Despite Gas Prices Over $3.00, Americans Want Trucks and SUVs

Automakers found that American consumers prefer to purchase trucks and crossover SUVs rather than passenger cars, even though gas prices remain over $3.00 per gallon. As a result, auto manufacturers are providing year-end deals for compact and mid-size models that are in lesser demand, increasing vehicle sales in August by 5.4 percent (1.58 million vehicles).[i] Total new vehicle sales last month were at an annual rate of 17.5 million–the highest annual rate since January 2006. Electric vehicles sales, however, have stagnated at 3.6 percent of the market, making Obama’s goal of one million electric vehicles on the road by 2015 an impossible target.

Vehicles Americans Bought in August

The U.S. auto industry had its best August sales in 11 years because of the increasing popularity of SUVs and trucks and the discounts provided to some cars to spur sales.[ii] The chart below shows the sales this August compared to August of last year as well as year-to-date sales for the 2 years by vehicle market segment. January through August 2014 car sales increased by just 1.2 percent, compared to 9 percent for light duty trucks and 11.6 percent for SUVs and crossovers.[iii]

WHAT’S HOT OFF THE LOTS

Segment totals, ranked by August unit sales

Source: www.motorintelligence.com

Source: Wall Street Journal, http://online.wsj.com/mdc/public/page/2_3022-autosales.html

The chart below shows the top-selling cars and trucks for August 2014 and the percent change in those sales from August of 2013. August discounts for compact cars averaged $1,841 and for mid-size cars, $2,344.

Source: Seattle PI, http://www.seattlepi.com/news/article/Top-selling-vehicles-in-the-US-in-August-5731522.php

Not all automakers saw equal sales growth and some even had declining sales in August. Chrysler and Nissan had the largest sales growth with Chrysler’s sales increasing 20 percent and Nissan’s sales increasing by almost 12 percent. Toyota increased its sales by 6 percent, and Ford and Honda each just had a 0.4 percent increase in sales growth. While General Motors’ truck sales increased 18 percent, the company’s total sales were down by 1.2 percent. Volkswagen reported sales declines of almost 13 percent.[iv]

Electric Vehicle Market

While the sales of all types of cars have been booming, sales of all electrified cars, including hybrids, stagnated with 408,516 vehicles sold between January and August, down from 408,694 vehicles sold during the same period last year. Of that total, plug-in hybrids grew the most–from 28,241 vehicles sold to 40,748—an increase of 44 percent. Battery-powered electric vehicles grew by 35 percent, from 29,917 vehicles sold to 40,349. Traditional hybrids, the largest segment in the electric vehicle market, however, offset the sales growth in pure EV and plug-in hybrid sales. That was despite the sales growth of Toyota’s Prius– the best-selling car in California last year– and the efforts by manufacturers to introduce more hybrid models. Traditional hybrid sales dropped from 350,530 vehicles from January to August 2013 to 327,418 during the same period in 2014—a drop of over 7 percent. That caused a drop in market share for electric vehicles—from 3.84 percent year-to-date last year to 3.66 percent year-to-date this year.[v]

Sales of Tesla’s Model S, a very expensive electric sedan, dropped 18 percent in August to 1,600 sold, with annual sales dropping 1 percent to 12,200. Sales of the Chevy’s plug-in hybrid Volt also dropped last month with total sales at 2,500—25 percent less Volts sold than in August 2013. Volt sales for 2014 are down 12 percent to just over 13,000. Nissan’s Leaf is doing better with almost 3,200 Leafs sold in August– a monthly record and an increase of 32 percent from August 2013. For the first 8 months of this year, the Leaf sold 19,000 vehicles—a 34 percent increase from the first eight months of 2013.

Because auto manufacturers must increase fuel economy to meet the large increase in the President’s corporate average fuel economy standards and EPA’s desire to control tailpipe carbon dioxide emissions, pure electric cars and hybrids have received a lot of media attention. But despite the media coverage, the total number of electric vehicles sold to date is just over 400,000 vehicles—3.6 percent of an 11.1 million vehicle market. Buyers are clearly noticing the steep price of electric vehicles despite their subsidies,   comparing those prices to lower cost gasoline vehicles, fairly stable gasoline prices and the increasing fuel economy of gasoline cars. This trend is not expected to change during the remainder of this year because the 4^th quarter market tends to be more SUV and truck sales oriented.

Tesla Remains Optimistic

Despite the down turn in sales, Tesla recently picked the location for its gigantic battery factory that had 5 U.S. states competing for it—California, Nevada, New Mexico, Texas, and Arizona. The factory is expected to cost $5 billion and Tesla wanted a 10 percent up-front commitment from the state. The winning state, Nevada, provided the company $1.25 billion in tax breaks over the next 20 years, which is nearly three times what Tesla had asked of the states that were in the competition. In Nevada, Tesla will pay no sales tax for 20 years, no property tax and payroll tax for 10 years, and it will receive other tax credits tied to job creation and development and discount electricity rates for eight years. Nevada also committed to make millions of dollars in road improvements around the factory site.[vi]

Tesla wants to design and sell a sedan for $35,000 rather than the current price of its luxury model of over $71,000, which will result in a lighter, cheaper vehicle, requiring fewer batteries.  Tesla argues that it will be able to produce a car that costs around 3.5 cents in electricity costs a mile or the equivalent of gasoline at around a dollar a gallon. It remains to be seen if Tesla will be able to pull this off, but if they can, they believe it would cost less to own and run than a gasoline-equivalent model. The challenge, as it has been for the last century, is to inexpensively produce an electric model with a sufficient range. In this case, Tesla thinks their upcoming car will be able to travel 200 miles on a single charge.

Tesla is expected to provide 40 to 50 percent of the investment in the factory, employing around 6,500; Panasonic, its battery manufacturer, 30 or 40 percent, and other industrial partners 15 or 20 percent. Tesla’s factory is expected to be 20 times as large as the biggest battery factory now in production, hoping to achieve Tesla’s goal of reducing the cost of batteries by 30 percent.

The factory is expected to generate $100 billion for Nevada’s economy and produce 22,000 new direct and indirect jobs over two decades, including an estimated 6,500 permanent jobs at the factory and a peak of 3,000 construction jobs before opening in 2017. The facility is planned to be approximately 10 million square feet, equivalent to about 174 football fields.[vii]

Conclusion

Americans like trucks and SUVs, purchasing these vehicles over cars and electric vehicles, despite gasoline prices over $3.00 per gallon. It is obvious that Americans prefer the attributes of these vehicles more than fuel economy as the Obama administration would wish. The U.S. automobile market has done well so far this year, but electric vehicle sales including hybrids are stagnating at 3.6 percent of the market, so full electric vehicles are unlikely to achieve the President’s goal in 2015.

[i] Seattle Pi, Top selling vehicles in the US in August, September 3, 2014, http://www.seattlepi.com/news/article/Top-selling-vehicles-in-the-US-in-August-5731522.php

[ii] Washington Post, Booming crossover SUV sales trigger car discounts, September 3, 2014, http://www.washingtonpost.com/business/economy/booming-crossover-suv-sales-trigger-car-discounts/2014/09/03/7173b9c2-33b7-11e4-8f02-03c644b2d7d0_story.html

[iii] Wall Street Journal, Auto Sales, September 3, 2014, http://online.wsj.com/mdc/public/page/2_3022-autosales.html

[iv] Washington Post, Booming crossover SUV sales trigger car discounts, September 3, 2014, http://www.washingtonpost.com/business/economy/booming-crossover-suv-sales-trigger-car-discounts/2014/09/03/7173b9c2-33b7-11e4-8f02-03c644b2d7d0_story.html

[v] Los Angeles Times, Electrified car sales stall as buyers back away from hybrids, September 4, 2014, http://www.latimes.com/business/autos/la-fi-hy-electric-vehicle-sales-20140903-story.html

[vi] New York Times, Nevada a Winner in Tesla’s Battery Contest, September 4, 2014, http://www.nytimes.com/2014/09/05/business/energy-environment/nevada-a-winner-in-teslas-battery-contest.html?emc=edit_th_20140905&nl=todaysheadlines&nlid=63692790&_r=1

[vii] Washington Post, Nevada offers Tesla up to $1.3B for battery plant, September 4, 2014, http://www.washingtonpost.com/lifestyle/travel/ap-source-tesla-selects-nevada-for-battery-plant/2014/09/03/999e043c-33cd-11e4-9f4d-24103cb8b742_story.html