EV transition slows as inventory grows and industry hits hurdles

The shift to electric vehicles in the U.S. is hitting speed bump after speed bump, and industry leaders are reevaluating the pace of the transformation.

EV sales growth has stalled. This month, General Motors delayed EV pickup production and Honda canceled a deal to build affordable EVs with GM. Ford said it is pushing back $12 billion in EV spending, reducing Mustang Mach-E production and delaying one of two planned battery plants. EV-only maker Tesla saw its revenue growth fall in the third quarter to its slowest pace in more than three years.

Mercedes-Benz dealers are complaining about slow-selling EVs piling up on their lots. It took 82 days on average to sell the battery-powered EQ models in September, according to Edmunds data. Industrywide last month, dealers had 97 days' supply of EVs, excluding Tesla and Rivian, compared with 57 days for internal combustion engine vehicles, according to Cox Automotive.

Battery-electric vehicles made up 7.7 percent of U.S. light-vehicle sales in September, down from 7.8 percent in August, according to S&P Global Mobility. Early estimates show share declining again to 7.5 percent in October.

The "reality" of EVs is becoming apparent, Toyota Motor Chairman Akio Toyoda told reporters at the Japan Mobility Show last week.

The main issue is sluggish demand, despite a robust supply and growing selection of EV models, said Lance Iserman, CEO of Morrie's Automotive Group.

"That's related to range anxiety and cost. As the early adopters have adopted, the average consumer is not willing to pay a premium for an electric vehicle with a range of only 300 miles or below," he said.

Iserman's group — which includes more than two dozen dealerships in Minnesota, Wisconsin and Michigan — has a 100-day supply of EVs. His 21 brands include Ford, Cadillac, Chevrolet, Audi, Volkswagen, Hyundai and Kia.

Still, there is a disconnect: Fluctuations today won't determine long-term trends, analysts say.

"It's not going to be a tidal wave immediately. It's going to be a rising tide," Chris Hopson, an analyst at S&P Global Mobility, told Automotive News.

Ballooning inventory has prompted automakers to reassess their EV launch timelines, said Stephanie Valdez-Streaty, director of industry insights for Cox Automotive. The pattern is similar to the ebbs and flows of gasoline vehicle production, she said.

"When you see that production [isn't] matching consumer demand, you adjust," she said. "Since this is such a huge transition, we're going to have all kinds of bumps in the road."

Cox expects automakers in the U.S. to sell more than 1 million EVs this year. That represents rapid growth, Valdez-Streaty said. It took five and a half years to reach the first million EVs sold in the U.S., according to J.D. Power. Only 18 months later, the industry hit 2 million in December 2022. Now it will only take 12 months — by the end of this year — to reach 3 million.

Although the transition to EVs will continue, exponential growth will level off over the next year, said Sam Fiorani, vice president for global vehicle forecasting at AutoForecast Solutions.

Early adopters have already purchased EVs. In the rest of the market, "there are too many vehicles and not enough buyers," Fiorani said. "It's not a market where you can charge $80,000 for every EV that comes out anymore."

Six-digit price tags and unreliable charging are keeping many EVs on dealership lots.

Early adopters knew exactly what they wanted — and they'd pay for it, said Iserman. "It's a tougher conversation to try to move someone to an EV."

The next set of buyers will be looking for a vehicle for practical reasons. Selling to those shoppers will be difficult. EVs logged an average transaction price of $50,683 in September, nearly $3,000 more than the average gasoline vehicle, according to Cox. And that's after market leader Tesla's price cuts reduced the average EV price and narrowed the gap between gasoline vehicles.

EV charging is another obstacle. Public charging infrastructure is in its early stages and is often unreliable and installing a home charger is an additional customer cost. Home charger installation typically costs a few hundred dollars, but the price easily triples if the homeowner needs new wiring, panels and outlets, according to J.D. Power. More than two-thirds of EV owners get a home charger, the firm said.

Even as automakers revise their investments and EV rollout timelines, their ultimate electrification goals are unlikely to change, Fiorani said. In 2027, when GM and Honda once planned to launch EVs priced less than $30,000, there likely will be a market for low-priced EVs, Fiorani said. If automakers give up now, when the market is less stable, they'll fall behind in a few years, he said.

There are many market variables to stitch together, said S&P's Hopson, including pricing, eligibility for federal purchase incentives and consumer preferences

"But it's hard to get a definitive path to say something changed in the last four months that is going to completely change the dynamic of this industry and where it's going," he said.

Still, "it's not going to be a smooth ride."