The Retired Investor: Electric Vehicles Hit a Speed Bump

Electric vehicles are piling up in dealer lots. Consumers are by-passing EVs for gas-powered autos and hybrids while unwanted EVs sit at the dealerships for months. Production is being cut at the Big Three auto companies. What happened to the EV boom?

 

The green revolution promised that electric vehicles were the wave of the future. Government incentives were offered to boost purchases in the name of clean energy as a way to fight climate change. Over the last few years, wealthy American consumers waited in long queues for their chance to plunk $75,000 or more down for their vehicular status symbol.

 

Auto producers worldwide scrambled to build their version of EVs. Companies that mined lithium, a critical ingredient in the manufacture of batteries, predicted endless demand for the material. Tesla and its billionaire founder, Elan Musk, could do no wrong. Investors flocked into Tesla stock and other equities in that space. What could go wrong?

 

It turns out that despite the tax breaks and Wall Street hype, electric vehicles are just too expensive for the average American consumer. Automobiles overall have climbed in price since the pandemic supply chain disruptions. Add in that inflation and the average price of a new gas-powered car skyrocketed to $46,077 in 2023.

 

In comparison, a new EV averaged $63,878 in the U.S. The total cost of ownership during the first five years must also be added to the price tag. It costs $2,000 to install an at-home charger. Insurance also costs more for EVs in a world where auto insurance continues to rise dramatically.

 

But price isn't the only pitfall. Consumers continue to have concerns over the EV's battery range. Compared to fossil fuel autos, the EV's range is typically less. And once the battery charge is depleted, it takes longer to recharge a battery than it does to fill up a gas tank. The availability and dependability of charging stations are also an issue. Nearly 21 percent of consumers have reported that they have shown up at a charging station only to find it broken, according to a J.D. Power survey.

 

For many consumers, an EV needs to fit their circumstances. Demand for electric vehicles is concentrated in just a few states. Last year, the best markets for EVs were West Coast cities and metropolitan areas. City living, where typical driving trips are shorter, and chargers are readily available makes more sense than a rural environment where drivers encounter long drives, scarce charging stations, rough terrain, and cold weather. 

 

But even in some metropolitan areas, such as Chicago, sub-zero temperatures can decimate battery life. Media coverage of stranded Tesla's in Windy City parking lots has not encouraged electric vehicles and fence-sitters. Reports that charging stations were also not working and those that took much longer than usual to charge didn't help either. 

 

In the used-car market, EV prices have seen big price drops of as much as 30 percent. Last month, rental firm, Hertz Global Holdings announced they are selling 20,000 electric vehicles from its U.S. fleet. That is just two years after inking a deal with Tesla to offer vehicles for rent. They are reversing their plans to convert 25 percent of their fleet to electric vehicles by the end of this year citing higher expenses related to collusion and damage for EVs.

 

As more and more competitors come to market, competition has heated up. A pricing war of sorts has started. Tesla models were on a pricing roller-coaster ride for most of last year as GM and Ford made a big push into the market. Ford's new vehicle, the F-150 Lightening Pro, for example, was sold out early last year. But by the last three months of 2023, the pace of sales slowed.

 

The Pro was marketed as a rugged entry-level electric truck but when cooler weather hit, so did the buyer's anxiety over range. The expected range dropped significantly in cold climes and so did sales. This year both Ford and General Motors have announced they are curtailing electric vehicle investments. Ford has just announced it will cut its plans for production of the pickup, while GM is delaying some new EV model introductions. It is also switching gears to produce more hybrids instead. 

 

Hybrids seem to have benefited from the slowdown in sales of EVs. Hybrid sales jumped 65 percent versus 46 percent for EVs last year. Ford, Kia and Toyota are offering more hybrid new-car options, while in the used car market the gas-electric versions of BMW, Toyota, and Hyundai are selling well.

 

It appears that while consumers have embraced the concept of electric-powered autos, they are not quite ready to bet the farm on them. Given the price differentials, the hybrid offers the best of both worlds. For now, it seems that is where the consumer is most comfortable. I believe that could change and will when buyers see further price declines in the future. That still does not answer the need for more and better charging stations or improved technology in the battery space. I am sure that day is coming but just not now.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.