Recapping last year’s Battery Electric Vehicle (BEV) market performance, 2023 BEV Light Vehicle sales exceeded 1.2 million units – the first year to surpass the million-unit mark – and closed with a 7.7% market share. Tesla made up half the volume after setting an aggressive sales growth target supported by multiple price cuts throughout the year. Other automakers also reduced pricing in order to compete and took advantage of IRA federal tax incentives before new battery sourcing stipulations went into effect for 2024. The fourth quarter typically sets BEV sales records each year as dealers sell off prior year models at discounted rates and buyers can quickly benefit from tax credits early in the new year, but Q4 2023 remained flat compared with Q3, signalling a potential softening in the market. While it remains too early to say that the market is trending downward, the sales headwinds are gaining traction. After years of double-digit growth in the US BEV market, pessimism now looms over the industry with the recent sales slowdown, and automotive executives are changing their tune on future growth targets.
Many models lost tax credit eligibility on January 1st, 2024, causing further sales decline as we moved into the new year. With inflationary pressures and vehicle prices remaining high, automakers are under pressure to cut prices further and offer discounts to offset the tax credit loss. The overall auto market condition continues to deteriorate as interest rates remain elevated with relief not expected until the Fed introduces rate cuts towards the middle of the year.
Vehicle pricing will always be at the forefront of the decision-making process when purchasing a new vehicle, but the lack of sufficient US charging infrastructure is the Achilles heel holding back BEV sales for the mainstream audience. Outside of the Tesla Supercharger network, public infrastructure scale and reliability score poorly nationally. Range anxiety is now shifting to charge availability anxiety with many charge points being inoperative and the ones that do work being occupied by other plug-in vehicles. It also now seems to be a yearly occurrence that electric vehicles make the national news when freezing weather negatively impacts range and causes charging stations themselves to fail. In January, Chicago BEV owners were left stranded at public chargers waiting for days while the infrastructure thawed or having to get their vehicles towed to repair facilities. Negative stories around owning a BEV further perpetuate the belief that the technology is market-dependent and specific to a localised use case.
While dedicated electric vehicles face challenging market conditions, hybrid sales are surging. Toyota is standardising the technology on many of its new generation launches and Honda had a successful year launching new CR-V and Accord hybrid variants, applying the technology to its most popular trims. As other automakers see the buyer pool for BEVs dry up, they are now shifting their near-term strategies to push hybrids, using them as a stepping stone until a robust charging infrastructure builds out with federal funding support. We expect the hybrid surge to continue into 2024 and that they will outsell battery electric vehicles by a slim margin of 9.9% to 9.6% respectively.
As detailed above, there is an inherent risk that the BEV market will stagnate this year and remain close to an 8% share. An upside for consumers will be the likelihood of price cuts offsetting tax credit losses, further discounts on models sitting unsold on dealer lots, and rising lease penetration rates to take advantage of the tax credits. Still, with the market leader Tesla between growth periods, prioritising 4680 cell output and its next-gen low-cost vehicle launch in 2025, the onus to make a statement this year will be on other automakers.
(GlobalData blog on March 13, 2024)
