EV market in US faces road blocks despite 48% growth

Renault electric vehicle

Nearly 300,000 new electric vehicles (EVs) – full battery-electric vehicles – were sold in the U.S. in Q2, a record for any quarter and an increase of 48.4 percent from Q2 2022, research report from Cox Automotive said.

Tesla was the largest seller of EVs in the U.S., with more than 175,000 sold, an increase of 34.8 percent quarter over quarter.

Sales growth at Tesla, and the EV segment overall, was aided by sizeable price cuts by some automakers and incentive levels well above the industry average. In June, the average price paid for an EV was down nearly 20 percent year over year. EV share of the U.S. market in Q2 was 7.2 percent, up from 5.7 percent a year ago and down from the high in Q1 of an upwardly revised 7.3 percent.

The analysis focuses on the challenges faced by the U.S. electric vehicle (EV) market in the latest quarter, including rising inventories, price cuts, and the potential difficulty of achieving higher market share. It highlights the impact on automakers, the availability of EV models, and the responses from established automakers and new entrants like Tesla, Reuters news report said.

Slow EV market growth: Despite the growing popularity of EVs in the U.S., the latest quarter shows that the market is not expanding rapidly enough to prevent unsold EVs from piling up at dealerships. This trend indicates a potential pause in the market’s growth trajectory.

Inventory and price-cutting concerns: Rising inventories and price cuts are early warning signs for the EV market. The excess inventory can be attributed to automakers’ aggressive production strategies that outpace consumer demand. To address this issue, automakers face a difficult choice between slashing prices and profit margins or slowing down production.

Challenges for profitable sales: The introduction of over 90 new EV models into the U.S. market by 2026 presents a significant challenge for automakers. Analysts predict that many of these models will struggle to achieve profitable sales volumes, indicating a potential oversaturation of the market.

Inventory levels at established automakers: Established automakers such as General Motors, Ford, Hyundai, and Toyota are facing high inventory levels. Dealerships for these companies have over 90 days’ worth of unsold EVs, indicating a mismatch between production and demand.

Availability of EV models: The availability of EV models varies across automakers. For example, General Motors’ Cadillac Lyriq has lower inventory levels than the industry average, suggesting higher demand. However, the challenge for General Motors lies in accelerating production and delivery of its next-generation EVs built on the Ultium architecture.

Ford’s inventory situation: Ford is also experiencing high inventory levels for its EV models, including the F-150 Lightning and Mustang Mach-E. The company disputes the figures, stating that the inventories are not as high as reported. Ford plans to increase capacity for both models, indicating confidence in future demand.

Volkswagen’s challenges: Volkswagen dealers are facing a high inventory of the ID.4 electric SUV. The company attributes this to supply chain bottlenecks easing, allowing for increased production. Volkswagen cites customer confusion and hesitation related to tax credit eligibility as additional factors impacting sales.

Tesla’s pricing strategy: Tesla, a leading EV manufacturer, is using its cost advantage to drive demand through price cuts. In contrast, legacy automakers are reportedly losing money on most of their EV models. Tesla’s price cuts have also led to a decline in the average selling prices for EVs in the market.

Competitive choices and regulatory pressure: Automakers are confronted with tough competitive choices as they navigate the evolving EV market. They also face regulatory pressure from the Biden administration, which has proposed emissions rules that require automakers to shift two-thirds of their sales to EVs by 2032. Some automakers view this proposal as unrealistic.

In conclusion, the U.S. EV market is facing challenges related to excess inventory, price cuts, and the difficulty of achieving higher market share. Established automakers and new entrants are grappling with these issues, and the availability of EV models varies among manufacturers. Furthermore, regulatory pressure from the Biden administration adds an additional layer of complexity for automakers striving to meet evolving market demands and emission regulations.