Wednesday, Dec. 06, 2023|
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Automakers are now learning an important lesson: Not all car buyers are wealthy environmentalists.
This should be obvious but apparently isn’t, which is why the auto industry is now wringing its hands over electric vehicle sales problems. General Motors, Ford, Mercedes, Nissan, Toyota and even Tesla have raised red flags about slowing demand. GM scaled back plans for 2024 and said it would delay the opening of a new electric truck factory. Ford is considering cutting shifts at its F-150 Lightning plant. Nissan is transferring more resources to hybrids rather than EVs. Mercedes has described the EV market as “ brutal.” And Toyota’s chairman, Akio Toyoda, said last week that “ people are finally seeing the reality” of EVs.
The problem, it seems, is that the so-called next wave of EV buyers isn’t cooperating. The EV is not trickling down. At least not for those prospective buyers.
But this should have been obvious. It certainly was for Martin Eberhard and Marc Tarpenning, founders of Tesla Motors. In a now well-known tale, Eberhard and Tarpenning in 2003 gathered consumer data for their nascent company by driving up and down the streets of the wealthy suburb of Palo Alto, California, and peering into driveways to see what kinds of cars the suburbanites owned. What they found tucked between the $2 million homes was Priuses. Many of the driveways contained one luxury car and one Prius, which was the environmental darling of the day. So they’d see a Porsche and a Prius. Or a BMW and a Prius. Or a Lexus and a Prius.
Economists have since identified this phenomenon. They call it “conspicuous conservation,” a wrinkle on Thorstein Veblen’s century-old theory of conspicuous consumption. The idea is that some modern consumers purchase products as a way of displaying their green virtue.
In 2003, Eberhard and Tarpenning couldn’t have known the term “conspicuous conservation,” but they had the wisdom to understand what they were seeing: Environmentalism had come to the doorstep of the wealthy. Thus, they concluded, they could sell electric cars to the affluent. And they believed the EV would eventually trickle down to the middle class.
In its early years, this was the real genius of Tesla. Selling to wealthy environmentalists and enthusiasts became a goal. And it kept the company afloat until its bizarre stock market performance later enriched it.
Eberhard and Tarpenning, however, seldom got due credit for their flash of genius. Up to that point, Detroit’s marketers had believed that electric cars should start at the bottom of the market and rise up. No sane consumer, they thought, would pay more for a vehicle that offered less. Therefore, a top-down economic model wouldn’t work.
Clearly, Detroit was wrong. Wealthy enthusiasts bought Teslas.
And here we are now, and the time has come for the EV to trickle down — and it’s not happening. Working-class consumers just aren’t cooperating. It seems that they have their own ideas about what to do with their disposable income.
None of this is new, of course. Middle-class consumers have always had many reasons for buying cars. They need their vehicles to go to work, to Grandma’s, to college and to go on vacation. They need them for all these things, and yet they need them to be inexpensive.
What they don’t need is a costly second car. And, too often, EVs have become just that. An EV’s initial cost is still too high and its practicality too low, especially for the less affluent.
The auto industry is now running head-on into these realities.
That’s not to say that it can’t overcome them. But middle-class adoption clearly isn’t happening at the pace automakers foresaw.
Tesla knew from the beginning that trickle-down would be necessary and would be a challenge. And now that promise is coming due.
Buyers of the next wave won’t purchase an EV so they can park it next to their Porsche.
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