Luxury electric cars are not what the US needs

Shares of Rivian Automotive are down about 21% over the past three months. Shares of Ford and Tesla fell about 11% and 5%, respectively. Shares of charging company ChargePoint fell 71%. The

S&P 500.

by comparison, it grew by about 2% over the same period.

However, sales of battery electric vehicles are up almost 50% this year compared to this time last year. Sales of luxury EVs have grown by more than 40%, a bit more slowly, but this part of the automotive market has already made significant inroads with battery-powered cars and trucks.

An estimated 775,000 luxury cars were sold in the US in the third quarter. More than 25% of them were electric cars. The average price of a new luxury car in the U.S. is $63,000, according to Cox Automotive.

Electric cars account for only about 3% of non-luxury sales. Automakers and investors need to understand why luxury vehicles dominate the EV sales mix. Is it just easier to sell an EV to a higher end customer? It might be.

Take General Motors for example.

In the third quarter, GM sold about 674,000 vehicles in the U.S., including about 36,000 Cadillac models. GM sold about 3,000 Cadillac LYRIQ electric SUVs in the quarter, accounting for 8.5% of the brand’s sales. Excluding Cadillac, EVs account for 3% of GM’s total sales.

That’s impressive since Cadillac only has one EV model. The trend toward higher penetration of luxury EV sales isn’t just a Cadillac phenomenon. BMW luxury brand

sold 93,931 EVs in the third quarter worldwide, accounting for about 15% of all sales.

Selling EVs “comes down to range, design — exterior and interior — and the price equation,” says Cadillac vice president John Roth Barron’sadding that luxury vehicles simply fit the latter part of that equation more easily.

What automakers need now are affordable EVs in the non-luxury segments of the market.

Cadillac expands its EV lineup with OPTIQ and electric Escalade. Both should be on the road around the end of 2024.

The LYRIQ starts at about $57,000. A gas-powered Escalade can cost $100,000. The battery powered version will be more than that. Details of the OPTIQ have not been revealed, but it will be smaller than the LYRIQ.

Roth is excited about OPTIQ. “I love OPTIQ,” he says. “It’s all about the spirit of driving fun.”

As for range, Roth said 300 miles on a single charge is the number that will make more car buyers consider an EV, luxury or not. Both the LYRIQ and Escalade have 300+ mile ranges. Compare that to one of GM’s cheaper EV offerings, the Chevy Bolt. Its range is 259 miles.

Now take Tesla, which is and has been considered a luxury brand by car data providers. Tesla accounted for about 4% of total US auto sales in the third quarter, about 50% of all EV sales and about 70% of all luxury EV sales. The Model 3 and Model Y make up most of that volume.

The price of all Tesla models averaged around $56,000 in the second quarter of 2022. This is the highest price in years. After significant price cuts, the average price of a Tesla car was around $44,000 in the third quarter of 2023.

Tesla cars have a wide price range. Tesla Model 3 starts at $39,000. Model X starts at $69,000.

Still, the average price for a non-luxury car in the U.S. is about $44,000 — the same price as the average Tesla.

And with a federal tax credit — which only applies to cars under $55,000 and SUVs and light trucks under $80,000 — the Tesla Model 3 starts at about $31,500.

Tesla could — and probably should — spend some time marketing its 3 as a base EV.

Cadillac, for its part, is expanding its lineup, which should increase EV penetration in its sales.

After all, exciting drivers is what sells cars. Automakers excited luxury car buyers. Now they need to attract regular car buyers with cars that excite and are affordable.

Email Al Root at [email protected]