The auto industry is in its biggest transition in history. It probably shouldn’t be a surprise to see a few bumps in the road.
Electric vehicle sales are on track to eclipse 1 million in the U.S. for the first time ever this year, but that milestone is being overshadowed by industry concerns that not enough Americans are ready to switch to a plug-in car.
Ford is delaying a battery factory, and General Motors is pausing by a year the expected opening of a truck plant and tinkering with its EV model rollout. Even Elon Musk, the CEO of industry leader Tesla, has slashed prices and has slowed production.
Last week, more than 3,800 auto dealerships across the country signed a public letter urging President Joe Biden to pump the brakes on fuel economy and emissions mandates that have pushed automakers to electrify their fleets. The dealers, which include 86 in Georgia, said unsold inventory is sitting on lots despite a bevy of incentives.
“Today, the supply of unsold (EVs) is surging, as they are not selling nearly as fast as they are arriving at our dealerships — even with deep price cuts, manufacturer incentives, and generous government incentives,” the letter said. “While the goals of the regulations are admirable, they require consumer acceptance to become a reality.”
The issue isn’t that EVs aren’t selling, they’re just not selling as fast as many bullish forecasts predicted, just as manufacturers are bringing dozens of new models to the market. Many dealers are offering their own incentives to clear their lots.
Michelle Krebs, an executive analyst at Cox Automotive, said speed bumps are expected as automakers adjust plug-in vehicle prices, respond to consumer concerns and bolster infrastructure networks.
“We are in a transition,” Krebs said. “This is going to be a bumpy ride.”
‘Not enough buyers’
Georgia has emerged as an EV leader with Hyundai Motor Group and Rivian building multibillion-dollar EV factories in the Peach State and companies in the EV and battery supply chain investing billions more for new manufacturing centers. The state, in turn, has committed billions in property-tax breaks, grants, land, and other incentives to woo the industry here.
Cox Enterprises, the owner of The Atlanta Journal-Constitution and Cox Automotive, also owns a 4% stake in Rivian.
But efforts to fight inflation since the pandemic have increased interest rates that make borrowing for a car more expensive. EVs sticker prices tend to be higher than their conventional counterparts. Range anxiety and charging infrastructure remain issues that need to be resolved, with billions being invested into improving battery capacity and building more chargers.
By 2032, the Biden administration aims to have as many as two-thirds of new cars sold in the U.S. be electric through fuel economy and emissions mandates.
EV startup Rivian is preparing for vertical construction on its $5 billion factory an hour east of Atlanta, where it also expects to build electric crossovers. Hyundai Motor Group is building a $7.6 billion factory near Savannah to produce plug-in Genesis, Hyundai and Kia models. Kia is also incorporating an EV production line into its existing West Point factory.
“While we have always recognized that the industry’s road to this goal will not be smooth... we are confident that Kia will continue to lead our industry’s transformation with innovative, affordable, and aspirational vehicles and a continued strong investment in U.S. EV assembly, battery production, and public charging infrastructure,” Kia said in a statement.
A Hyundai spokesperson added that the company “is proud to be leading the EV transition in the U.S. and is on track to remain one of the top EV providers in the country.”
Credit: SPECIAL
Credit: SPECIAL
Cox Automotive expects total U.S. auto sales to be about 15.4 million units this year, with only slight growth expected next year. Electric cars are the exception, with third-quarter sales outpacing the same time last year by 50%, Krebs said.
“EVs are still selling,” Krebs said. “There’s just more production and models available and right now not enough buyers.”
Barriers to entry
Over the summer, the average gas-powered vehicle sat on a lot for about 50 days before selling, according to Cox Automotive. For EVs, that figure was about 100 days, though Krebs said that gap has narrowed.
The average price of a new vehicle sold was about $48,000 in September, according to Cox Automotive, compared to $50,683 for EVs.
Car dealers calling themselves “EV Voice of the Consumer” say those figures are not improving fast enough as unsold inventory weighs on dealers’ balance sheets.
“Many of us in the industry felt that as more EVs would become available, consumer purchases would follow,” said Mickey Anderson, the president and CEO of Midwest-based Baxter Auto Group. Anderson operates 19 dealerships representing 10 auto brands.
Top concerns include range, inadequate public charging networks and high prices, despite federal incentives, he said.
Those match the top concerns of metro Atlanta residents, according to a recent survey by the Atlanta Regional Commission and pollsters at Kennesaw State University.
They found that 9.2% of Atlanta-area respondents already own an EV and nearly one-third plan on buying one in the next five years. Most cited environmental impacts and how they’re cheaper to operate long-term than vehicles powered by gasoline or diesel. But those respondents who said they would not consider an EV cited vehicle price and inconvenience of charging as top concerns.
Rivian CEO R.J. Scaringe addressed the industry’s headwinds during his company’s third-quarter call with shareholders. He called the fervor over short-term challenges “an overreaction.”
“I want to emphatically state just how deeply convicted we are that the entire automotive industry will be transitioning to electric over the next one or two decades,” Scaringe said.
Credit: arvin.temkar@ajc.com
Credit: arvin.temkar@ajc.com
Dealerships tested
The dealership model born in the 1940s and 1950s to limit automakers’ power also is being tested in the electric era.
Some automakers are trying to follow in the footsteps of Tesla and avoid traditional dealerships entirely. Rivian is working to tweak laws in Georgia and other states to allow for direct-to-consumer sales, while Hyundai is experimenting with selling vehicles through online retailer Amazon.
EVs also disrupt a huge revenue stream for dealerships: parts and service.
Only 16% of dealers’ gross profits come from new car sales, while 43% comes from parts, labor and service, according to an analysis from the U.S. Bureau of Labor Statistics.
The Washington Post reported last month stories of prospective car buyers discouraged from purchasing EVs by salespeople who were uninformed or misinformed about electrics, or who steered customers to conventional vehicles. Examples included a dealer who incorrectly told a buyer a BMW i3 couldn’t exceed 45 mph and another who tried to include free oil changes for an EV that doesn’t require such maintenance.
Anderson, the Midwest auto executive, said he and other established dealers are happy to sell customers EVs. But interest just doesn’t match the supply, he said, and he doubts whether consumer trends will change at the rate the Biden administration expects.
“We certainly support EVs, but not exclusively,” he said. “And we’re certainly nowhere near a point where the majority of cars being sold could be battery electric.”
