Has the EV Market Run out of Gas?

  • February 12, 2024

  • Rudly Raphael

Five years ago electric vehicles (EVs) were the consumer rage and appeared poised to overtake traditional, combustion engine autos in sales. Propelled by a number of factors, including government subsidies, environmental consciousness, and the allure of new technology, automakers couldn’t roll out new EV models fast enough. But within the last year that’s all seemed to have changed. Although EV sales are still growing, they appear to have peaked and automakers have responded by cutting back production and sales. Auto brands, car dealerships, investors, and consumers that understand this trend, and where it might go, will be in a position to possibly take advantage of the current EV slump.

You’ve certainly been affected by the EV revolution in some way. You may own an EV or know someone who does, and if you don’t then you’ve seen EV charging stations or watched several commercials for the latest EV brand. There’s no doubt that EVs have staked out a significant segment of the auto market, but it’s also true that the EV revolution has fallen short of some expectations. So let’s take a look at the EV industry and the problems it’s recently faced and why, as well as what investors and consumers can expect in the future.

The Green Dream 

Although EVs may have only recently entered the public counscieneness at a major level, the first cars with batteries were invented in the late 1800s. In fact, by 1900 EVs were one-third of the cars on the road, but they were soon after replaced by autos with combustion powered engines and all but forgotten for decades

The concept of EVs was brought back in the late twentieth century during the gas crises and oil embargos and then in the 2000s when the push for renewable, green energy became popular with many in government, especially those on the left of the political spectrum. The green energy push has led some state to pass laws requiring that all new automobiles sold within their borders must have zero emissions by a certain date. So far, California has set a date of 2035 with Connecticut, Maryland, Massachusetts, New Jersey, New York, Oregon, Washington, and Rhode Island all committing to banning new sales of combustion engine autos at a future date

The federal government has recently also used the law to promote EVs. As part of the Inflation Reduction Act of 2023, which the Democrat controlled Congress passed, and was signed by Democrat President Joseph Biden, EV buyers are eligible for tax credits. So, different state governments and the federal government have clearly used a “carrot and stick” approach to push consumers to buy EVs and the numbers show that this may have initially been successful, but things now appear to be going the other way.

Sagging Sales

EV sales peaked in 2022 and although growth continued in 2023 the pace slowed significantly. Analysts now believe that Biden’s target of EVs capturing 50% of the auto market by 2030 seems like a pipe dream. Yet if EV sales continued to grow in 2023, why the negative forecast for the space?

The reasons for analysts being bullish on EVs involves a number of different factors, although for the most part it comes down to the simple economic concept of supply and demand. Automakers made major cutbacks on nearly all EV models and prices in 2023. Tesla slashed prices on all its models while Ford reduced production on its much hyped EV F-150 and postponed $12 billion in EV spending. General Motors also announced that it has delayed the launches of three of its new EV models

The pullback by auto makers has extended to car rental and sales companies as well. Car rental giant, Hertz, recently announced that it’s selling about 20,000 EVs from its fleet, which includes Teslas. This is just two years after Hertz made a deal with Tesla to buy its newest models after the rental company planned to convert 25% of its fleet to electric by the end of 2024. The EV slump has also hurt car dealerships across the US.

The car sales industry uses the term “days’ supply” to describe how long it takes for current inventory to sell at the current sales rate. In late 2023, the days’ supply for EVs averaged about eighty-eight days, which was double what it was one year prior. By comparison, the average days’ supply for combustion engine vehicles was fifty-nine days in late 2023, which was normal by industry standards. All of this indicates that the demand for EVs has simply waned, but the reasons for the EV slump are a little complicated.

Not Buying into Electric 

Among the many factors that have driven consumers to shy away from EVs, economic considerations are at the forefront. But even these economic factors are a bit more complex. For example, one of the practical selling points of EVs was that they more than pay for themselves by saving money from not having to buy gas. When the gas prices skyrocketed in 2022, EV sales were at their peak, but just one year later gas was down about thirty cents per gallon on average, which many experts believe pushed consumers to purchase what they view as more reliable autos – combustion engine vehicles. Consumers are also driven by the still high costs of most EVs.

As EV sales peaked in 2022, they appeared poised to become status symbols just as much as everyday modes of transportation. The reason for the status was partially due to price range remaining outside the budget of most people who view cars as a necessity more than a luxury item. Cox Automotive pegged the average EV price at $50,683 in September 2023, which although down 22% from the previous year is still high compared to combustion engine vehicles. This study was bolstered by a CarGurus report that found EVs were still 28% higher than their combustion engin26e counterparts. Consumers interested in buying EVs can also expect to pay higher interest rates at the dealerships, creating another factor that has dulled consumer demand. Part of the reason for EVs’ higher costs is the novelty, but the technological knowledge and specific components needed to make them are the driving force. 

The battery is the most expensive part of any EV, and the bigger the battery the more expensive the vehicle. One of the major problems consumers often cite with EVs is their limited range, so in order to mitigate this problem manufacturers have made larger batteries for their vehicles. Larger batteries have nominally reduced the range problem, but they’ve also contributed to higher overall costs, creating a sort of catch-22. 

In addition to the costs of EVs, consumers have also cited performance concerns. Range is the number one issue consumers cite, with most EVs offering 250 to 500 miles on a single charge, although those numbers depend upon conditions. Cold weather adversely affects EV batteries and when combined with limited charging networks, has led to problems for some EV owners. A January 2024 polar vortex left some EV owners in Chicago waiting hours in line for charges, bringing another major concern consumers have with EVs. A report by AAA stated that 56% of the people they interviewed cited a lack of convenient charging options as a reason for not going electric. EV owners can purchase home charging stations but they cost several thousand dollars more to an already highly priced auto.

Consumers have also discovered that just because EVs don’t have large block engines, they are far from immune to mechanical and technical problems. A Consumer Reports study showed that from 2021 to 2023, 80% more problems were reported in EVs than their combustion engine counterparts. The economic and performance issues are clearly the driving forces behind consumer disinterest in EVs, but the automakers also have themselves to blame for poor marketing.

The automakers originally marketed EVs as eco-friendly version of combustion vehicles, but consumers quickly found out that this wasn’t true. Although EVs are less complex to build and have simpler drive trains, they are more complex machines in many ways. Many new EV owners are upset when they learn that it takes plenty of training to do the simplest of maintenance on EVs and there are far fewer mechanics who have the background to work on them. Finally, in a country that has become so divided by politics, geography, and age, EVs are often viewed as cars of young, urban liberals. Even Telsa founder and CEO Elon Musk’s recent dabbles with political statements and endorsements of ideas and candidates on the right-wing of the political spectrum have so far not changed this image.

Future Trends

Examining sagging EV sales and the reasons behind it can help investors, auto dealers, and consumers understand what to expect in the future. Don’t expect the EV industry to collapse, but it’s likely automakers will continue with their current pullback of EV models. There’s signs that some automakers are switching production to hybrids, which would politically appease eco-conscious consumers but not necessarily meet government mandates. Toyota has recently increased its hybrid production and currently offers more than twenty models that are all more popular than its EV models

It’s also possible that the federal and different state governments will reconsider some of their EV mandates. It’s very unlikely that the auto industry will meet the federal government’s 2032 goal of 67% of all new vehicles being EVs, as they are currently just under 8% of the market share.

All of this has many potential implications for consumers. If the federal and state governments continue to mandate EV production, the automakers may have to reduce costs further, but it may be at the cost of quality. Auto brands could increase sales with better marketing campaigns that target Middle America as well as emphasizing how EVs are different than combustion vehicles. It may be that EVs will continue to be a niche market in the US, but the automakers that understand how consumer sentiments have driven the current EV slump will be in a position to take advantage of these future trends.

About the author:

An industry leader and influencer – Rudly Raphael specializes in all aspects of research logistical design involving quantitative methodology,  implementing internal system infrastructure to streamline business processes, channelling communication and developing innovative research solutions to ensure Eyes4Research remains a competitive force in the marketplace. An entrepreneur, inventor (patent holder), blogger and writer – his articles have been published in various magazines such as Medium, Ebony Magazine, Bussiness2Community and also cited in various journals and academic publications.