Gas Price-Sparked EV Interest No Passing Fad, Cox Economists Predict

Consumer interest in electric vehicles surged as fuel prices breached the $5.00 a gallon threshold but we’ve been there before. When gas prices spiked over a decade ago many buyers abandoned their SUVs and pickup trucks for more fuel efficient small passenger cars. When prices finally ebbed, passenger cars became an endangered species with utility and pickups again ruling the market.

That begs the question as to whether enthusiasm for battery electric is a tenuous infatuation and will also disappear once fuel prices retreat to make them a non-issue.

Cox Automotive Chief Economist Jonathan Smoke doesn’t think so. When Forbes.com posed that scenario to him during a briefing on market conditions and the economy, he took issue with the premise.

“I think the enthusiasm is not tenuous,” Smoke insisted. “I think we’ve had a watershed event that is opening up consideration. My guess is it’s probably more permanent. The consideration is real because consumer reluctance is dropping.”

Of course, he admitted, there’s a considerable gap between enthusiasm, consideration and stated interest and actually purchasing an EV. Indeed inventory and price stand in the way.

“Even if everybody decided, everyone wants an electric vehicle, the industry can’t fulfill it, let alone the economics,” Smoke pointed out.

Cox executive analyst Michelle Krebs expanded on the situation citing shopping data from the company websites.

“ Watching shopping consideration on our web sites, since January we’ve seen almost a 70% increase in interest in EVs, 25% in hybrids. But they’re not there to buy. All kinds of consideration. The inventory not there.”

EV sales are still an extremely regional proposition, with Smoke pointing out “It’s 10-plus share in some areas and zero everywhere else.”

But the introduction of the electric Ford F-150 Lightning pickup could be a catalyst in breaking down that disparity according to Cox Senior Economist Charlie Chesbrough who called it a “game changer.”

“The fact that it came out and was as successful as it was, it sold out, really addressed that question will a pickup truck buyer buy an electric vehicle. Would red state America be interested in an electric vehicle. All of a sudden we saw, yeah, anybody’s interested in electric vehicles if you can deliver a solid product,” observed Chesbrough.

Looking at economic conditions and the automotive market overall, the Cox outlook is decidedly downbeat reducing its forecast for full year U.S. new vehicle sales to 14.4 million units down from 16 million earlier this year. Even so, with tough economic conditions, continuing production issues and consumer sentiment sinking Chesbrough noted the lower forecast is a “bit of an optimistic outlook.”

When automakers report June sales figures, Cox predicts the number will come in at 1.2 million, down 7.8% from the 1.3 million units sold during June, 2021 with the seasonally adjusted annual selling rate declining 11% from 15.5 million to 13.8 million.

Cox predicts full year used vehicle sales will fall to 37.1 million from 40.6 million last year but rebounding to 37.5 million units in 2023.

On the upside, Chesbrough predicted General Motors
GM
Co. will reclaim the sales lead from Toyota Motor Co. when the second quarter ends this Thursday, recording close to 576,000 units sold over the three-month period. The key factor is GM finding itself in a stronger supply situation, Chesbrough noted.

He predicted sales would also be strong for Ford Motor
F
Co. and Hyundai as their inventories begin to bounce back, but Honda and Nissan are expected to report Q2 sales declines of 47.7% and 32.7% respectively due, in part, to inventory issues.

The overall sales champ for the first half of 2022 is expected to be Tesla
TSLA
—the only automaker Cox predicts will record a year-over-year improvement.

Whether it’s vehicles powered by internal combustion engines, batteries or hybrid powertrains, affordability remains a challenge for consumers.

Cox reports the average transaction price for new vehicles in May climbed to $47,148 up 33.2% from May, 2022. Indeed just 16% of new vehicle sales this year were priced below $30,000.

Smoke and Chesbrough predict as vehicle production builds, pricing will begin to moderate and automakers are likely to resume offering incentives.

But for now, Chesbrough concludes, “They don’t have enough product out there for people who do want to buy this year.”