Ford (F) continues to focus on its EV business despite weak demand, but what pricing trends will emerge in the electric vehicle segment of the U.S. auto market?
Michelle Krebs, executive analyst at Cox Automotive, and Tom Narayan, RBC Capital Markets principal equity analyst at Global Autos, discuss how pricing and lack of charging infrastructure are discouraging U.S. car buyers from purchasing EVs. They comment on whether it discourages them from giving their all.
Lower interest rates “certainly would be a big help. High interest rates are pushing a lot of people out of the market and their monthly payments are very high,” Krebs said.
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Editor's note: This article was written by luke carberry morgan.
video transcript
Sheena Smith: Michelle, we've seen a price war play out, rightly so. For many of these automakers, this is both a challenge and a headwind. Michelle, given what we heard from Jim Farley last night and the fact that Ford seems to be focusing on this cheaper EV right now, I think we're going to continue to see these price wars given this fact. mosquito? Does that mean consumers are still under enormous pressure?
Michelle Krebs: absolutely. This is especially true in the EV segment. We have an inventory of EVs that is twice as large as regular gasoline or gross cars. That means more incentives, more discounts, and more price cuts. So it's going to be a very tough business over the next year or two.
Brad Smith: With that in mind, from Cox Automotive's perspective on the broader infrastructure for electric vehicles, to help consumers feel confident in purchasing electric vehicles and achieve some of the targets Tom was talking about earlier. What do you need to understand? Is it set by the car manufacturer?
Michelle Krebs: Now, let's start with the price. This has been the biggest barrier to EV adoption, especially as it moves toward mainstream buyers. You know, so far, a lot of EV buyers are very wealthy. Your family probably has more than one car. But now we're moving into the heart of the market and it's going to be a little harder to sell.
Therefore, the price is one. However, while EV charging infrastructure needs to be more expanded, it also needs to be maintained. Because we've seen the horror stories of Chicago having infrastructure in the middle of a storm of people waiting for chargers. They drive up to one but it doesn't work. So that also needs to be resolved.
Brad Smith: Lastly, I would like to hear from both of you regarding this. Given the interest rate environment and the extent to which consumer sentiment is tied to it, especially when it comes to financing big-ticket purchases such as cars, perhaps some consumers and economists are concerned about this year's production cuts and the pace at which they will be cut. You would have expected that, but what impact will that have in terms of perhaps a watershed moment where people go back to buying in the car market? And Michelle, I'll go to you first. And Tom, I'd love to hear your thoughts.
Michelle Krebs: It will certainly be of great help. As you know, high interest rates drive a lot of people out of the market, and some end up with very high monthly payments and just walk away. Therefore, it will be a great benefit.
However, I think the most important factor for consumer sentiment is gas prices. If you look at gasoline prices, consumer sentiment is reflected there. However, interest rates are not far behind.
Brad Smith: Fair point. Tom?
Tom Narayan: Yes, I completely agree with that too. Isn't it the interest rate environment that Mr. Elon calls out every time he holds an earnings conference? And that completely impacts affordability. But what we're noticing is that prices are at all-time highs.
So the concern is that if affordability is in question and prices collapse, that's going to be very problematic for these OEMs. Therefore, if interest rates fall and prices remain affordable, we could see record profits again. Therefore, it is very important.
As I said earlier, it's also important to the EV story. Next to charging infrastructure, I think the biggest issue people have with EVs is pricing. These prices need to come down.
