The auto industry overestimated EV demand this year. Now companies are scrambling.

iStock; Rebecca Zisser/Insider

• Automakers are scrambling to react to a shift in demand for expensive battery-powered vehicles.
• The EV segment has enjoyed a long period of exponential growth.
• But that pace of growth is slowing, leaving some wondering if carmakers pushed EVs too early.

Car companies talk a big game about the transition to electric cars. But behind the scenes, many of these automakers are scrambling to react to a change in demand for expensive battery-powered vehicles.

Take the last few weeks for example: Ford temporarily dropped an F-150 Lightning production shift (despite upping capacity for the electric pickup just months earlier), and said it would renew its focus on hybrids. General Motors said it would postpone some of its electric truck production by a year.

All the while, the once bustling EV startup industry is shrinking by the day, with former Wall Street darlings like Lordstown, Volta, and Lucid folding or missing predictions.

Electric-car shoppers have more options than ever before, a turning point many in the industry hoped would draw more buyers away from gas-powered cars into the battery-powered segment. But the first real test of a fully-loaded EV market isn't going so well. 

Electric vehicle inventories are building up on dealer lots quickly. While the companies argue this bloat is normal for a new vehicle ramp-up, it's still taking dealers longer to sell these cars, sending EV discounts to an all-time high. 

"It's always been the 'build it and they will come' strategy," Vince Sheehy, a car dealer in the Washington, D.C. area, told Insider. "And they're just not coming."

Sheehy, who sells a stable of brands including Ford, Hyundai, Volkswagen, and GMC, says electric cars are the slowest sellers on his lots right now. He currently has enough electric cars to last for 100 days across all brands.

Though the EV share of some automakers' businesses is small, the EV segment has been enjoying a long period of exponential growth. Hovering for years around under 1% of the total US market, EV sales hit a record of 300,000 last year and, through September 2023, the segment accounts for 9% of all sales, according to JD Power.

But that pace of growth – easy to achieve in such a small segment – is showing clear signs of slowing. That begs the question as to whether automakers pushed their transition just a little early.

"It's not necessarily bad news, it's just a matter of, they over-anticipated," said Cameron Johnson, CEO of Magic City Auto Group, a Virginia dealership group selling mostly domestic brands. 

"The customer and the dealer started to say, 'Can you turn off the faucet or can you at least slow these things down?' Because they're coming so fast. We're not able to fill all the seats," he said. 

A perfect storm for EVs

As tons of highly-anticipated electric models hit dealer lots, the entire auto industry was hit with a wave of macroeconomic changes. It's a perfect storm of headwinds for the plug-in market, with high interest rates, difficulty getting loans, and monthly payments at record highs making the already-expensive vehicles hard to justify for the average driver.

Sheehy is seeing this play out on his lots. With the wealthy early adopters largely sated at this point, he says the profile of the average EV shopper has changed dramatically even in the last six months.

"People are no longer evaluating EVs as 'I'm gonna buy an EV, but which one?' It's, 'I'll buy an EV depending on the value proposition relative to a plug-in hybrid, a hybrid, or a traditional ICE vehicle," Sheehy said. "When you look at it that way, you almost invariably don't choose the electric vehicle."

The industry is trying to react to this change, lathering on discounts and taking advantage of new federal programs to bring the average price paid for an EV in September to $50,683, down from more than $65,000 a year ago. But even that is still a price point unobtainable for many, and, as automakers like Ford and Tesla have found out, price cuts cut deeply into the margins of already-unprofitable vehicles. 

Price parity between EVs and gas-powered cars is getting closer in the luxury market, but the same can't be said yet for mass-market cars, which cost an average of $16,000 more than their fossil-fueled counterparts. 

"The one glaring issue," Eric Freshee, president of the Tamaroff Group of dealerships said, "is frankly, the unrealistic timelines that are being set. I don't know if that means we need to change some of the timelines."

Understanding the new EV shopper

All of this is a sign that fully-electric cars – and even their hybrid counterparts – are likely to be relegated to the luxury and ultra-luxury segment for several years to come while the industry inches more slowly toward mass-market affordability.

Stewart Stropp, executive director of EV intelligence at JD Power, said the firm is still forecasting significant increases in EV share moving forward, but the rate of that growth will depend on external factors like improvements to charging infrastructure and a proliferation of EVs that stack up more evenly against their gas-powered counterparts in terms of price and performance.

"Those are absolutely essential elements that need to be in place in order for us to shift out of the early adoption phase," Stropp said.

High-spending, early adopters are harder to come by some 10 years after Tesla reshaped the segment. And without more affordable options, dealers told Insider they are running out of customers to pitch their electric cars to.

One Ford dealer in the Midwest, who turned away Mustang Mach-E allocation earlier this year, said the electric options on his lot aren't matching up with what his customers are looking for – or even what they can afford. Fully-loaded Mach-Es sit on his lot for weeks and months at a time because customers can't justify the hefty price tag – especially while Tesla keeps dropping its prices.

Martin French, managing director at automotive consultancy Berylls, says the transition to EVs is coming. But the inflection point is at least five years off because the industry still hasn't done enough to make an electric car an attractive alternative to a gas-powered car, he said.

"The future is definitely going to be EVs," French said, "but the future for EVs is 2030."

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