Interest rate cuts would alleviate EV affordability problems

Interest rate cuts would alleviate EV affordability problems

While Ford (France) remains committed to its EV business despite slowing demand, what pricing trends will emerge in the EV segment of the US auto market?

Cox Automotive Executive Analyst Michelle Krebs and Tom Narayan, Senior Equity Analyst at RBC Capital Markets – Global Autos, comment on how pricing and lack of charging infrastructure are discouraging American car buyers from purchasing an electric vehicle.

Krebs explains that interest rate cuts “would certainly be a big help. High interest rates have pushed a lot of people out of the market, and pushed monthly payments to very high levels.”

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Editor’s Note: This article was written by Luke Carberry Maughan.

Video version

Sean Smith: Michelle, we’ve clearly seen the price wars unfold. It’s been a challenge, a headwind here for many of these automakers. When you take into account, Michelle, what we heard from Jim Farley last night, as well as the fact that Ford now seems to be focusing on this cheaper electric vehicle, do you think we’ll see a continuation of these price wars given the fact that consumers are still very much under pressure?

Michelle Krebs: definitely. Especially in the electric car sector. We have twice the inventory of electric vehicles out there than regular gas or ATVs. This means that there will be more incentives, there will be more discounts, and there will be more price cuts. So it’s going to be a very strong business in the next year or two.

Brad Smith: And with that in mind, what do consumers need to see from what you’re hearing from the Cox Automotive side of the broader EV infrastructure so that they can feel comfortable buying them to reach some of the goals that Tom was just talking about that automakers have set out?

Michelle Krebs: Well, first of all, the price. This has always been the number one barrier to electric vehicle adoption, especially as we move to more mainstream buyers. You know, up until now, a lot of the buyers of electric cars have been very wealthy. They likely have multiple vehicles at home. But now we are moving into the heart of the market and that will be a tougher sell.

So the price is the same. But the electric vehicle charging infrastructure, it needs to be more expanded, but it also needs to be maintained because we’ve just seen horror stories – there was one in Chicago during a storm of people who were waiting for chargers. They drive up to one and it doesn’t work. So we have to work on that as well.

Brad Smith: Finally, and we’d love to get an answer from both of you on this, when you think about the interest rate environment and how consumer sentiment relates to it, especially around financing large purchases like cars, if we see those cuts and the pace of cuts that some consumers and economists out there may be anticipating for this year, what What will that do in terms of a dam-breaking moment for people coming back to buy into the car market? And Michelle, I’ll go to you first. And then, Tom, I’d like to get your thoughts.

Michelle Krebs: It will definitely be a big help. As you know, high interest rates have pushed a lot of people out of the market, and pushed the monthly payment so high that some people are walking away. So that would be a huge benefit.

I would say the number one thing for consumer sentiment is gas prices. If you watch gas prices, you’ll find that consumer sentiment is where it’s headed. But interest rates are not far behind.

Brad Smith: Fair point. Tom?

Tom Narayan: Yes, I totally agree with that. The interest rate environment is what Elon mentions on every earnings call, right? It completely affects affordability. But what we notice is that prices have reached their highest levels ever.

So the concern would be if affordability is in question, you know, if prices collapse, that’s a real problem for these OEMs. So, if interest rates fall, and affordability is maintained, they could have another record year of profits. Therefore, it is of similar importance.

It’s also important to the EV story as we talked about earlier. I think pricing, after charging infrastructure, is the number one issue people have with EVs. Those prices need to come down.

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