There have been a lot of changes in the auto industry and the vehicle market in the past several years, especially since the pandemic. What do I mean—what changed, specifically?
- Electric vehicles (EVs) grew from a niche market, whose manufacturer was Tesla, to all leading and large auto manufacturers selling their EV branded vehicles.
- Prices of new and used cars rose precipitously during the pandemic, as supply-chain disruption created shortages of new cars.
- Besides supply-chain disruption, inflation ratcheted up labor and material costs, as well as freight and delivery costs. In addition, inflation ramped up the costs of auto insurance, maintenance, and gasoline (ICE vehicles only).
- Loans for both new and used cars became far more expensive in terms of the interest rates.
- After the initial flush and flourish first adopters got with new Tesla EVs, followed by numerous competitive “me too” EV brands, problems began to develop, and the demand fell accordingly.
Let’s deconstruct, delineate, and detail each of these in bite-sized chunks so we can contrast the car market of 2019 to the market five years hence.
1. Electric Vehicles (EVs)
We all know the forerunner: Elon Musk’s Tesla. Around mid-2003, the S, E, 3, and X models were a niche, very low, single-digit market share and largely purchased by environmentally conscious Californians, nerdy and techy types, first adopters willing to take whatever risks might be forthcoming. Even with government subsidies, however, Tesla wasn’t making money.
That all changed in 2020, 17 years later. Tesla demand surged and the company became profitable. Besides mostly just California, now China, Norway, and other European countries were buying the U.S. Tesla brand. For years, only one carmaker stood out as the leader for electric vehicles: Tesla. But the company now faces a growing slate of deep-pocketed competitors—Ford, General Motors, Audi, Volkswagen, and Mercedes-Benz—which are disrupting its market dominance.
Tesla’s head start and powerful brand kept the competition at bay, for the most part. In the car business, it’s said that brands are grand, but products pay the bills. You can capture and retain customers with what your company stands for, but in the long run, if you don’t have great vehicles reflecting high quality, you will have a problem.
Tesla’s Quality Issues in 2023
- Build and material quality: subpar for the luxury segment
- Trapped moisture obscure cameras: ongoing problem after rainstorms
- Body panel gaps: oversized and uneven gaps between panels
- Glass roof cracks
- Poor range in temperature extremes
- Premature wear in the suspension components
- “Phantom braking”
On July 23, Tesla will announce its financial results for second quarter 2024, and they are likely to be poor. As the early adopters became the beta testers for the new EV brand, problems with the entire battery-vehicle concept seemed to tone the excitement way down:
Reasons for the Decline in EV Demand
- The market had reached a point where automakers and policymakers can no longer rely solely on early adopters.
- There are concerns about the distance an EV can travel on a single charge.
- EVs take longer to charge compared to refueling gasoline vehicles.
- There are power outage and grid concerns, and worries about infrastructure and reliability.
- There is a lack of service nearby for repairs and maintenance.
- EVs don’t perform well in very hot or cold conditions.
2. Prices of New and Used Cars
Beginning in 1975, new car prices kept increasing, but higher prices also included higher functionality, quality, and safety features. Then, when the pandemic hit, and supply-chain disruptions shut down auto factory assembly lines, the prices went up geometrically:
Because of the shortage of new cars, used car prices went much higher as well.
3. Inflation
Inflation has made car ownership more expensive for Americans. From the initial purchase price to the ongoing expenses for fuel, maintenance, and insurance, the impact of inflation is hard to ignore. As prices of everything from groceries to housing rose, the cost of owning and maintaining a car has also seen a significant uptick. The average annual cost of ownership is up more than 13 percent from last year, to more than $12,000, just over $1,000 a month, according to the automobile owners group AAA. My latest car insurance premium was up 50 percent from last year, from $600 to $900—for just six months of basic insurance!
4. Car Loans
The average auto loan interest rate for new cars is today almost 8 percent, while used cars have an average rate of about 12 percent.
5. EV Demand Wanes
Somewhat surprisingly, the EV market has stalled recently. Why? Because the market has reached a difficult, tenuous inflection point in the technology-adoption lifecycle. More specifically, both automakers and policymakers can no longer make plans based on what early adopters of EVs want. We seemed to be racing toward an electric-car future. Tesla had reached a $1 trillion market cap; Hertz signed a $4 billion deal with Tesla for its rental fleet; government had announced plans to make sure EVs comprise 50 percent of all new vehicles sold by 2030.
The technology-adoption life cycle has seen initial adopters trail off without mainstream adoption picking up the slack. Apparently, what many buyers want—and will pay a premium for—are not fully electric vehicles but hybrids and the plug-in hybrids that serve as a bridge between today and our electric future. This means Toyota seems to have made the right call as they resisted the full battery EV hype.
Summary
The average American car is getting older. According to data from S&P Global Mobility, the average vehicle in use increased two months from last year, to 12.6 years in 2024. Understandable, given all of what we covered above with the higher costs across the car spectrum. With a similar problem facing home ownership, along with falling incomes among younger generations, it appears that an increasing slice of Americana will not own assets but will be forced to lease and rent what they need to live.
The Epoch Times copyright © 2024. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
