Not so long ago, you’d go to a car dealership to buy a new car and the salesperson would twist, jostle, and push just to make a sale. “Sit inside.” “Nice, right?” “Leather seats. Touchscreen.” “What’s it gonna take to get you in this car today?” Then, with a wink: “Let me talk to my manager about getting you a good price.” Now, owing to chip shortages, supply-chain issues, rising inflation, staggering gas prices, climate change, the war in Ukraine, and insatiable consumer demand, the roles of car sellers and buyer have flipped. At dealerships today, the consumer is often the one getting to close a deal. The situation is bad enough in the case of gas cars and trucks. But when it comes to electric and hybrid vehicles, a massive shortfall of inventory has turned the purchasing experience into a war over scarce resources. That, in turn, is producing prices that defy reality.
The wait time for a new Tesla Model Y, the company’s latest crossover, is estimated to be as long as almost a year. The wait is about as long for most of Tesla’s other car models, including the S and X. Elon Musk‘s fancy EVs aren’t the only ones with astounding wait times. Volkswagen CEO Herbert Diess Recently said the electric varieties of his company’s cars, which include the Porsche Taycan, Volkswagen ID.4, and Audi E-Tron, are all “basically sold out…in Europe and in the United States” for the rest of the year. Orders for Ford’s Mustang Mach-E luxury SUV are closed for the year too.
Consumer demand for electric trucks, meanwhile, is so strong that some manufacturers have stopped taking new orders indefinitely. That’s the case for Ford’s electric pickup truck, called the Lightning, which has an astounding three-year wait, according to Kelley Blue Book. Tesla’s Cybertruck, scheduled to go into production in 2023, also has so many preorders that Musk said earlier this year that his company would stop taking new reservations. “We have more orders of the first Cybertrucks than we could possibly fulfill for three years after the start of production,” Musk said at the 2022 Financial Times Future of the Car conference in May. There’s so much demand for Rivian, a slick new electric truck backed by Jeff Bezos, that used models are selling online for almost double the price of a new one.
According to Cars.com, which tracks sales across the US, demand is so high that dealer inventory of all new vehicles has plummeted by 70% over the past three years: Car dealers had 3.4 million vehicles available for sale in April 2019; by this April, that number had dropped to just over one million. The consumer-research company JD Power reported in April that the average number of days a new car sits at a dealership before it’s purchased was on pace to be only three weeks, compared to 49 days just a year prior. In-demand cars seldom make it to a dealership at all, with eager buyers snapping them up via preorders. Many vehicles are going for thousands of dollars over the list price.
Much of this madness can be attributed to supply-chain issues. The chip shortage, which we’ve been hearing about since the pandemic began, affects the supply of all cars. But electric vehicles require components that are so in demand that miners and producers of the necessary metals and chemicals simply can’t keep up. Electric-car batteries, for example, are typically made of cobalt, nickel, and lithium, the price of which has risen significantly, according to the consulting firm AlixPartners. “Due to multiple global factors, the EV market is currently experiencing some unusual bumps,” says Josh D. Boone, executive director of Veloz, a nonprofit advocate for electric cars. “Automakers are working hard to ramp up production to their pre-COVID levels but are being faced with ongoing worker shortages and supply constraints. Chip shortages, wire-harness shortages, and shipping delays are all issues relating to the early pandemic-related shutdowns, continued supply-chain complications, China’s zero-COVID policy, and now the war in Ukraine.”
Then there’s inflation, which is both cause and effect of these ridiculously high prices. According to the latest Consumer Price Index, which measures inflation in the US, prices for all indexed goods have risen by 8.6% over the past 12 months. Guess what was at the center of that rise. Bingo! New and used cars. The index noted that the price of new cars is up 12.6% over the past year, and used cars have risen a staggering 16%. The world is so upside down that used cars are selling for more than people bought them for. You may have heard stories of people who purchased a car three years ago and were able to sell it back to the dealership for almost the same price (or higher) today.
Often these economics work themselves out in short order. We’re already seeing some of the gas-car prices falling back to reality, but there’s no end in sight for consumers who want to buy electric or hybrid vehicles. The war in Ukraine has juiced gas prices, which in turn has highlighted the benefits of electric vehicles. Meanwhile, a spate of new electric trucks have caught the attention of heartland Americans who don’t want to drive foofy little electric cars but do want whatever’s BIGGER and BETTER and BADDER! Given that, according to The New York Times, fewer than 1% of cars on the road today in America are electric, and that supply-chain issues and inflationary spending are expected to continue for the foreseeable future, demand will likely far outweigh supply for at least the next few years.
There is, however, another scenario where the laws of supply and demand are broken by rising prices and inventory shortages. Yes, consumers are willing to pay a premium to save money on gas, but there is a price ceiling above which buying electric simply doesn’t make sense. So far this year, Tesla has increased the price of some of its cars by several thousand dollars, and Musk has signaled that more increases could be on the way. Arnaud Deboeuf, chief manufacturing officer for Stellantis, an automotive manufacturing company, told Bloomberg that the transition to electric cars is “doomed” unless the prices start to fall. “If EVs don’t get cheaper, the market will collapse,” Deboeuf said. In other words, if manufacturing profit electric cars becomes so expensive that consumers decide they aren’t worth the price, then automakers could be forced to drop prices below what it costs to make them, margins could collapse, and the entire system could fall in on the weight of itself.
Ultimately, the importance of electric vehicles goes far beyond gas prices and supply chains. Replacing gas cars with electric ones is key to fighting climate change, especially in a world where the Supreme Court appears determined to tie the hands of the Environmental Protection Agency and other administrative departments. Today, Americans who buy electric cars are generally eligible for a federal tax credit of up to $7,500, and the Biden Administration wants to push that to $12,500. But given the crazy numbers flying around dealership lots these days, even the target number may need to get a lot bigger if we want to make a dent in the climate crisis.