Carmakers in leading western markets have significantly increased the range and scale of discounts they offer on electric vehicles in a bid to counter weaker-than-expected appetite for battery models among mainstream buyers.
Sales and financial data compiled by HSBC shows carmakers are, for the first time, having to offer deals on battery models in order to shift vehicles that previously had months-long waiting lists.
The average discount in October in the UK was 11 per cent below the recommended retail price. In the US, discounts on EVs were at 10 per cent. A year ago, discounts were barely offered in Germany where companies are now cutting prices by about 7 per cent to attract buyers.
Rising prices, negative publicity around charging and safety, political attacks on EVs as well as greater caution from mass market buyers have contributed to a sharp deceleration in sales growth.
It is the first global slowdown in EV demand since sales took off three years ago, raising concerns that car companies will be forced to sacrifice profitability by offering discounts in order to hit clean air or emissions targets across the world.
“There are clear signs of carmakers pushing EVs,” said Mike Tyndall, autos analyst at HSBC. “This was almost unthinkable at the start of the year.”
In the UK, two-thirds of new EVs sold are on offer or have heavily discounted interest rates for financing, according to numbers from AutoTrader. In the US, discounts offered on EVs have tripled in the past 12 months.
Discounting in Germany has remained steady at 7 per cent over the past few months, but some carmakers there are still offering up to a fifth off their best-selling models.
Tesla, meanwhile, has consistently cut prices in Europe, the US and China to support vehicle sales, denting resale values of models from rival brands.
The warning signs have started flashing. VW delayed plans for a fourth battery factory, citing “sluggish” EV demand in Europe, while Mercedes-Benz blamed a “brutal” price war in China for falling profits.
“The whole market has suddenly come off the boil,” said one senior auto executive.
Until recently, carmakers ploughed billions into developing EVs, spurred on by tightening emissions rules and the promise of an ocean of untapped consumer demand.
For years, the growth of the EV industry was held back by supply and some of the oversupply comes as manufacturers ramp up production. Nevertheless, decelerating demand growth has led to discounting that threatens the long-term pricing of the segment.
The slowdown comes as carmakers struggle to convince a new tranche of buyers to switch from petrol or diesel. After the enthusiasm of the early adopters, the mass market is proving much less forgiving of the foibles of battery motoring.
“We were always going to come to the point where the early adoption phase was going to finish, and you were going to need to make the transition to mass adoption,” said Alex Smith, who runs Volkswagen in the UK.
“At that point, you have a slightly different consumer mindset, people who want a really high degree of rational convincing, and have slightly higher bars on the conditions they demand before making a switch”.
Those higher bars include price, and greater worries over charging infrastructure, and bad publicity about charging and safety.
The primary concern was infrastructure, said Thomas Becker, head of sustainability at BMW. “As soon as people have the confidence that infrastructure is not what’s going to stop them, then the other factors kick in.”
Price has always been an issue for EVs, which tend to be more expensive than petrol cars although cheaper to run. Previously, falling battery prices and technology improvements put EVs within striking distance of petrol rivals. Consumers who could charge at home would find their overall costs – sometimes called the “total cost of ownership” – were at parity with engine cars.
However, higher interest rates pushed up financing costs and put an end to that. Car prices have risen across the board, but the price of EVs has increased faster, with leasing costs increasing more for battery-run cars because of a steeper fall in resale values.
Three years ago, one leading European car group offered some petrol and electric models at the same leasing rate at the same profit margin. Today, the vehicles are far apart on financing costs, according to an executive.
And while many business buyers receive generous tax incentives, retail buyers are finding the increased prices harder to swallow, especially in markets such as the UK that have wound down purchase incentives.
“Retail demand has been more challenging,” admits Fiona Howarth, who runs the lease business Octopus EV, which sells cars in the UK and US. “Interest rates and residual values had made monthly payments higher, so finance deals are now much more expensive across the board,” she said.
This leaves the carmaker with an unpalatable choice: sacrifice margin to hit EV targets, or hold the margin firm and slow the transition to electric and risk losing ground to other rivals, especially Chinese manufacturers.
Steep price cuts have already come in for several best-selling models according to HSBC.
In Germany last month, there was 20 per cent off the BMW i4, 11.5 per cent off the MG4 and 11pc off the Dacia Spring, which is a new lower-cost model from Renault’s entry-level brand.
In the UK, the electric Fiat 500 and the Peugeot 208e – both models from Stellantis – were each discounted by more than 22 per cent, while VW ID3 and its sister car the Škoda Enyaq were offered with 12 per cent off.
In the US, Hyundai was discounting the Ioniq 5 by $9,400, while Ford cut $6,700 from the price of a Mustang Mach-E, whose buyers separately qualify for a partial EV tax credit.
Yet there is another leading factor that is putting people off buying an EV: government policy. There are now cracks in the once dead-certainty that EVs were the only option for the future.
The decision by Brussels earlier this year to allow new petrol cars running on synthetic e-fuels to be sold after 2035, a concession handed to Germany after a flurry of lobbying, sent shock waves across the bloc.
“People are very confused because they hear different messages in Europe now,” said Linda Jackson, head of Peugeot. Customers who thought they had to go with an EV are suddenly told there are alternatives, no matter how niche.
In the UK, the decision to postpone a ban on selling new petrol cars from 2030 until 2035 has changed the mood music around EVs.
“Anyone who was almost [about to buy an EV] has thought they have five more years now,” said Darren Ardron, who runs the Perrys dealership group in the UK.
Consumers have also been bombarded with negative stories from anti-EV media outlets in several countries about long queue times for chargers and claims about battery fires.
“The idea of people seeing media reports all the time about queuing at a charger, that wouldn’t be good,” said BMW’s Becker, who added he did not have to queue once at a charging station while taking an electric road-trip across France earlier this summer.
But despite the growing pessimism surrounding the industry, some executives are taking a long-term view. Lakshmi Moorthy, UK head of BNP Paribas’ leasing group Arval, said it will “take time” for consumers to be confident to make the switch.
“We must remember: these are the early blips on what is a longer journey.” – Copyright The Financial Times Limited 2023