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EV manufacturers forced to cut prices to move out unwanted inventory

November 8, 2023 | | Print Article

Despite incentives, price cuts and pressure from the Biden administration, Americans seem to not be buying the electric vehicle fanfare – literally.

Electric vehicle manufacturers and sellers are allegedly facing stalled inventories as it seems a “miscalculation about demand” is causing a panic in showrooms, according to a new report by The Wall Street Journal.

“Electric vehicles are now some of the slowest sellers on dealership lots. In September, it took retailers over two months to sell an EV, compared with around a month for gas-powered vehicles and only three weeks for a gas-electric hybrid, according to data from Edmunds,” WSJ reported.

Joseph Yoon, an Edmunds analyst, observed, “I think there was a miscalculation about demand and how much EVs would be coveted.”

Despite the much-touted positive effect on the climate and in the wake of policies forcing customers to switch over to EVs, the momentum seems to have waned and dealers are feeling the pinch. Desperate to move inventory, deals are flowing with an eye on attracting buyers with some companies, such as Hyundai Motor and Ford Motor offering cash rebates as high as $7,500 for some of their EV models, WSJ reported.

Low interest rates, aggressive lease contracts with attractive options as well as multiple discounts and incentives are being offered to sell the slow-moving inventory but this has a negative effect long-term.

“Market leader Tesla has slashed prices this year across its lineup, reducing the starting price of some models by roughly a third. Ford Motor has also marked down its Mustang Mach-E SUV at least two times this year,” WSJ reported. “Discounts are frequently used by carmakers to grab market share or sell unpopular models, but they also dent profits and can hurt resale values for buyers owning those models.”

Adding to the challenge for dealers and automakers is the federal government’s attempt to nudge consumers by offering a tax break.

“If you place in service a new plug-in electric vehicle (EV) or fuel cell vehicle (FCV) in 2023 or after, you may qualify for a clean vehicle tax credit,” up to $7,500,   the Internal Revenue Service announced earlier this year.

“The new rules that went into effect in April limited the number of EV models eligible for the subsidy. Rather than let sales slump, many affected brands have tried to offset the loss of the $7,500 tax credit with a sales incentive for the same amount,” the Wall Street Journal report noted. “Tesla’s deep price cuts have also put pressure on others to respond with their own reductions.”

“We’ve seen the price come down much quicker than we had expected,” said John Lawler, the chief financial officer for Ford which is now offering buyers a $7,500 cash rebate in addition to the federal tax credit on some of its F-150 Lightning pickup trucks.

According to WSJ:

On average, customers got a roughly $2,000 discount on an EV in September, compared with a year prior when they paid a $1,500 premium, according to car shopping website Edmunds. Industrywide shoppers paid around $930 less than the sticker price in September, according to the Edmunds data.

The wave of discounts is also threatening to exacerbate problems at loss-making startups, which are swiftly burning through their remaining cash. Luxury electric-vehicle maker Lucid Group in August marked down the price of its vehicles by up to $13,000, which analysts say is a sign of weakening demand.

 

Some are pushing back on the reports, pointing to an increase in EV sales.

A report from the Texas Public Policy Foundation last month showed the true cost of EVs without government subsidies, as reported by BizPac Review.

“Adding the costs of the subsidies to the true cost of fueling an EV would equate to an EV owner paying $17.33 per gallon of gasoline,” the report noted. “And these estimates do not include the hundreds of billions more in subsidies in the Inflation Reduction Act.”

“Electric vehicles are now some of the slowest sellers on dealership lots. In September, it took retailers over two months to sell an EV, compared with around a month for gas-powered vehicles and only three weeks for a gas-electric hybrid, according to data from Edmunds,” WSJ noted.

The slowdown in sales is affecting automakers in manufacturing as well, with one example being General Motors which announced it would delay by one year the opening of an EV truck plant, pushing off the date until the end of 2025.

Jeff Dyke, president of Sonic Automotive, sees the scramble by sellers to entice buyers with steep discounts and incentives as something that cannot last.

“Is it sustainable forever? Absolutely not,” he said. “They’re going to have to find a way to make these things cheaper.”

Frieda Powers
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