In 2023, the electric vehicle (EV) industry experienced a significant milestone, with global sales surpassing 1.1 million units, marking the first time that annual sales exceeded the seven-figure threshold.
This represented a surge of nearly 50% in EV adoption compared with the previous year. EVs accounted for approximately 8.4% of total industry sales, a notable rise of 2.1 percentage points from the previous year, another positive sign.
But EV adoption has not been the steadily rising tide that many predicted. Instead, reaching the million-vehicle milestone has been fraught with issues, many of which still loom as obstacles to further adoption.
Tesla Decline
In 2023, Tesla maintained its dominance but saw its share of total EV sales decrease from more than 75% before the pandemic to around 60%, reflecting increased competition from other manufacturers. As more manufacturers joined the fray, so did more car buyers, but the path has been far from easy.
In 2022, widespread sales growth across various regions was accompanied by an increase in EV transaction prices. The average EV price, including those sold by traditional franchise dealers and by direct-to-consumer sellers like Tesla, surged by approximately $13,000 in 2022 from 2021.
This increase mirrored the overall trend of rising prices in the automotive industry, and many saw it as a sign that EV sales would continue to flourish. EVs constituted more than 6% of total industry sales in 2022, but their higher price points raised concerns to some about the sustainability of EV growth.
In 2023, those fears came home to roost. Market dynamics turned as EV demand slowed markedly, and manufacturers responded by reducing prices and introducing incentives. Tesla and other direct-to-consumer brands slashed their prices by more than $12,000 on average. Price cuts brought significant sales growth in 2023, but they were painful to OEMs, many of whom were already losing money on each EV sale.
Major Drop in EV Transaction Prices
The increase in EV sales and market share in 2023 was closely tied to significant drops in transaction prices, which, in turn, were influenced by state and federal government policies such as the expanded eligibility for the EV tax credit. OEMs capitalized on leasing to access taxpayer benefits, enabling them to gain the tax credit without meeting the domestic manufacturing requirements.
Consequently, premium EVs saw a substantial increase in leasing, with some models eclipsing 90% lease rates. By the end of 2023, franchise EV leasing surged to 55% from 10% of total sales, a significant shift driven by the allure of tax incentives.
The notable EV price drops came as manufacturers recognized the need to align pricing with market demand, a clear acknowledgment that previous pricing did not accurately reflect true market dynamics. Both direct-to-consumer and franchise EV manufacturers offered more affordable options.
Despite these efforts, inventory levels remained high, with franchise EVs experiencing an increase in days’ supply from to 85 days from 40 by the end of 2023.
Emphasis on Cost-to-Own
Despite significant price cuts on EVs, the expected surge in sales or market share hasn’t materialized as anticipated. This discrepancy clearly indicates the importance of factors beyond the initial purchase price.
Shoppers need to be educated about the total cost of ownership, emphasizing the long-term benefits of EVs compared with traditional gasoline vehicles. State and local government incentives, which are not a factor in conventional vehicle sales, are a critical component in EV cost-of-ownership calculations and must be addressed.
Compared with gasoline vehicles, EVs offer ongoing savings in fuel and maintenance costs. Therefore, educating consumers about the cost advantages of EV ownership is crucial for stimulating broader adoption and realizing the potential environmental and economic benefits of electric transportation.
Price Can’t Do It All
Despite all the price cuts, most EVs start north of $40,000 even after the federal tax credit. With consumers reluctant to do the cost-to-own mathematics, EV growth is going to depend on having EVs across the price spectrum, especially in the lower price range.
While price changes can spur EV adoption, they are not the sole determinant. Studies indicate that among the top 10 reasons for rejecting EVs, factors such as charging infrastructure, reliability, efficiency and ease of charging play significant roles.
Concerns about battery life, performance in different weather conditions and overall driving experience also contribute to consumer hesitancy towards EVs. While pricing is important, efforts to enhance EV adoption must address a broader range of factors beyond pricing alone.
Efforts to expand access to charging networks, including initiatives to grant access to Tesla’s Supercharger network, are steps in the right direction. Ensuring the convenience and reliability of charging solutions, as well as addressing range anxiety, are vital aspects that must be prioritized to encourage broader EV adoption.
Overall, a holistic approach that addresses various consumer concerns is necessary to overcome barriers and promote the widespread adoption of EVs.
