Western EV market clings on price cuts to meet the falling customer demand
Electric vehicle (EV) prices are witnessing sharp price cuts in the US and Europe following the new tax credit rules in the former and diminishing subsidies in the latter. Yet, for most customers, the prices are still too high, resulting in a growing inventory of EVs.
Once a hot trend, EVs are now piling up at dealerships in the US and Europe. One issue that resulted in the EV surplus was the increased output not aligned with the demand. Cox Automotive figures from July 2023 showed that everything looked just fine: 51% of the consumers were keen to buy a new or used EV, while 33 new models arrived in the US market, complemented by 50 new or updated models in 2024.
On the other hand, the EV stock across the US rose 350% in 2023 to over 92,000 units. That created a problem because while the EVs have an industrial average of 70 days, it is 54 days for internal combustion engine (ICE) vehicles and 44 days for plug-in hybrid vehicles (PHEVs), which promotes the Toyota strategy (According to Axios, the supply for Toyota Prius and RAV4 was less than 30 days as of July 2023).
Climate concerns in Europe
Following the days when EV enthusiasm was boosted through marketing campaigns displaying new and sophisticated vehicles similar to smartphones, the downturn of neglected issues is coming to the surface, according to a report from Bloomberg.
The fading subsidies now left consumers in a market where charging infrastructure is unbalanced, and insurance and maintenance costs are high. Declining residual values are even lowering the charm of EVs as long-term investments. Additionally, while the US has a 27.5% tariff on Chinese EVs, Europe has no such barrier. This led to a 58% increase in exported Chinese EVs compared to 2023, flooding the ports in the UK, Belgium, Netherlands and Germany with unsold EVs.
According to the Bloomberg report, it is not feasible for European consumers to afford EVs without subsidies. Affordable prices should be between €18,000-€28,000, which is too low compared to the current price range. According to ACEA, European consumers are unwilling to pay over €35,000 for an EV. The average cost of an EV in Europe was €66,864 in the first half of 2023, according to JATO Dynamics.
Analysts warn that as most European consumers are unable to afford EVs and gasoline is again becoming the best alternative, the climate goals will be in jeopardy.
Prices are plunging
Tesla ended the first quarter of 2024 with a 46,561 surplus. The brand quickly announced sharp discounts in the US, Europe, and China. But will it be enough?
In a report by Automotive News, the average discount set by EV makers in Q1 2024 is $6,000 (€5,620) per car, according to Cox Automotive figures. This high amount of discounts aims to attract consumers who are not eager to pay high premiums, says Cox. The discounts go even higher than that for some models. Nissan offers up to $16,000 (€14,989) for Aryia electric crossover. In another significant example, Mercedes-Benz made a $20,000 (€18,733) discount for the EQS SUV.
According to The Telegraph, almost eight in 10 new electric cars are being sold with a discount, with 77% of the new EVs listed on Auto Trader displayed with a discount. The average discount rate stands at 11%, much higher than ICE cars, reflecting the bottleneck emerging in the industry. But discounts are not helping much. As of the beginning of April, the days an EV spent on a dealership lot was 119, compared to a 73-day supply average for gasoline cars, says Automotive News.
While the red flags are all up for everyone to see clearly, the European and the US EV markets are not crashing but slowing down.
In Q1 2024, American consumers bought 268,909 new EVs, representing 7.3% of all new vehicle sales, which has dropped since the last quarter. Sales in the first quarter rose 2.6% year-on-year but fell 15.2% compared to Q4 2023.
In the European Union (EU), March 2024 witnessed the first decline of the year, with registrations dropping 5.2%. Battery electric vehicles (BEVs) lost ground from 13.9% to 13% year-on-year, while PHEVs jumped from 24.4% to 29%.
Again, as stated in the first quarter reports, it is clear that fixing the Western EV markets will require updated industrial policies and renewed incentives to close the huge price gap with China.
The main photo is courtesy of Shutterstock, 1491149990.
