The U.S. electric vehicle market is growing, but it was not fast enough during the latest quarter to prevent unsold EVs from stacking up at some automakers’ dealerships or to allow Tesla to avoid new price cuts. Analysts say that rising inventories and price-cutting could represent only a short-term pause in E.V. market growth. But they also may be signs that boosting E.V. sales above the current 7% market share level will be more costly and complex than expected.
Several factors could be holding back E.V. demand, including confusion over ownership costs, a perception that batteries require more maintenance, and a lack of familiarity with battery-powered vehicles. Several recent price cuts may be aimed at reducing those misconceptions and driving demand.
According to Cox Automotive, the nation’s largest automotive dealership group, established automakers like G.M. (GM.O), Ford, and Hyundai have accumulated over 90 days of E.V. inventory. That is a substantial number of cars that have been sitting on the showroom floor, suggesting consumers are not yet ready for the E.V. future.
In contrast, startup E.V. maker Tesla has seen sales accelerate as it slashes prices for its Model 3 and Model Y models. It has also launched a push to sell its battery cells to other carmakers for their own E.V. production, lowering its per-kilowatt-hour cost. It has joined a global battle to lower production and battery costs as the sector fights for survival.
Adding to the pressure on carmakers to slash prices and produce cheaper electric vehicles is the desire of the Obama administration to accelerate sales of EVs to cut carbon dioxide emissions. That could squeeze the ability of several existing plants to ramp up production of E.V.s, such as Ford’s massive Blue Oval City complex in Tennessee and a General Motors-LG Energy factory in Ohio that will begin manufacturing battery cells later this year.
Some of those plants are already struggling to profit from their E.V.s. For example, G.M. has been losing money on every E.V. it sells in the United States, according to the research firm AutoForecast Solutions. The company also relies on cash-cow profits from its full-size pickup trucks to help finance its E.V. investments.
Tesla and its competitors must decide whether to continue cutting prices in the United States and other markets, or they must scale back production. If they choose to do the latter, it will mean fewer vehicles hitting the roads, potentially leaving them with empty factory lots and lost investment. But doing so will also likely lead to longer delays in bringing new E.V. models to the market. And that might make it even more difficult for the E.V. industry to meet its ambitious growth targets. As such, the next few quarters will be critical to determining whether the E.V. market will become one of the biggest in history.
