The stage is set for a significant surge in electric vehicle (EV) sales volumes in the United States, according to JD Power. As the year-end holiday season approaches, dealers and automakers need to adopt strategic approaches to sustain customer interest, as highlighted in JD Power’s latest E-Vision Intelligence Report.
There are several crucial factors shaping the complex landscape of the EV market. This includes an upcoming overhaul of the federal clean vehicle credit in 2024, consumer preferences still leaning towards gas-powered cars, and disruptive changes in pricing dynamics across the industry.
For potential EV buyers, timing is key. Those considering an EV purchase during the holiday season might benefit from postponing it until early 2024. Starting in January 2024, eligible buyers can transfer a significant $7,500 federal tax credit directly to the dealer, resulting in lower point-of-sale prices. Currently, buyers can only access the federal tax credit after filing their tax returns for the following year.
However, there are trade-offs associated with waiting. By deferring the purchase, consumers may miss out on year-end incentives and face potential interest rate hikes and manufacturer’s suggested retail price (MSRP) increases for new model year vehicles.
Nevertheless, JD Power’s analysis suggests that waiting could offer substantial benefits. Take the Volkswagen ID.4 as an example. Purchasing the base model in September 2023, including the transaction price and a five-year interest cost, could amount to $51,584. However, acquiring it in January 2024 is estimated to lower the cost of the entry-level model to $43,156, encompassing the transaction price and five-year interest.
Another factor influencing EV sales in the near term is the pricing disparity between EVs and gasoline-powered vehicles. Mass-market compact electric SUVs have an average cost of $52,000, while gas-powered compact SUVs are more affordable at approximately $34,000. This price difference can lead budget-conscious buyers to consider “cross-shopping,” exploring a mass-market EV instead of a similarly priced premium internal combustion engine (ICE) vehicle. In fact, 67 percent of new car buyers considering EVs are also exploring gasoline-powered alternatives.
However, Tesla stands out as an exception in this market. The Model Y, for instance, has already achieved price parity with gas-powered vehicles in the compact premium SUV segment, capturing a significant share of EV sales in the first nine months of 2023. As of October 27, 2023, the Model Y starts at $43,990 (before taxes and fees), offering a lower cost compared to competitors like the BMW X3 and Mercedes-Benz GLC in the US market.
Despite the positive outlook, the array of EV options may remain somewhat limited even after the revised federal clean vehicle credit takes effect. General Motors has revised its EV production plans, and Ford has scaled back its EV investment due to escalating losses, presenting challenges for Detroit automakers. However, JD Power anticipates that the momentum behind EV sales will continue to grow in the coming quarters.
Empirical data supports this optimistic outlook. It took five and a half years for total EV sales to reach one million units in the US, but it took just 18 months to transition to two million. JD Power predicts that the three millionth EV sale will occur in December 2023, reaching this milestone within a mere 12 months. This trajectory suggests that US automakers will sell four million EVs by the third quarter of 2024.
Interestingly, a recent Cox Automotive study reveals that the average transaction price for a new EV in the US reached $62,641 in October 2023, marking a notable increase from $58,100 in October 2022. Despite these higher prices, the demand for EVs remains strong. A Deloitte survey also confirms this sentiment, indicating that 67 percent of Americans express interest in purchasing an EV within the next five years.
On the industry front, automakers are making significant investments in EV production. A report by Bloomberg Intelligence highlights that automakers are poised to inject $516 billion into EV production and battery development over the next five years, underscoring the industry’s unwavering commitment to electrification.
