Electric vehicle (EV) sales have slowed down in recent months in America and Europe. Tesla, a leading EV maker, reported poor quarterly results in April, with falling sales and revenues. Some have interpreted this as a sign that the EV revolution is in peril. However, there are several reasons to believe that demand for EVs will pick up again soon.
One reason for optimism is that the recent slowdown is partly due to cyclical factors. Sales grew rapidly in 2021 and 2022 as cash-rich consumers went on a post-pandemic spending spree. Many EVs that are not being bought now were purchased back then—as were lots of other durable goods. Higher interest rates also make it more expensive to finance an EV purchase.
The green premium is narrowing for many EV models. Prices of battery minerals such as lithium have fallen, as have prices of the cells they go into. Five years ago, electric SUVs were two to three times the cost of their gasoline-powered counterparts, without being two to three times as good. Today, you can buy a Ford F-150 Lightning for less than $40,000, just $4,000 more than the gasoline version of the popular pickup—$4,000 that you earn back in a single year by not having to fill up with petrol.
It is easier to juice up an EV, too, at one of roughly 200,000 charging ports across America, twice the number available in 2020. In China, electric cars are already the cheaper option on average, even before running costs. Small EVs are two-thirds the price of a comparable fossil-fuel runaround. A new survey by AlixPartners, a consultancy, found that 97% of Chinese car buyers say their next car will run on batteries.
Established carmakers may also draw lessons from the Chinese experience. Whereas early adopters bought a Tesla as a status symbol, the Chinese are now buying common-or-garden BYDs because they are good value. Western makers should fixate less on high-end models and stop neglecting the middle-of-the-road. Until they do, high prices will keep demand subdued and economies of scale elusive.
The fact that investors are becoming more discerning should help. They are no longer prepared to pour billions into any e-startup with a passable slide deck. And they are rewarding firms with mass-market ambitions. Tesla’s stock price plunged when it was reported earlier this month that Elon Musk would scrap a $25,000 Tesla in favor of a fleet of self-driving robots. The share price bounced back on April 23rd, after he performed a U-turn. Shares in General Motors, whose bosses talked up its coming mass-market EVs on an earnings call this week, have gained 25% so far this year.
Western governments concerned about climate change and their exposure to oil prices could do more to speed along the EV revolution, by allowing Chinese carmakers into their markets. AlixPartners found that seven in ten Americans, Britons, French, and Germans would consider an EV from China if it cost 20% less than a non-Chinese alternative—which is close to the real price difference. So far, policymakers have focused on expanding charging capacity (which is welcome) and handing out subsidies (which is less so). They would do better to lift the barriers that keep Chinese EVs from their roads. That would please motorists and, by boosting competition, jolt established carmakers into cleaning up their EV act.
