- There has been much talk of waning consumer appetite for electric vehicles.
- Ford and GM have cut costs on their ambitious EV projects.
- But one of the biggest factors slowing the transition to EVs is affordability—not the EV technology itself.
Especially for longtime EV skeptics, it would be easy to interpret any recent talk of a slowdown in electric car demand as a scathing indictment of the technology.
But electric cars don’t have a demand problem. They have an accessibility problem.
Surveys show that there are many people who are curious – even enthusiastic – about going electric. But your enthusiasm only goes so far when buying a new EV costs more than $50,000 on average. Affordability is becoming increasingly important amid a dwindling supply of early adopters willing to pay to participate in the EV revolution.
Mike Austin, EV industry analyst at Guidehouse Insights, told Insider that the market has hit a “string” in the adoption curve that lies between fanatical early adopters and mainstream customers.
“There’s kind of a gap between them before a product really takes off,” he said. “We’re running out of people who want to spend over $60,000 on a car or are willing to put in the effort to get one.”
Likewise, dealers say the demographics of EV buyers have changed recently, from die-hard fans who are firmly committed to electric powertrains to casual customers who are weighing their choices between EVs, hybrids and gasoline vehicles. Many of those people can’t justify the extra upfront cost of going all-electric, dealers said.
This all makes sense. There is a limited number of people who are interested in betting on a new technology. Even fewer people are willing to pay extra for the privilege. And right now that’s the proposition on the table.
Automakers are slamming the brakes on EVs
The a change in tone and strategy from some of the automakers most optimistic about an electric future was quick and sharp.
It’s Ford puts the brakes on $12 billion in planned EV investment, including a battery factory. General Motors dropped its goal to build 400,000 electric vehicles by mid-2024 and delayed the opening of a revamped factory that will make GMC and Chevrolet electric trucks.
Both said they were responding to slower-than-expected EV demand growth.
It’s true that EV demand is showing signs of slowing. Although sales of electric cars in the US have increased in recent years, increased for 13 consecutive quarters, the pace of this growth has slowed slightly. It made some dealers to reject some EV allocations and forced automakers to pile on incentives to keep vehicle sales going.
The problem of EV affordability
Still, it’s important to remember that the EV segment is a nascent market with few options, mostly skewing the higher end. Much of the battery-powered models available in the US are sold by luxury brands such as 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 F-150 electric pickup truck with the bigger battery (which you probably want) costs $70,000. Toyota’s only electric model, the $42,000 bZ4X SUV, will set you back about $14,000 more than a reliable RAV4.
Diversity is also lacking. For example, there isn’t a single full-size electric three-row SUV on offer from a mainstream brand.
As automakers grapple with the huge costs of expanding new production lines and developing new products, Americans are left with a paucity of electric options in the sub-$40,000 range that can be considered truly affordable.
(Tesla’s aggressive discounts over the past year have helped, but the average price paid for an EV in September remained out of reach for most consumers at $50,683 for Kelly’s Blue Book.)
On top of that, the high interest rates make the monthly loan payments eye watering. In short, there may be a lot of demand for EVs from people who simply can’t afford one they like — or don’t like any they can afford. In fact, surveys of potential car buyers show that while roughly a quarter of Americans say they are very likely to buy an electric car like their next car, lack of accessibility remains a major deterrent.
Ford acknowledged this, saying that “many North American customers interested in purchasing electric vehicles are unwilling to pay premiums for them compared to gasoline or hybrid vehicles.”
Still, there’s not exactly a rush to provide buyers with cheaper options. GM and Honda recently dropped a $5 billion plan to jointly develop low-cost electric cars. Ford’s solution to the demand problem was to announce a new version of the F-150 Lightning pickup for $70,000. Tesla said it was slowing its roll on a new factory in Mexico that will produce its next-generation cheaper-to-manufacture vehicles.
“At the same time as they decry the lack of demand, OEMs are abandoning or delaying plans for lower-priced budget EVs, making it a real self-fulfilling prophecy,” Liz Nyman, a researcher at Recurrent who tracks the used car market electric vehicles and provides battery health reports, Insider said in an email.
There are certainly some bright spots.
GM continues with a new version of economical and popular Chevy Bolt after announcing plans to discontinue the model earlier this year. Hyundai, owner of the Kia and Genesis brands, has said it will not delay future electric cars. Volvo said it plans to expand production of EX30, a small SUV for $35,000 it’s coming to the US in 2024.
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