FYI: The U.S. new car market remains in turmoil, with EVs bucking the trend while affordability issues and economic uncertainties loom large.
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Every so often, it’s essential to step back from the electric vehicle (EV) segment and view the broader car market landscape. While EVs and hybrids posted robust sales in the U.S. this August—highlighted by companies like Honda, Hyundai, and Ford—the overall new car market tells a more sobering story. The reason behind this shift can be summed up with a twist on a well-known phrase: “It’s the economy, stupid.”
### Economic Pressures and the New Car Market
The ongoing economic situation has significant implications for the new car market, particularly as the U.S. presidential election approaches. The policies of the incoming administration could shape the future of EV sales from next January onwards. One example highlighting this uncertainty is an all-electric family hauler that remains a favorite at InsideEVs, underscoring what’s at stake.
Moreover, how closely tied are Tesla and Elon Musk’s AI startup, xAI? Let’s delve into the details.
### The 30% Dilemma: New Cars Are Still Too Expensive
New cars are facing a glaring affordability problem, not just EVs. Even though more budget-friendly EV models are emerging, the post-pandemic car market is plagued by exorbitant prices. Automakers, initially adjusting for supply chain issues, have grown accustomed to these high prices. Although the average new car price dropped to $44,039 in August, it’s still a steep cost for many families grappling with economic pressures and a slow job market.
Charlie Chesbrough, Senior Economist at Cox Automotive, captures this sentiment, saying, “A lot of borrowers are really hanging on by a thread.” Cox estimates that average monthly auto payments are $767 for new vehicles, $566 for used cars, and $558 for leased vehicles. While affordability is improving slightly, high interest rates and cash deals (now making up 20% of purchases compared to 12% before the pandemic) are influencing the market significantly. Tyson Jominy from J.D. Power concludes that the industry needs to recalibrate its expectations, noting, “We need to reframe the way we think about the industry. I mean, a 17 million SAAR? We’re never getting back there.”
### 60% Conundrum: The Kia EV9 Faces a ‘Wait and See’ Issue
The Kia EV9 has emerged as an exceptional option for transporting three rows of passengers. However, Kia’s U.S. COO Steve Center mentioned that production in Georgia is being intentionally slowed due to the current tax credit regulations, which don’t fully cover the batteries powering the EV9. Although leasing the EV9 provides the full $7,500 credit, a sale does not.
Kia hopes that by 2025, the EV9 will fully qualify for these credits. This complexity stems from the requirement that both the car and its batteries—along with a number of essential minerals—must be sourced from North America. Given China’s dominance in the battery supply chain, very few cars currently meet this criterion.
Further uncertainty looms with the potential re-election of Trump, who has reservations about EVs. A major policy reversal could impact middle-class buyers significantly and alter incentives. Such a scenario could even open the U.S. market to affordable Chinese EVs, affecting domestic and allied automakers alike.
### 90% Insight: Tesla and xAI—A Potential Partnership?
Elon Musk’s AI startup, xAI, and Tesla might be exploring a revenue-sharing partnership, according to the Wall Street Journal. The deal could involve xAI providing AI models to enhance Tesla’s Full Self-Driving (FSD) software, Siri-like voice assistants in cars, and software for the Tesla Optimus robot.
The extent of Tesla’s reliance on xAI’s technology could determine the terms of the revenue split. Musk’s history of interlinking his ventures raises concerns about conflicts of interest, especially since Tesla is a publicly traded company. Shareholders have voiced concerns about resource allocation, with several lawsuits pending in the Delaware Court of Chancery.
Musk denied the report, stating, “WSJ is talking nonsense,” yet the future of Tesla seems uncertain, with sales down and undefined product prospects from xAI.
### 100% Wrap-Up: Did You Buy a New Car This Summer?
Two editors from InsideEVs took advantage of aggressive lease deals this summer. However, the almost $45,000 average sticker price for new cars leaves most consumers hesitant. With the market outlook grim due to economic factors and political uncertainty, purchasing a new vehicle isn’t a straightforward decision.
For further insights and updates, reach out to us at tips@automotive.fyi, or on Twitter @automotivefyi.
William Kouch, Editor of Automotive.fyi
