If you shopped for a new car recently, you probably know that finding a good deal can be difficult. Not only are the vehicles themselves expensive, but with interest rates at their highest in years, so are loan repayments. So, you might stop to listen if a dealer offered you a $7,500 rebate or a very loan interest loan. In fact, you might even be suspicious and wonder whether such an offer is too good to be true. But, in fact, those deals are currently available at many major auto companies, as are attractive lease deals. What’s the catch? The deals are available on electric vehicles (EVs), not traditional combustion engine cars. It seems that automakers have overestimated demand for EVs and are now looking to get their excess inventory off the lot. Indeed, the discounts and interest rate deals are an about face for automakers. Because they’re more expensive to produce, EVs have generally been priced higher than comparable combustion engine vehicles.
Now though, thanks to favorable terms like these and price cuts, the price gap between an EV and a gas powered car is shrinking. Why the shift? There are several reasons. New tax credit policies set by the Biden administration that favor U.S. built EVs and components have encouraged companies that don’t qualify to offer their own promotions. In addition, consumer worries about the availability of charging stations is dampening demand. Perhaps more concerning for automakers though, is that many wealthy early adopters have made their purchases and it’s proving more difficult to convince others to buy. At the moment, EVs are taking about twice as long to sell as gas powered cars and inventory carrying costs are becoming problematic for dealers. Further along the supply chain, slowing demand is prompting some makers to temporarily halt production, pull back from planned investments into battery plants, and even delay the opening of new EV production facilities. What does this all mean for buyers? Well, if you’re looking for a bargain, it’s a great time to be shopping for an EV.
Discussion Questions:
1. Discuss the challenges facing automakers as they move toward all electric lineups. How can automakers balance the higher investments needed to design and produce EVs with slow sales? To qualify for many attractive rebate programs, automakers must meet various domestic production requirements. Should automakers make those investments in an uncertain market?
2. Reflect on the concerns of buyers as they make decisions about their auto purchases. For example, how does the limited availability of charging stations affect demand for EVs? Do government incentives like tax rebates affect the decision to buy? What other factors would you consider if you were shopping for a new car?
3. Discuss the drop in demand for EVs within the context of energy and environmental economics. If the trend continues, what are the implications for nonrenewable resources like oil? What would it mean in terms of efficient use of energy sources? What broader environmental issues would be of concern going forward?
Sources| CNBC: https://www.cnbc.com/2023/11/01/why-dealers-say-ev-sales-have-slowed.html, https://www.cnbc.com/2023/07/26/new-and-used-ev-prices-have-dropped-but-dont-rush-to-buy.html; WSJ: https://www.wsj.com/business/autos/ev-makers-turn-to-discounts-to-combat-waning-demand-3aa77535; Reuters: https://www.reuters.com/technology/prices-fall-two-thirds-global-car-sales-could-be-evs-by-2030-study-2023-09-14/; Unsplash: Photo by Michael Fousert on Unsplash