The stage is set for "rapid-fire growth" in electric vehicle sales volumes in the US but dealers and automakers might have to go the extra mile in keeping customers interested during the year-end holiday period, JD Power outlined in its latest E-Vision Intelligence Report.
A trio of factors has contributed to this potential challenge: a major update is coming to the federal clean vehicle credit in 2024, buyers are still swayed by gas-powered cars, and conventional pricing dynamics are being disrupted.
What does this mean for potential EV buyers? If you’re looking to buy an EV this holiday season, it might be prudent to wait till next year. Starting January 2024, eligible buyers will be able to transfer their $7,500 federal tax credit to a dealer, resulting in lower point-of-sale prices. Under the existing scheme, buyers can benefit from the federal tax credit only after they've filed their tax returns for the subsequent year.
JD Power cautioned that there could be some downsides to waiting till the next year to buy a new EV. Consumers might forfeit year-end incentives, and they could potentially face interest rate hikes and MSRP increases for the new model year vehicles.
However, the wait could be fruitful after all, JD Power’s analysis showed. Take the Volkswagen ID.4 for instance. Its base model would cost up to $51,584 if bought in September 2023, including the transaction price and five-year interest cost. But if customers buy it in January 2024, the cost of the entry-level model is estimated to be $43,156, including the transaction price and five-year interest.
Another factor potentially affecting near-term EV sales is the lack of price parity between EVs and gas cars. The average price of a mass-market compact electric SUV is $52,000, while a gas-powered compact SUV costs only $34,000. JD Power said this could lead to budget-conscious buyers “cross-shopping” a mass-market EV instead of a similarly priced premium ICE vehicle. In fact, 67 percent of new car buyers considering EVs also have their eyes on gas-powered options.
However, Tesla is an exception. The Model Y, for instance, has already achieved price parity with gas-powered cars in the compact premium SUV segment, where it accounted for one in three EVs sold in the first nine months of 2023. As of October 27, 2023, the Model Y starts at $43,990 (before taxes and fees) and even undercuts the BMW X3 and Mercedes-Benz GLC among others in the US.
That said, EV options could be limited even after the updated federal clean vehicle credit takes effect next year. General Motors has pushed back on its EV production plans, and Ford is scaling back its EV investment due to escalating losses. It has been a challenging period for the Detroit automakers. Despite that, JD Power anticipates the EV sales momentum to grow over the next few quarters.
Data backs up the optimistic outlook. It took five and a half years for total EV sales to hit one million units in the US. The leap to two million took only 18 months. JD Power forecasts the three millionth EV sale to happen in December 2023, taking just 12 months. Automakers in the US are expected to sell four million EVs by Q3 2024.