Automakers Delay Electric Vehicle Spending as Demand Slows

Normally a 50 percent increase in sales is considered very good. But when the number of electric vehicles sold in the United States grew that much during the third quarter from a year earlier, it was a disappointment.

Carmakers and analysts had expected more. Instead of celebrating, auto executives worried that demand for electric vehicles was slackening, raising questions about their plans to invest tens of billions of dollars to develop new models and build factories.

In recent weeks, General Motors, Ford Motor and Tesla cited slower sales and signs that the economy was weakening in announcing that they would delay that spending. That was a blow to the Biden administration’s plan to fight climate change by promoting zero-emission vehicles, and it cast doubt on whether generous federal tax credits for electric car buyers were working as well as policymakers had hoped.

“Our commitment to an all-E.V. future is as strong as ever,” Mary T. Barra, the chief executive of G.M., told analysts on a conference call last month. But, she added, the market is turning out to be “a bit bumpy.” As a result, G.M. is waiting several months to begin selling some new electric models, including a battery-powered incarnation of the Chevrolet Equinox sport utility vehicle.

Ford and G.M. have staked billions to retool factories and build new ones to produce electric vehicles, batteries and other components. If the carmakers have miscalculated, the consequences could be severe. (Stellantis, the parent company of Chrysler, Jeep and Ram, has not yet begun selling any all-electric vehicles in the United States.)

Sales of electric vehicles in China and Europe are also growing more slowly than they were a few months ago.

Still, electric vehicle sales are growing faster than any other major category of automobile, and Americans will buy more than one million of them this year, a record. From July through September, battery-powered cars accounted for 8 percent of the new cars sold in the United States, up from 6 percent a year earlier, according to Cox Automotive.

But some once-hot models are selling more slowly. Sales of the Ford Mustang Mach-E, which commanded a stiff markup a year ago, slumped 10 percent in October from a year earlier, Ford said last week.

“E.V.s are still in high demand,” Jim Farley, Ford’s chief executive, told analysts. But he added that increased competition had pushed down prices.

Carmakers have introduced at least 14 new all-electric models in the last year, according to Cox, and stepped up production of other models that had been in short supply. Inevitably, some sell better than others.

“The demand is inching up, but it’s not moving up nearly to the degree that supply and production is increasing,” said Rob Cochran, chief executive of #1 Cochran Automotive, which owns 34 dealerships in Pennsylvania and Ohio that sell nearly all major brands, including Ford, Chevrolet, Hyundai and Volkswagen.

Even Tesla — which dominates the electric car market, with about half of all sales in the most recent quarter — has struggled to sell cars and had to cut prices by thousands of dollars.

Some conservatives have seized on recent data to argue that electric vehicles are overhyped. Republicans like Senator J.D. Vance of Ohio have claimed electric vehicles are destroying auto industry jobs, and have proposed rolling back policies designed to encourage people to buy battery-powered cars.

A political agenda is driving some of those proclaiming an end to the electric vehicle boom, said Albert Gore III, executive director of the Zero Emission Transportation Association, an industry group whose members include carmakers like Tesla and Rivian, charging companies like EVgo and ChargePoint, and suppliers of equipment and raw materials.

“There are a lot of folks eager to draw a conclusion we should be less aggressive with policy,” Mr. Gore said.

Some analysts said the uneven growth was not surprising as electric vehicles go from being a niche product to a more mass market offering. Most car owners are still learning about the technology, and carmakers and dealers are figuring out how best to sell to them.

“We had a lot of early adopters buy expensive electric vehicles,” said Tom Narayan, global autos analyst at RBC Capital Markets. “Now you’re at the point where the Main Street consumer is looking at E.V.s.”

Ford illustrates the mixed signals that sales figures are sending. While sales of the Mach-E were up just 1.5 percent in the first 10 months of the year, sales of the F-150 Lightning, a battery-powered pickup, surged 43 percent. All told, sales of Ford electric vehicles rose 13 percent from January through October while sales of cars and trucks with internal combustion engines were up 7 percent. Sales of hybrid vehicles, which combine electric propulsion with internal combustion engines, climbed 19 percent.

The weak Mach-E sales probably reflect competition from the Tesla Model Y more than any broader trend, analysts said. Many buyers might be comparing the two vehicles, which are of a similar size and style. Tesla has cut the price of the Model Y so that the least expensive model is $2,500 less than the Ford after federal tax credits are applied.

The end of the United Automobile Workers’ recent strikes against Ford, G.M. and Stellantis has refocused attention on traditional carmakers’ attempts to compete with Tesla.

Electric vehicles played an important role in the U.A.W. negotiations, and tentative contract agreements extend at least some union privileges to workers at new battery factories. But the deals will increase manufacturing costs and make it that much harder for Ford, G.M. and Stellantis to catch up to Tesla, which is not unionized.

Buyers remain interested in electric vehicles, surveys show, but struggle to afford them. The average price paid for an electric vehicle in the United States was less than $51,000 in September, according to Cox Automotive. That’s a huge decline from last year’s $65,000. But it’s still too high for many new-car buyers, especially as high interest rates have made monthly car payments more expensive. The average rate on a car loan is more than 8 percent, according to Federal Reserve data, compared with less than 5 percent in early 2022.

In the last few years, carmakers flooded the market with S.U.V.s aimed at affluent suburban homeowners. And there is still a dearth of cars priced below $30,000 that middle-class buyers can afford.

“A lot of automakers were rushing vehicles into the market,” said Kevin Roberts, director of industry insights and analytics at CarGurus, an online car marketplace. “Now they’re running into a situation in a rising interest rate environment that they are not priced properly.”

Some would-be electric vehicle buyers may also be worried about finding enough places to quickly charge cars on road trips. After price, charging infrastructure is the No. 1 thing people worry about when considering an E.V., many surveys conclude.

Public charging is also essential for anyone who lives in an apartment or can’t install a home charger, a group that skews young. “The younger demographic is more open to electric vehicles than the older demographic,” Mr. Cochran, the Ohio and Pennsylvania dealer, said. “Typically it’s the younger demographic that’s in apartment settings. The fact that the infrastructure is not built up is a deterrent.”

At least two of Mr. Cochran’s customers returned newly purchased electric vehicles after discovering there weren’t enough chargers near their homes, he said.

For people interested in buying an electric vehicle, the good news is that prices are likely to continue falling as carmakers ramp up new factories. Starting in January, dealers will be able to apply federal tax credits of up to $7,500 when a customer buys a car. Previously, buyers had to wait until they filed their taxes to claim the credit.

The charging system is also improving, albeit slowly. Parts of Tesla’s network of fast chargers, the largest in the United States, will open to Ford, G.M. and other brands next year. Other carmakers are building their own chargers. Mercedes-Benz said last week that it would install at least 55 stations at high-end shopping malls in the United States and Canada operated by Simon Property Group, a large real estate firm.

Carmakers have gotten the message that selling electric vehicles is different from selling gasoline cars. “Charging,” said Andrew Cornelia, chief executive of Mercedes’s high-power charging unit in North America, “is still a critical problem to solve.”