U.S. Electric Cars Slow Down, Musk Grieves

“In the future, electric cars will be a cost game.”

“In the storm, even the strongest ship can run into trouble.”

After releasing a disappointing third-quarter financial report, Elon Musk, who attended Tesla’s earnings call, appeared particularly frustrated and angry. He stated that high interest rates have led to increased monthly payments for car owners, significantly affecting sales.

Behind Elon Musk’s sense of loss is the slowing growth of electric cars in the United States.

01 U.S. Automakers Slow Expansion

Due to slower-than-expected consumer adoption of electric cars and trucks, U.S. automakers are pausing their plans to expand their electric vehicle manufacturing capacity.

In recent weeks, Ford, General Motors, and Tesla have all paused their plans to increase electric vehicle production capacity. General Motors has delayed its plans to build electric versions of the Chevrolet Silverado and GMC Sierra pickup trucks at its factory in Michigan until 2025. Tesla CEO Musk also stated that the company needs to carefully assess the macroeconomic conditions before “going all out” to build its Mexican factory.

In the third quarter, Ford’s electric vehicle division reported a $1.3 billion loss. Currently, they are suspending a $12 billion investment to expand electric vehicle production capacity, which includes reducing production of the Mustang Mach-E and delaying the construction of one of the two joint-venture battery plants in Kentucky.

Ford’s Chief Financial Officer John Lawler stated this week: “There is a general sense that electric vehicle growth is sluggish… It is indeed growing… just growing slower than the industry, or frankly, lower than our expectations.”

Lawler added that soft demand means Ford needs to “reduce capacity in certain areas in the short term, so we will defer investment until we need to increase capacity.”

02 Electric Vehicle Demand Lower than Expected

According to Cox Automotive data, a record 313,000 electric cars were sold in the United States in the third quarter. Cox Automotive found that electric cars’ share of total industry sales in the third quarter increased from 6.1% in the same period last year to 7.9%.

However, the growth rate is slowing down. Data shows that sales in the third quarter of 2021 and 2022 grew by approximately 75% compared to the previous year. According to Kelley Blue Book, this year’s growth rate may be around 50%. Meanwhile, electric cars are spending more time on dealer lots. According to Cox’s data, dealers now take 88 days to sell their electric cars and electric trucks, compared to 39 days in October 2022. In comparison, this year’s gasoline vehicle sales take 60 days.

According to a survey by Yahoo Finance/Ipsos, only a third of American consumers say their next vehicle purchase might be electric. The most common concerns are charging infrastructure, range, and the relative cost of electric cars compared to gasoline engine vehicles.

Fitch Ratings analyst Steve Brown says: “It feels like early adopters have already bought… Now, it’s turning toward a more mainstream consumer phase, but for various reasons, mainstream consumers seem more hesitant.”

Pricing is another key factor. Kelley Blue Book reports that electric vehicles are generally more expensive than traditional gasoline engine cars. However, Tesla’s earlier price reduction “changed the market.” Last month, the average transaction price for a new car was about $47,900, while the average price for electric cars was about $50,700, a 22% reduction from a year ago.

03 Demand is Still Good, but Supply is More Abundant

Tyson Jominy, Vice President of Data and Analytics at JD Power, stated that around 50 electric vehicle models are currently available in the United States, with similar pricing and no differentiation between mainstream or luxury, sedans or trucks. Approximately 30 new models are planned to be launched next year.

Jominy states: “The market cannot digest all the products… Too many models are competing for too few sales at the same price point.”

General Motors CEO Mary Barra mentioned this week that “slowing the acceleration of electric vehicles” will help the company maintain higher prices.

But Ford executives predict that the premium for electric vehicles will gradually decrease. Lawler said there is “tremendous” price pressure in the electric vehicle field: “In the future, electric cars will be a cost game.”

Nick Nigro, founder of Atlas Public Policy consulting firm, says that it is not uncommon for the growth of new technologies to reach a plateau, and some states, such as Colorado, have not experienced a slowdown. He adds: “(National sales slowdown) does not indicate that the market is in trouble, but the industry clearly states that they need to see greater consumer demand to reopen the tap.”

An industry expert also expresses this viewpoint, stating that demand is still good, but supply is more abundant.