles."
And yet, there isn't exactly a rush to provide buyers with cheaper options. GM and Honda recently ditched a $5 billion plan to co-develop low-priced EVs. Ford's solution to the demand issue was to announce a new, $70,000 version of the F-150 Lightning pickup. Tesla said it's slowing its roll on a new factory in Mexico that's set to produce its cheaper-to-build, next-generation vehicles.
"At the same time as they decry a lack of demand, OEMs are scrapping or delaying plans for lower priced, budget EVs, making this effectively a self-fulfilling prophecy," Liz Najman, a researcher at Recurrent, which tracks the used EV market and provides battery-health reports, told Insider in an email.
To be sure, there are some bright spots.
GM is proceeding with a new version of the economical and popular Chevy Bolt after announcing plans to discontinue the model earlier this year. Hyundai, owner of the Kia and Genesis brands, said it won't delay future EVs. Volvo said it plans to expand production of the EX30, a small $35,000 SUV that's coming to the US in 2024.
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