Are electric vehicles too expensive? Have you been turned off by new car prices? Good news, there’s evidence showing new car prices could drop soon.
The automotive market is more than 100 years old, but in that time, it’s never seen the flux that we’re about to experience. The past few years have been troublesome with shortages of new cars and used models going for higher prices than when they were new, but things are about to change. The next few years will be the first time in this industry’s history in which different types of vehicles, electric and internal combustion, are vying for the same customers, causing a bit of a market tailspin.
The rule of supply and demand will be broken
The rule of supply and demand is pretty simple. If the supply is greater than the demand, prices must be lower to entice more consumers to buy products. If the opposite is true, demand is greater than supply; prices can be much higher. Because the automotive market is transitioning from traditional vehicles to EVs, with several years of both becoming part of the market, the supply is about to skyrocket. This should bring some of the prices down, but we might not see this relief until near the end of the year.
How big is the surplus expected to be?
According to Yahoo Finance, a report from UBS provides an estimation of new vehicles in excess of 6% this year. This translates to five million new models that could require price cuts to be sold off lots around the world. Don’t expect price cuts before the calendar changes, but expect them to begin starting next year. Some of the limitations automakers and dealers have had for consumers over the past few years, caused by the COVID-19 pandemic, will no longer be restrictions.
We could see a new wave of falling new car prices in both ICE models and EVs. Currently, EVs are nearly $20,000 more expensive than their ICE counterparts, but that could change soon. The return of rebates, impressive vehicle financing, and employee discounts could be widespread as dealers scramble to get the 2023 models sold off to make room for new 2024 vehicles.
Which vehicle class will be impacted the most?
As is the case every time there’s a rift in the automotive market, mainstream vehicles will suffer the most from price cuts. Most mainstream models are built for volume sales with lower profit margins to appeal to the average consumer. Dropping prices will cut into these margins but allow dealers to clear space for new models. The luxury car world is less likely to suffer from the expected price cuts but will still expect some cuts into profit margins, ensuring better prices for luxury vehicle consumers.
Has the price drop already begun?
New vehicle prices dropped for three straight months heading into March of this year, but is that due to a saturated market or because the new vehicle market is finally catching up with the used car market? It takes a long time for any industry to recover from dramatic shifts, and the coronavirus pandemic caused an incredible shift in the automotive industry. Once new car prices hit lower marks, the next question will be whether or not they will stay there as we move forward.
Are too many new EVs hitting the market too quickly?
The automotive industry is in a state of confusion and trepidation. The expected goal is to increase EV sales to represent 50% of all new vehicle sales by 2030. This means either cutting gas-powered models and completely replacing them with electric vehicles or selling electric alternatives to gas-powered vehicles. To date, most automakers have opted for a mix of the two, adding new EVs and some electric alternatives. We can see examples of this with Ford’s F-150 Lightning, which is an electric pickup truck, but also its Mustang Mach-E, which has nothing in common with the traditional Mustang except the name.
What should consumers do?
If you’re one of the many consumers who’s been waiting for new car prices to drop before buying your next vehicle, the time is nearly here. Expect prices to decrease significantly over the next few months. Once the prices drop and dealerships present extra deals to move 2023 models from their lots, the time to buy will be at hand.
Will automakers continue to build excess vehicles going forward, or will the next few years provide the data to show the proper mixture of ICE and EV models?
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