Ford, GM, and even Tesla are warning about the EV market

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At least in the US, electric vehicle sales have hit a tipping point. Research firm Kelley Blue Book (KBB) finds that US EV sales in the third quarter crossed 313,000, nearly a 50% increase from a year ago, with EV market share hitting 7.9% — its highest-ever level. But this milestone might not be good enough for automakers spending billions on an EV transformation.

“A great product is not enough in the EV business anymore. We have to be totally competitive on cost,” Ford (F) CEO Jim Farley said on Thursday night’s Q3 earnings call. Ford recently paused $12 billion worth of investments in its EV projects until “capacity” is needed. Ford said in its earnings report that US EV buyers were “unwilling to pay premiums for [EVs] over gas or hybrid vehicles, sharply compressing EV prices and profitability.”

Though Ford said it was bullish on its upcoming Gen 2 and Gen 3 EVs, the company’s downbeat assessment of the US electric market echoes what GM (GM) reported earlier this week.

“We are also moderating the acceleration of EV production in North America to protect our pricing, adjust to slower near-term growth in demand, and implement engineering efficiency and other improvements that will make our vehicles less expensive to produce, and more profitable,” CEO Mary Barra said in her Q3 shareholder letter. GM, in pushing back its EV truck expansion earlier this month, noted “evolving EV demand” as the main reason why it was slowing its EV truck volumes.

Even Tesla (TSLA) CEO Elon Musk, perhaps the biggest EV evangelist in the industry, poured cold water on the EV market and general economic landscape. Musk noted on Tesla’s conference call last Wednesday that the company was delaying construction of its upcoming Gigafactory in Mexico due to concerns about global economic conditions stemming from rising interest rates that make financing cars more expensive for consumers, thus crimping demand.

“I’m worried about the high interest rate environment we’re in,” Musk said, adding, “I just can’t emphasize enough how important cost is. … We have to make our products more affordable so people can buy [them].”

Jessica Caldwell, head of insights at automotive research firm Edmunds, agrees with Musk. “The current high-interest environment also doesn’t favor convincing consumers to explore less-established auto technology, and cost is already placing EVs beyond the reach of many consumers,” Caldwell said to Yahoo Finance. “Following a decade of bigger spending due to low interest rates, consumers now find themselves needing to economize.”

New research from J.D. Power out Friday morning puts automaker concerns about pricing and the consumer in stark contrast to once rosy EV sales projections.

“One complicating factor that could be a drag on near-term EV sales, however, is the pricing imbalance that currently exists between EVs and ICE [internal combustion engine] vehicles in the booming compact SUV segment,” J.D. Power noted in its report. “Currently, the bulk of mass market compact EV SUV sales are pricing at around $52,000. That compares with just $34,000 for comparable mass market ICE SUVs. Meanwhile, ICE vehicles in the compact premium SUV segment are trading at around $53,000, vs. EVs in the compact premium SUV segment selling for $60,000 or more.”

Despite concerns about pricing, J.D. Power believes critical mass has already been hit with EVs, and the firm is projecting retail EV sales to hit 3 million by end of this year and 4 million by the end of Q3 2024.

One area that will help sales starting next year, J.D. Power says, is the $7,500 EV tax credit that can be used immediately at point of sale for eligible vehicles, instead of waiting for a tax refund. “This is a significant departure from the current implementation of the credit, whereby eligible buyers do not receive the credit until they receive their tax returns,” J.D. Power said in its report.

While a tax credit pull forward is nice, it seems buyers will need more incentives to make up for the price differential between EVs and gas-powered cars and cover the increased financing costs as a result of higher rates. This does not even begin to take into consideration range anxiety and lack of charging infrastructure, which a whopping 77% of respondents to a Yahoo Finance/Ipsos EV poll found to be the most pressing concern when considering an EV.

“Infrastructure for charging is the elephant in the room. Augmentation of the charging infrastructure must align with the growing acceptance of EVs, if not precede it,” Edmunds’ Caldwell added.

GM, Ford, and even Tesla keeping cash in reserve and deploying it when economic conditions stabilize seems to be the best call, at least from Wall Street’s perspective.

“Ford’s balance sheet remains flush with liquidity to help fund the transition to electrified vehicles and software services as well as provide a buffer for whenever the next recession comes,” Morningstar analyst David Whiston wrote in a note to clients on Friday morning. “This ample funding gives Ford time to reinvent itself, and more time is needed for cost control.”

It seems the White House goal of 50% EV sales by 2030 is lofty at this point and overly optimistic, whereas only a couple of years back policymakers believed Americans wouldn’t even need convincing to go electric.

Caldwell said that there are likely to be bumps along the road. “While the global shift toward EVs is inevitable, the path to mass adoption may be punctuated by periods of sluggish progress, which is the phase we find ourselves in now,” she said.

Pras Subramanian is a reporter for Yahoo Finance. You can follow him on Twitter and on Instagram.

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