Pent-up demand, stimulus checks, and the hope that we are past wave one of COVID-19 has spurred the recovery of US leads on CarGurus. Total lead volume is now above early-February levels.
However, not every sector of the vehicle market has seen the same recovery. For example, we know that demand for higher-priced vehicles has returned quicker than lower-priced vehicles, but each vehicle segment has behaved differently. Most notably, the electric vehicle (EV) and plug-in hybrid electric vehicle (PHEV) segments.
The year of EVs: canceled
Many believed 2020 would be the year consumer adoption of EVs and PHEVs increased. More product offerings, competitive pricing, and longer ranges were expected to spark growth in the EV market this year. Additionally, major launches from Ford, Volkswagen, Volvo, Mercedes-Benz, Porsche, Polestar, Rivian, Bollinger, and the possible launch of the Model Y from Tesla would have ushered in a new era for the industry.
However, COVID-19 changed everything. Because of plant retooling, supplier issues, and the challenge of launching a vehicle during a recession, many brands are putting their EV plans on hold. Bloomberg reported that the Mustang Mach-E has been delayed, and Rivian said that it would delay the launch of its pickup truck until 2021. These delays are likely smart moves by these brands given the decline in interest and slow rebound in demand for EVs and PHEVs.
Unlike other models, the EV and PHEV segments in the US have not rebounded at the same rate as the rest of the market. EV and PHEV search data from CarGurus, which is a good indicator of overall interest for these types of vehicles, has not yet returned to early-February levels.
While search volume for EVs and PHEVs is down, lead submissions for these types of vehicles are back to pre-pandemic levels. This is still below overall market trends, but it does suggest that consumers who are in the market for a new or used EV or PHEV are serious about buying. Overall demand for these types of vehicles might be taking longer than other segments to recover, but there are still consumers who are in the market for an EV or PHEV.
A decline in oil prices impacting search volume
One major factor driving the slower recovery of EV search volume and lead submissions is the decline in the price of oil, which has fallen as a result of decreased driving by consumers, travel declining, and dwindling energy usage. Higher oil prices have always been good for EVs and PHEVs because the expense pushes consumers away from gas-guzzling SUVs.
Analyzing EV and PHEV searches on CarGurus confirmed the correlation between used and new EV and PHEV searches and oil prices. In other words, search interest for EVs increases when oil prices rise and decreases as oil prices fall.
Even Tesla is feeling the impact of COVID-19
Tesla, who until 2020, seemed to be on an unstoppable growth curve, has also been impacted by the decreased demand in the EV market. As a result, they slashed prices across its model lineup on May 27. The price of the Model 3 was reduced by $2,000 and both the Model S and Model X by $5,000. On the surface, this might look like a standard price cut for Tesla, but the move is much more than that. As other automakers offer large incentives and 0% financing, Tesla needed to do something to spark sales, and that was a price cut. It’s a tactic that nearly every automotive brand uses—most brands just call it an incentive.
While Tesla will attract new customers with lower prices, it shows that the brand isn’t immune to recessions and might be more like every other automotive brand than we think.
Are consumers willing to pay a premium for EVs?
As oil prices drop, so does the price of gas at the pump. This changes consumers’ consideration of EVs and PHEVs as many look to these types of vehicles to decrease their fuel costs. Even with incentives and price cuts from brands like Tesla, many won’t be willing to pay a premium for a vehicle that is more expensive than one of comparable size without the cost-saving benefit of less fuel.
Additionally, paying a premium for an EV may not be worth the risk as consumer confidence remains low. This is especially true as consumers tend to be more sensitive to costs during a recession. Still, the best thing dealers can do is be prepared for when EV demand starts to increase again.
- Train your staff to be adept at selling and servicing EVs. Make sure all staff has a basic knowledge of EV batteries, charging options, vehicle lifespan, and rebates.
- Have selling points other than fuel-cost savings. One of the benefits of buying an EV is the savings from not having to fill up your vehicle, but it is hard to predict how long fuel prices will remain low. Having selling points outside of savings from fuel costs will help until oil prices start to increase.
- Analyze demand in your local market and stock what consumers are looking for. If you have the car, shoppers will buy it, but if you don’t have it, they’ll be forced to go elsewhere. Don’t miss out on the sale by not carrying the inventory consumers are searching for.
Despite the disruption of COVID-19 on the industry, EVs and PHEVs are likely here to stay—it just might take a bit longer than expected for them to gain traction.