EVs and the Middle Class

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By Gary S. Vasilash

Electric vehicles aren’t cheap.

According to the most-recent figures from Kelley Blue Book, the average transaction price for an EV in October was $51,762. (Silver lining? Down 7.4% compared to the price in October 2022.)

The average transaction price for a non-luxury vehicle—arguably the type of vehicle that the average person buys—was $44,331 in October.

That’s a difference of $7,431. Or to go from the non-lux vehicle to the EV a ~17% increase.

Non-trivial.

The big cost in an EV is the battery. It can represent 40% or more of the sticker.

So one thing vehicle manufacturers are working on is reducing the price of the battery.

One of the ways they’re doing this is by using batteries with less-costly materials.

Right now the (more or less) standard type of battery chemistry is NMC, or lithium nickel manganese cobalt oxide. The key things to know are the nickel and the cobalt, as these are the pricey ones.

There is another chemistry, LFP, or lithium iron phosphate. Iron and phosphorus are a lot cheaper than nickel and cobalt.

What’s more, the manufacturing process to make LFP batteries is simpler, which also contributes to a lower price.

However, LFP batteries have less energy density than NMC batteries. Which means less range for the same-size battery.

Additionally, LFP batteries don’t charge as readily in cold environments.

But there’s a price difference of about 30%, so perhaps the downsides of LFP are not a concern for those who are looking for affordability.

Stellantis and CATL, the leading producer of batteries for EVs, have signed a strategic memorandum of understanding (MoU) for the supply of battery cells and modules to the vehicle manufacturer’s operations—in Europe.

For LFP battery cells and modules.

The interesting thing is this:

Carlos Tavares, Stellantis CEO, rationalized the arrangement by saying, “This MoU with CATL on LFP battery chemistry is another ingredient in our long-term strategy to protect freedom of mobility for the European middle class.”

Have you ever heard a U.S. automotive exec specifically say they’re developing EVs for the middle class?

Until that is the stated objective, odds are it’s not going to happen. And there will continue to be that double-digit percentage difference between the cost of an EV and a non-luxury car.

Yes, Ford, for example, is working with CATL on the now-reduced-scope battery plant that will be built in Marshall, Michigan, and yes, Ford has said that the LFP batteries that will be built there will be less expensive than the NMC batteries it offers, but the market is still waiting for a true middle class EV from Ford (i.e., the least-expensive F-150 Lightning that a consumer can buy right now is $54,995 and the median price for a Mustang Mach-E is $46,995).

Perhaps the cooling in the EV market is explained by the simple fact that the vehicles available, for the most part, are simply too expensive for the middle class buyer.

UK Invests in Green Manufacturing

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By Gary S. Vasilash

The UK government has announced a £4.5 billion investment in “strategic manufacturing sectors.” The auto industry will be getting the greatest part of the spend, which will be rolled out over five years, staring in 2025.

Auto gets >£2 billion.

The focus of all of the funding is environmentally oriented, as in zero-emissions vehicles.

While manufacturing isn’t given a whole lot of attention by people who aren’t in some way involved in manufacturing, in the UK it makes up 43% of all exports and employs 2.6 million people. In terms of economic output (as measured by percentage of gross value added), it is third in the UK, following real estate and retail and wholesale.

The Chancellor of the Exchequer, Jeremy Hunt, said:

“Britain is now the 8th largest manufacturer in the world, recently overtaking France. To build on this success, we are targeting funding to support the sectors where the UK is or could be world-leading.”

While part of this might be sticking it to France, it is clear that there is an understanding that investing in making stuff is important to the economy in the UK.

According to the Society of Motor Manufacturers and Traders (SMMT), a trade organization, eight out of 10 cars manufactured in the UK are exported—so if it wants to continue to have that happen, then the manufacturers located in the UK are going to have to produce the types of vehicles that are in demand, which is increasingly (though certainly not entirely) electric.

And getting the wherewithal to produce electric vehicles takes big money, whether measured in pounds or dollars.

Hyundai, Amazon & the Transformation of Dealership Transactions

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By Gary S. Vasilash

The announcement that Hyundai and Amazon have entered into a partnership agreement which will have Hyundai models sold through the Amazon interface will have repercussions in automotive retail the likes of which have probably never been experienced before— perhaps those inflatable gorillas and floppy men had a fairly big effect, or so the traditional car-buying model might have it.

Now this doesn’t mean that the dealership model is kaput. Well, at least not in 2024, when the availability of Sonatas and Tucsons can be configured on the site.

Dealers are still part of the picture.

Customers can search on Amazon for the Hyundai of interest, configure it, and even select their method of financing. The vehicle will then go through a dealership for delivery.

And it is likely that individual dealerships will be able to establish their own storefronts on Amazon the way the purveyors of an array of products do.

A Change Is Coming. Fast.

One of the arguments that is made regarding people purchasing cars on the internet and why it isn’t going to make a difference is that people like to take test drives. People like to see the sheet metal. People like physically see what it is that they’re going to be spending tens of thousands of dollars for over a few years.

True.

But consider this: one of the things that nearly knocked out Best Buy was “showrooming”: People would go to a store to check out that big-screen TV and then go home and buy it on Amazon.

They’d, essentially, kick the tires, and then complete the transaction elsewhere. Best Buy did the work. It didn’t get the reveune.

The incredibly friendly Amazon interface will undoubtedly make it all the easier for Dealer A to promote better deals than Dealer B, so if the Dealer B is where the customer did their showrooming, then A may come out on top. While people can check on individual dealer websites to see what’s available, this setup with Amazon will undoubtedly facilitate that.

And what of the salespeople? Will any given dealership need as many going forward?

Dealership value is undoubtedly going to change profoundly—and not necessarily for the better.

Something like this was bound to happen.

And now it has.

(One of the things that must be considered vis-à-vis this partnership is that Hyundai is clearly positioned as a company that sees how the world works. People buy lots of stuff online. People want convenience. So Hyundai is facilitating that. Many other OEMs are busy perpetuating past practices despite their pronouncements about the future. Those OEMs are like Nokia. Hyundai is like Samsung.)

EV (Dis)interest

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By Gary S. Vasilash

One of the things that isn’t talked about much is the fact that electric vehicles really aren’t that popular unless they come from Tesla.

Flying in the face of that is a finding of Kelley Blue Book that in Q3 2023 EV sales in the U.S. hit 313,086 units, a 49.8% increase over Q3 2022. Such a jump means interest, right?

Well, the total number of EVs sold in Q3 represents 7.9% of total industry sales.

In other words, 92.1% of the vehicles people bought in Q3 weren’t electric.

And to the point of Tesla’s sway over the market—even though KBB saysTesla’s share of market tumbled to 50%–is that KBB acknowledges“Tesla’s price cuts have moved the market, pushing electric vehicle prices down more than 22% year over year, from $65,295.”

That’s right: a single company moves the entire segment.

(And in case you’re wondering, in October, according to KBB, the average transaction price for an EV was $51,762 while the ATP for a non-lux vehicle was $44,331.)

Drilling down a bit more, it is bracing to discover that in terms of share of the EV segment, the mainstream brands really don’t have much in Q3.

  • Chevrolet, 5.1%
  • Ford, 6.7%
  • GMC, 0.4%
  • Hyundai, 6.3%
  • Kia, 3%
  • Nissan, 1.9%
  • Subaru, 0.9%
  • Toyota, 0.9%
  • VW, 3.4%

And know that the 6.7% for Q3 Ford racked up represents 20,926 vehicles: 14,842 Mach-Es, 3,503 F-150 Lightnings and 2,617 E-Transits.

Ford sold 23,931 Mavericks in Q3, of which 56.5% were hybrids. Somehow that 20,926 EVs sold—encompassing three models, one of which is based on the best-selling pickup Since Time Began—seems more than anemic.

So even before Ford started talking about having to make adjustments as a result of the salary and benefit increases in the proposed agreement with the UAW, the auto company suddenly found things like the F-150 Hybrid more interesting.

When I ask knowledgeable people about the subject, they point out that much of the EV development and promotion is predicated on government regulations, more than organic customer demand. Look at those puny percentages up there, slices of the 313,086 vehicles sold by companies ranging from Audi to Volkswagen.

There’s not much there there.

Yes, there will be more EVs offered. More EVs sold.

But—again, absent Tesla—the market demand isn’t at all what it sounds like it should be.

Another example of this not-big demand is something that some point to as a real success story: the Chevrolet Bolt EV.

Here are the sales figures for the past five years:

  • 2018: 18,019
  • 2019: 16,418
  • 2020: 20,754
  • 2021: 24,828
  • 2022: 38,120

Whoa! you might think. From 2018 to 2022 the sales of the Bolt EV doubled! Remarkable.

But there are a couple of elements that need to be considered.

For one thing, Chevy added a (slightly) different body style, the more ute-like Bolt EUV in 2021, which certainly added some interest to the model(s).

And in June 2022 General Motors cut the price of the Bolt to persuade customers to buy one—sort of like what Elon has been doing.

Had Dodge made a substantial price reduction to the SRT Hellcat Redeye Widebody, the Brotherhood of Muscle would exponentially increase its membership of all genders and municipalities throughout the country would have a sharp uptick in revenues from speeding tickets.

If there is a change in the political situation, those regulations that are driving EV development and sales and those incentives that do the same (what if the government offered $7,500 tax credits for the purchase of a Hellcat?), the question of actual market demand is really going to matter.

Will Minivans Make It Once Again?

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By Gary S. Vasilash

One of the things that isn’t often cited with regard to the forthcoming VW ID. Buzz is that it is a minivan. Yes, an electric minivan. But nonetheless the type of vehicle that has more than its share of people who say they’d never be caught driving one.

In the U.S. market, the brand that really brought the minivan to the market back in 1983, Chrysler, is still there with the Pacifica. There is a plug-in hybrid option available for the Pacifica.

Toyota has the Sienna as a hybrid-only minivan.

And there are the Honda Odyssey and the Kia Carnival, although these are ICE-only (for now, anyway).

Which brings us to what they’re calling an “MVP,” or “multi-purpose vehicle,” but which one glance at its configuration says “minivan”: the Volvo EM90.

Volvo EM90: A minivan by any other name is still. . .a minivan. (Image: Volvo)

Volvo describes it as having an interior design that makes it “your living room on the move.”

For years (hard to imagine that the architecture is 40 years on) minivans have always had the most versatile and capacious interiors among light vehicles.

Will electrification make them more appealing to customers such that people will be boastful, not sheepish, about that comparatively boxy three-row vehicle in the driveway?

One thing about the Volvo EM90, however.

It is being launched in China and there has been no announcement it is going to be available elsewhere.

Perhaps if the ID. Buzz becomes a hit in the U.S. market Volvo may offer the EM90 there, as well.

Perhaps.

Polestar Says It Out Loud

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By Gary S. Vasilash

Polestar is an electric vehicle company that, in effect, spun out of Volvo, but Volvo is owned by Geely, but is traded on NASDAQ (as PSNY), so let’s not even try to sort out where the Gothenburg, Sweden-headquartered company exists. (It has announced it will build the forthcoming Polestar 3 in a plant in South Carolina next year. . .the Volvo plant in South Carolina.)

Anyway, yesterday as part of its Q3 earnings presentation it announced a “strengthened business plan.”

Which is notable because the company has stated it is going to put margins ahead of volume.

(Image: Polestar)

Thomas Ingenlath, Polestar CEO, stated, “Margin over volume is our way forward, supported by a gorgeous line-up of four exclusive performance cars.”

Meaning that Polestar is going to focus on the premium end of the EV market.

It figures that as of 2025, when it has four models in production, it will have an annual volume of 155,000 to 165,000 cars, which in and of itself is a rather small number and is smaller when you take into account it is selling globally.

Consider This

According to Kelley Blue Book, in September the average transaction price of a luxury vehicle in the U.S. was $62,342, down 6.2% from September 2022.

Here’s the key to that: “Luxury price declines in 2023 are primarily driven by aggressive price cuts at Tesla, the luxury market leader.” The Model 3 price was down 26% compared to the previous year.

And in the EV space, the average transaction price in September was $50,683, or down about 22% from the previous year “led again by market leader Tesla.”

(Tesla, because of its margins, is really the only OEM that can build mass volumes of EVs and afford to cut its prices.)

The point is, the EV market in the U.S. is pretty much a premium market.

And in the U.S., EVs are pretty much a premium proposition.

When Chevy announced the Equinox EV it made much of the fact that it was going to be a $30,000 vehicle, but it covered itself with “about” and announced a starting price of $34,995. While that is below the average price of an EV, what are the odds there will be many $35,000 Equinox EVs available?

When Chevy announced the Silverado EV work truck earlier this year, pricing was to be just below $40,000, but as reality set in, the price is now above $70,000.

EVs are an expensive proposition.

Let’s face it: until there is some massive change in battery technology (batteries are where most of the cost of an EV is found), the EV market is going to be characterized by prices higher than the ICE market—KBB found that the average transaction price for compact cars in September was below $30,000.

Credit to Polestar for saying it is going to put its profit ahead of volume, something other OEM execs don’t seem to want to say out loud.

Serious Concerns About Money

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By Gary S. Vasilash

Although it isn’t exactly “buyer’s remorse,” according to a survey conducted in the U.K., 50% of vehicle buyers in the past 12 months express concern about whether or not they’re going to be able to afford the financing.

Specifically, when asked “How concerned are you about whether you can afford the payments under your current finance agreement?”

  • 10% responded “very concerned”
  • 40% responded “somewhat concerned”

Notably, in the “somewhat concerned” cohort, 55% were younger buyers. Perhaps reflecting a certain financial conservatism, only 16% of those 65 or older expressed that.

The survey was sponsored by ALPHERA, a part of BMW Group Financial Services.

While not auto-specific, findings of research conducted in the U.S. by Experian are more concerning.

It found that 68% of U.S. adults have or are suffering from “financial trauma.”

Including “negative thoughts, flashbacks and anxiety.”

And, again, the younger cohorts stand out:

  • 73% of Gen Z adults
  • 77% of Millennials

Seems like greater consideration before hitting the “buy” button might alleviate some concerns, both in the U.S. and the U.K.

The Coming EV Cost Challenge

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By Gary S. Vasilash

B-segment cars are not big in the U.S. Of course, these cars, which are under compacts (e.g., Honda Civic, Toyota Corolla, Hyundai Elantra), are physically small, as in things like the Honda Fit, Toyota Yaris and Hyundai Accent, all of which have departed the scene in the U.S.

However, the B-segment has a solid following in Europe probably not because Europeans just like to wedge themselves into smaller vehicles but because of things like high gasoline prices and parking challenges.

The Boston Consulting Group (BCG) recently performed an analysis of the costs of producing B-segment electric vehicles (EVs) for the European market.

This is apparently quite a challenge, as they found:

“the price difference between a B-segment EV and a similar ICE vehicle is greater than the price differential for other EV and ICE vehicle segments. An analysis of recent French price data found that the average retail price premium on a B-segment EV compared to its ICE counterpart is around 75% (€36,800 vs. €20,900). In the C- and D-segments, the premium is 47% and 11%, respectively.”

People who might be inclined to buy a B-segment EV would likely be disinclined once that price delta is seen at a dealership.

BCG finds that material costs are a big driver, with the material costs for an EV being about 65% higher than the materials for an ICE vehicle.

Batteries play a big role in this.

So as the BCG analysts looked at how prices can be managed, they pointed out, of course, that reduction in battery costs through things like using lithium iron phosphate batteries (LFP) instead of nickel-manganese-cobalt are beneficial.

But there needs to be more done, from reducing the number of vehicle variants to sharing parts across models.

And then there is the manufacturing cost input that must be managed.

The BCG analysts note:

“In the manufacturing realm, restructuring assembly lines to focus solely on producing EVs will automatically lower assembly costs. In both greenfield and brownfield EV plants there are 75% fewer engine preparation and 25% fewer mechanical preparation steps per vehicle compared to ICE factories. This, in turn, improves productivity and factory output while decreasing the number of full-time employees.”

Again, this is about B-segment EVs in Europe.

But it makes one wonder about the recent tentative agreements between the UAW, Ford, GM and Stellantis.

In the BCG model, “decreasing the number of full-time employees” is arguably a positive in that it would reduce costs.

In the new model created by the UAW-OEM negotiators, that is something that is not likely to be realized.

Which could prove to be challenging to the OEMs in the U.S., even when producing much larger EVs.

Faced with competitors who can, this could be rather problematic when pricing those new domestic EV models.

Honda Motocompacto: Ridden

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By Gary S. Vasilash

The starting price of an iPhone 15 Pro is $999.

Which puts the starting MSRP for the Honda Motocompacto electric scooter–$995—into some context.

Chances are, the kind of people who’d opt for that phone model would be ideal for the personal transportation device—and yes, it is more of a device than a traditional scooter, especially given that the Motocompacto can be folded into an easy-to-lug (it weighs 41 pounds, so while you’re likely able to carry it, it probably won’t be for a great distance, which is where the lugging comes in) rectangular (self-) container measuring 3.7 inches wide, 21.1 inches high, and 29.2 inches long: think of it is a narrow suitcase.

The scooter folds into itself so there is a tidy package ready to be put in the truck of a car (ideally a Honda or Acura, as dealers of those brands are where the scooter is sold) for the next last-mile journey.

You meet the nicest people on a Motocompacto. (Image: Honda)

But the point of the scooter is to provide quick urban transport, not to be transported (although that folding is quite clever).

It has a range of 12 miles, a top speed of 15 mph, and it can accommodate a rider who weighs 265 pounds.

Once the battery is exhausted, it takes 3.5 hours to recharge from a traditional plug in the wall.

The typical electric scooter is designed for the rider to be standing up when riding it.

The Motocompacto is designed so the rider is sitting.

This does a couple of things.

  1. It lowers the center of gravity, which facilitates balance
  2. It allows the rider to be able to use their legs to recover if they feel they’re going out of balance

If you’re standing and the platform under your feet is traveling at speed and something goes awry, it could be the makings of a serious tumble.

If you’re sitting on a Motocompacto that is moving along, it is far easier to maintain one’s physical composure (even though one may be thinking “Holy sh**!”).

Riding Is Easy

It really is. No instructions required.

Need for Speed

While 15 mph might seem snail-slow, when your posterior is comparatively close to the wide open ground, it is quick. The Motocompacto is FWD, and it can get to that top speed in 7.5 seconds.

You’ve Heard of Honda

According to data analysis company Tracxn, there are some 450 electric scooter manufacturers. Odds are you’ve heard of not many of them. And odds are you’ve seen reports of late that indicate some e-scooters are bursting into flames. Seems to me that it would be a better investment—even if that investment is higher—to go with a Honda than something built by a company that started up a few months ago and very well may cease to exist a few months from now.

Hyundai and Hybrids

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By Gary S. Vasilash

In reporting its October sales, Hyundai noted that the company that was once thought of mainly in the context of its style-setting Sonata sedan (remember when the 2011 model came out with its “Fluidic Sculpture” styling that made all other sedans seem as though they came from an earlier age?) had 81% of its retail mix in. . . SUVs.

Of course, that has a little something to do with the fact that in the car category there are the Sonata, Elantra and recently introduced IONIQ 6 EV sedan, while in the SUV category there are:

  • IONIQ 5
  • Kona
  • Nexo
  • Pallisade
  • Santa Fe
  • Tucson
  • Venue

(There is also the Santa Cruz pickup, for purposes of providing a look at the entire showroom.)

Hyundai Tucson PHEV (Image: Hyundai)

While there were 9,456 Elantras sold—an 11% increase compared with October 2022 sales—there were 9,700 Santa Fes sold—and that’s a decrease of 10% compared to last year and it still is more than the Elantra sales.

But what is more interesting in some regards is this observation from Randy Parker, Hyundai North America CEO:

“This was the best-ever October for total and retail sales for our segment-leading Tucson HEV, Tucson PHEV, Santa Fe HEV and IONIQ 5 SUVs along with our Elantra HEV.”

Yes, hybrids are doing increasingly well at Hyundai, though there is also that full battery-electric IONIQ 5.

Overall, electrified vehicles represented 21% of Hyundai’s October sales, a 49% year-over-year (YoY) increase.

In terms of the hybrid YoY increases:

  • Elantra HEV:          +15%
  • Santa Fe HEV:        +81%
  • Tucson PHEV:         +170%
  • Tucson HEV:           +14%

Odds are those OEMs that decided to deemphasize hybrids to promote full electric vehicles are giving their portfolio strategy a hard re-think.