EV Trends Since January 2024
In our January 2024 article entitled, “Challenges in Transitioning to An Electric Vehicle (EV) World” we outlined the specifics behind government subsidies, the various costs of ownership, including the social costs and the multiple factors that complicated adoption of the electric vehicle technology. This article provides a year end update for the EV industry.
The electric vehicle (EV) revolution is undeniably reshaping the automotive industry, but the road to mass adoption is fraught with challenges. While the long-term outlook for EVs remains promising, several factors are influencing the pace of adoption and profitability for automakers.
Economic Headwinds and Shifting Consumer Sentiment
Higher interest rates, economic uncertainty, and potential global recession fears dampened consumer spending on automobiles worldwide and this included sales of electric vehicles. As consumers prioritized essential needs, the demand for high-end EVs softened. While the growth rate slowed, in the U.S. EV sales still increased by approximately 11% YOY in the third quarter of 2024.
Supply Chain Constraints and Rising Costs
The EV industry continues to grapple with supply chain challenges, particularly in securing critical components like battery cells. The fluctuating prices of raw materials such as lithium, nickel, and cobalt have added to the cost burden. Moreover, ongoing logistics and shipping disruptions have further increased the overall cost of manufacturing and delivering EVs.
Infrastructure Limitations and Consumer Concerns
While charging infrastructure is expanding, it’s still not as widespread as many consumers would like. This can limit the range and convenience of EVs, especially for those living in rural areas or those who frequently undertake long journeys. This inconvenience is mitigated somewhat through overnight charging by most EV users in their garages. For the long-distance traveler, a supercharger can achieve an 80% charge in approximately 18 minutes.
Notwithstanding the above, consumer concerns about range anxiety, charging infrastructure, and vehicle cost persist. While advancements in battery technology have extended the range of EVs, the perception is that they still fall short of the convenience offered by traditional gasoline-powered vehicles.
Profit Margins and Investment Costs
The development of new EV platforms and technologies requires significant upfront investments. Automakers face pressure to recoup these costs while navigating lower profit margins compared to traditional vehicles, especially in the entry-level segment. Intense competition among automakers can lead to price wars, further eroding profitability. Several notable automobile companies reduced spending on EVs during the year. For example, Volkswagen announced closures of three plants during the year, curbing EV production, and reduced its workforce. Ford announced that it would scrap plans to build a three-row electric SUV and reduced its overall EV capex budget from 40% to 30%.
Changing Political Winds?
With the Presidential Elections in the United States behind us and the installation of a new administration, priorities regarding EVs and renewable energy have not as yet been fully disclosed. The new administration announced recently that it intends to end the $7,500 federal tax incentive for purchasing a new EV. However, the tax credit was granted as part of the Infrastructure Bill and therefore this change would require Congressional action. With a Republican House of Representatives and a Republican Senate, this legislation will likely be passed.
The Road Ahead: A Balancing Act
Despite these challenges, the long-term outlook for EVs remains positive. As battery technology advances, charging infrastructure expands, and government incentives in the United States continue to support adoption, the EV market is poised for significant growth. However, automakers must carefully navigate the complexities of the market, balance short-term challenges with long-term goals, and adapt to evolving consumer preferences.
By addressing supply chain constraints, improving charging infrastructure, and offering more affordable EV options, automakers can accelerate the transition to a sustainable future.
The EV Market: A Tale of Two Prices
The Paradox of the Used EV Market
The electric vehicle (EV) market is experiencing a unique dynamic where the price difference between a new and a slightly used model can be substantial. This phenomenon is particularly evident in the case of Tesla vehicles, with a significant price gap observed between new and used models, even those with low mileage. In a November 4, 2024, article by Ellie Abraham, the author details the case of Kyle Conner, who bought a Tesla for $140,000 in 2022. The two-year-old car had 37,000 miles and was appraised recently by Tesla for $46,000, a 67% loss of value. The article quotes Conner as saying that even sites like Edmunds or Consumer Reports wouldn’t give him more than $59,000.”[1]
Factors Contributing to the New and Used EV Price Disparity
Several factors contribute to this price disparity:
- Rapid Technological Advancements:
- Tesla is known for frequent software updates and hardware improvements. This can make even a one-year-old model feel outdated compared to the latest version.
- The allure of the newest features, such as enhanced Autopilot capabilities or improved battery range, can drive consumers to opt for brand-new vehicles.
- Supply Chain Constraints and Rising Costs:
- Ongoing supply chain disruptions and rising costs of raw materials have impacted the production and pricing of new EVs.
- This can make new models more expensive, further widening the price gap between new and used vehicles.
- Changing Consumer Preferences:
- As consumer preferences shift toward newer models with the latest features and technological advances, the demand for used EVs may decrease, impacting their resale value.
- Additionally, the increasing availability of used EVs in the market can lead to increased competition and price pressure.
- Lease Returns and Market Saturation:
- A significant number of leased EVs are reaching the end of their lease terms, flooding the used car market.
- This increased supply can put downward pressure on used EV prices, especially for older models.
Conclusion
To date, governments worldwide have played a crucial role in the future of EVs through supportive policies, incentives, and investments in infrastructure. In the future, this industry is expected to shift toward a more consumer-centric model. For consumers, the choice of an EV is becoming more compelling. With a growing range of models, improved performance, and decreasing costs, EVs are no longer just a niche option but a viable choice for many. As the automotive industry continues to innovate, the future of transportation will be balanced with fully electric options.
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[1] https://www.indy100.com/viral/tesla-car-value-depreciation-viral