The New Car Market Is ‘Stuck’ Because Buyers Can’t Afford Them

The New Car Market Is ‘Stuck’ Because Buyers Can’t Afford Them

Every now and then, it’s good to step back from the electric vehicle sector and take a good, hard look at the car market as a whole. After all, EVs and hybrids had a pretty strong sales month in the U.S. in August; just ask Honda, Hyundai and even Ford. But when you look at the new car market in aggregate, things don’t look as good as they did in past years. Why, you ask? To paraphrase one famous election-related quip from when I was a kid, “It’s the economy, stupid.”

I bring that up on today’s edition of the Critical Materials news roundup because the U.S. presidential election has a lot to do with the new car market, and with the direction EV sales will take from next January onward. And one all-electric family hauler that’s an office favorite at InsideEVs shows exactly what’s at stake.

Plus, how tight are Tesla and Elon Musk’s xAI startup really going to be? Let’s dig in.

30%: The New Cars Are Still Too Damn Expensive 

Nissan starts using BEV Class 8 trucks to deliver cars to dealerships in the LA area

New cars have an affordability problem. Not just EVs, although we know that’s broadly the case (even as more and more cheaper models are debuting all the time.)

The entire post-pandemic new car market has been marked with sky-high prices as automakers that once sought to compensate for supply chain issues got addicted to absurd sticker prices. The average new car price was actually down in August to $44,039, but that’s still awfully high for families everywhere getting squeezed out by the high cost of goods, a slowing job market and other challenges. 

This story on the slowing new car market from Automotive News has too many good quotes to pull from, but I like this one: 

“A lot of borrowers are really hanging on by a thread,” said Charlie Chesbrough, senior economist at Cox Automotive, adding that Cox’s most recent estimate of average monthly auto payments was $767 for new vehicles, $566 for used vehicles and $558 for leased vehicles. Those are down slightly from earlier peaks as average new- and used-vehicle prices have been trending lower, Chesbrough said.

“This affordability issue is improving a little bit out there for vehicle buyers, but it still remains at very, very high levels,” he noted. He said high interest rates are a factor and noted that 20 percent of new-vehicle purchases are now cash deals, compared with just 12 percent five years ago, before the start of the COVID-19 pandemic.

And this one:

“It’s going to be a very challenging second half of the year unless consumers get some relief,” J.D. Power’s Jominy said. He said the industry may need to do a hard reset of its expectations in a landscape that has priced many consumers out of the new-vehicle market, including budgeting more for incentives.

“We need to reframe the way we think about the industry. I mean, a 17 million SAAR? We’re never getting back there,” Jominy said. “The price [increases] we’ve taken means that we have contracted the volume fundamentally in the industry.” 

If you aren’t familiar with industry jargon, J.D. Power data impresario Tyson Jominy is referring to the seasonally adjusted annual rate (SAAR) for new vehicle sales in the U.S.; total annual sales were around 17 million for much of the back half of the 2010s. In simple terms, annual new car sales are projected to be in the millions less than they were a few years ago, and automakers and dealers alike are kind of panicking about it. 

And as that story notes, sales were actually better than in August 2023, but below projections, leading some to worry that America may never get as high as 17 million annual new vehicle sales again. 

“The market is stuck,” [Jominy said.] “It’s a standoff right now — between consumers, dealers, automakers and lenders — to see which one is going to blink.”

What was expected to have been a robust August—albeit artificially inflated by a holiday weekend that usually falls completely in September—instead was rather flat, with a seasonally adjusted, annualized rate of sales of just 15.1 million vehicles, according to Cox Automotive and J.D. Power. That’s the second-lowest selling rate so far this year, behind January’s 14.9 million, according to Motor Intelligence.

So what’s holding back the market? Analysts cite a variety of possible reasons, from uncertainty about the U.S. elections in November to consumers waiting for an anticipated interest rate cut from the Federal Reserve this month, in addition to questions about the health of the economy. But the consensus is that something has got to give before the market moves one way or another.

It’s just not a great time to be a new car buyer in America, agnostic of what powers that car. Lease deals on EVs continue to be very strong, but even we don’t see those as a sustainable long-term solution. 

60%: The Kia EV9 Has A ‘Wait And See’ Problem

2024 Kia EV9 in US specification exterior front three-quarter view

2024 Kia EV9 in US specification 

We’re big fans of the Kia EV9, which represents one of the best ways to haul three rows of passengers around, period. And Kia has high hopes for the crossover, which is why it’s now being built in Georgia as well as its native South Korea.  

But Kia’s U.S. COO Steve Center told Automotive News that the automaker is intentionally slow to up Georgia production, in part because the current tax credit rules don’t fully cover the batteries that power the EV9. The crossover won’t get the full $7,500 at the point of purchase (it still gets this if you lease it) until 2025, same as the updated Hyundai Ioniq 5:

The Hyundai Ioniq 5 will be the first vehicle to come from the factory when it comes online next month. But the battery portion, part of a joint venture with LG Energy Solution, will lag by about a year, so initial vehicles will be eligible to receive only a partial $3,750 credit.

A joint venture with SK On in Bartow County, Ga., expected to open in the second half of 2025, will supply batteries to other U.S. factories, including Kia Georgia in West Point and Hyundai’s plant in Montgomery, Ala., which builds the Electrified GV70. Center did not specify where the U.S.-sourced batteries that will power the EV9s next spring will be built.

So far, Kia has been leaning on a provision in the law that allows automakers to pass the incentive to buyers if they choose to lease an EV, regardless of its assembly site. That has benefited the EV9 as well as Kia’s compact EV6 and subcompact Niro crossovers.

Basically, to fully qualify for tax credits, both the car and the batteries it uses—as well as a number of critical minerals within—have to be North America-sourced. It’s a complex rule and because China so thoroughly owns the battery supply chain right now, very few cars qualify for this. And that’s all before a potential Trump Administration 2.0 could rewrite the rules: 

“What will impact consumer demand is when you have a very strong policy reversal,” he said. “If the administration changed, and the $7,500 tax credits were eliminated, that would impact a lot of middle-class and below buyers,” he said.

[Meanwhile] the leasing provision is a “very fragile” regulation “because that’s an IRS interpretation, and they can probably reinterpret things.” 

As we’ve covered before, even though he’s come around somewhat with his bromance with Elon Musk, Trump has little love for EVs—and is probably quite unlikely to continue the Biden-era policies that drove their purchase and manufacture in the U.S. 

Now you see why so many carmakers are in “wait and see” mode with their EV plans until after November. My theory is that a Trump re-election just blows the door wide open for China to arrive in our market with great EVs that people actually can afford, possibly through Mexico or maybe in the U.S. itself as he’s alluded, and he may not like what that outcome means for our domestic automakers or those of our close allies like Germany, South Korea and Japan.  

90%: Tesla And xAI: A Match Made In Heaven?

Tesla Optimus humanoid robots walking

Tesla

Tesla Optimus humanoid robots walking

Speaking of Musk, as we all know, he’s staked the future of Tesla on robotics and artificial intelligence. He also started his own such company, xAI, in response to the rise of Sam Altman’s OpenAI.

But people often assume all the Musk companies are completely inter-related; in fact, Tesla is the only publicly traded one, but that hasn’t stopped Musk from mingling them in the past.

So this Wall Street Journal story has raised a few eyebrows about what an xAI/Tesla partnership that’s reportedly been discussed could mean for the latter company’s revenue:

Elon Musk’s AI startup xAI has discussed a deal where it would get some Tesla revenue in exchange for providing the carmaker access to its technology and resources, the latest example of the growing interconnectedness of Musk’s companies.

Under a proposed arrangement as described to investors, Tesla would license xAI’s artificial-intelligence models to help power its driver-assistance software, called Full Self-Driving, and share some of that revenue with the startup, according to people familiar with the matter. xAI would assist in developing other features for Tesla, including a Siri-like voice assistant inside its electric cars and software to power its humanoid robot Optimus, the people said.

The terms of any revenue-sharing agreement between xAI and Tesla would depend in part upon how extensively Tesla relied on xAI’s technology as opposed to its own, the people said. xAI executives have discussed an even revenue split from Tesla’s FSD, one of the people said.

Also, this:

Formalizing a partnership with xAI in which Tesla would hand over some of its revenue and future AI development to a separate Musk-controlled company would add to the tech mogul’s practice of sharing assets freely across his business empire.

Musk is already shifting talent and hardware between xAI and Tesla as he plays catch-up in the AI race, raising concerns about potential conflicts of interest. There is particular scrutiny around how Musk shares resources of Tesla, which is publicly traded. Several Tesla shareholders have filed suits claiming that the shift in resources to xAI has hurt the carmaker’s investors. The cases are pending in the Delaware Court of Chancery.

Musk later denied the report, though he admitted he hadn’t read it. “WSJ is talking nonsense,” he said on X, the social media network he owns. Meanwhile, Tesla’s sales have been down all year amid rising competition and it’s not yet clear what product xAI could even create or what revenue it might supposedly drive. I suppose we may find out more in about a month, but at some point, it’s going to have to be more than just hopes, dreams and tweets.

100%: Did You Buy A New Car This Summer?

2024 Kia EV6 Long-Term test

insideevs.com

2024 Kia EV6 Long-Term test

Two InsideEVs editors took advantage of those aggressive lease deals this summer, but even I’ll admit that absent those, the near-$45,000 average new car market doesn’t feel all that appealing. What have you been looking at these days, and did you pull the trigger on something? 

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