Sales of electric vehicles are expected to reach historic highs this year in large part because they’re becoming more affordable according to a new study released this week. But shoppers who are interested in an EV but still can’t swing a new one, won’t find much relief on used car lots.
Consumers have long cited high prices as a roadblock to buying an electric vehicle, but a new study released Wednesday by JD Power states “approximately half of all vehicle shoppers nationwide will have a viable EV option available to them by the end of 2023. By the end of 2023. end of 2026, that number is expected to surpass 75%.”
The analytics company drew its conclusion on its new JD Power EV Index. Based on a 100 point scale, the score for EV availability rose to 39.4 in January from 35 in December 2022. That means about four-in-ten new vehicle shoppers currently have a viable alternative to ICE vehicles, according to JD Power.
The study also showed overall affordability improving, rising to 85.6 in January based on the availability of lower-priced EVs and tax credits via the Inflation Reduction Act. It cites the Chevrolet Bolt as the first EV with a five-year purchase total cost of ownership of under $30,000 at $26,200.
“Once the overall affordability index reaches 100, EVs will have reached price parity with their internal combustion engine (ICE) counterparts,” according to the study.
The combination of increased availability and affordability pushed EV sales to a record high of 8.5% of the total new vehicle and purchase market in February, according to JD Power.
Indeed, economists at Cox Automotive earlier this week predicted sales of new electric vehicles in the US would top one million units this year for the first time.
“I would argue that even before the IRA was passed, we were destined to have a million and it was purely supply driven,” said Jonathan Smoke, Cox Automotive Chief Economist in an interview. “I don’t think we’ve started to challenge the adoption of vehicles in either the fleet or the retail market, and so one million is, I think, really, if it’s there, it’s going to sell. Now you add the tax credit to it, and you add what appears to be a much easier path for consumers and businesses alike to see to see that, to see that credit helps to mitigate some of the payment challenges.”
Pushing that increase is dominance of the best-known automaker that builds only electric vehicles and others said Charlie Chesbrough, Cox Automotive Senior Economist.
“We see huge gains for EV-only brands,” said Chesbrough during a quarterly auto market briefing on Monday. “Tesla is likely to see nearly 40% more than say October last year and last quarter, resulting in a 1.4% increase in Q1 market share over their 2022 finish. The new kids on the block, Rivian and Lucid are now starting to get significant sales volume and they are headed even higher.”
Ironically, the popularity of Tesla EVs has contributed to escalating average transaction prices for new vehicles.
The average transaction price has increased 5% since last year to around $49,000, according to Cox. A big contributor is the rising popularity of luxury brands, especially Tesla.
So far this year luxury brands, not counting Tesla, have captured just shy of 14% of the US new car market. When Tesla sales are included, the luxury share climbs to just below 19%, according to Cox research.
Even with the optimistic pricing assessment in the JD Power study on EV affordability, they’re still out of reach for some consumers. They shouldn’t expect to find exceptional EV deals at used car lots either.
Cox’s Jonathan Smoke points out supply just isn’t there, observing fewer EVs than expected are being offered at wholesale auctions in part because some just aren’t being sold through traditional channels that help build retail inventory, such as off-lease cars.
Where more modestly-priced Chevrolet Bolt EVs and Nissan Leaf represented the bulk of offerings at wholesale auctions, pricier Teslas are coming in as owners decide to trade up for higher models, said Chris Frey, Cox Automotive Senior Manager Economic and Industry Insights.
That all adds up to a downbeat outlook towards landing a deal on a used EV, at least by taking advantage of tax credits, predicted Smoke.
“I think the real test for EVs in the used market is going to be over the next couple of years,” said Smoke. “We’re not so optimistic that the tax credit for used EVs is going to be that useful because the rules there don’t have a great way to bypass the rules, and the effect is I think you can count the number on one hand of vehicles that may qualify for the tax credit.”
But as automakers continue to broaden their electric vehicle product lines offering consumers more choices across price points, that parity between EV and ICE affordability may indeed be reached, breaking down a key barrier to EV adoption.