Auto sales: 'Inventory is still going to be the name of the game,' strategist says

Jessica Caldwell, Edmunds Executive Director of Insights, joins Yahoo Finance Live to discuss automaker earnings, car inventory, EV sales, and Tesla's competitive lead.

Video Transcript

[AUDIO LOGO]

DAVE BRIGGS: Welcome back to Yahoo Finance Live. Expectations are high for Ford ahead of earnings, which report after the bell. We just heard from General Motors earlier this week. The company handily beat Wall Street expectations, said it has no plans to cut prices on its electric vehicles yet.

So what lies down the road for the auto industry? Let's talk about that with Edmunds Executive Director of Insights Jessica Caldwell.

Jessica, nice to see you. Ford out with their sales numbers. Down 18.4% from the prior month. Now, January is usually a rough month for auto sales, but does that tell you, perhaps, that 2022 dynamic has changed this year?

JESSICA CALDWELL: I don't think so. December is generally the best month for auto sales. January is usually the worst. So I would never really compare those two. And I think that for 2023, inventory is still going to be the name of the game. As that increases, sales should get better. Because they are very limited. I mean, we're still-- although, recovering and have been for several months now-- still very much down from what we would consider at a normal pace for inventory.

SEANA SMITH: Earlier today, Cathie Wood was on Yahoo Finance. We know, obviously, she's a long time believer in Tesla. We asked her about the recent price cuts. I want to play a quick bite from her and then get your reaction.

CATHIE WOOD: I think traditional auto manufacturers are going to have trouble keeping up with the price declines that Tesla's technology is enabling.

SEANA SMITH: Do you agree with that?

JESSICA CALDWELL: I mean, I think, right now, that probably is the case. Tesla is still almost 60% of all new EVs sold. So, in any event, they're going to be something big to contend with.

As time goes on and more of these automakers are introducing EVs, especially if we do not get some updates from Tesla, having a Tesla is no longer the latest and greatest thing, and there'll be more out there in the market, more to compare it with. Someone else is going to come along and be the cool new person on the block. And that really appeals to early adopters. So while I think they are obviously a big force to deal with in this market, things are changing.

DAVE BRIGGS: GM, really, as we said, took a pass on following in those price cuts. Do you think those price cuts from Tesla will spread throughout the industry, or others will more follow GM's lead?

JESSICA CALDWELL: I don't think so. I mean, I think price war is a real sexy thing to say. However, there's just not inventory to have a price war. I mean, if we look at what General Motors has, there's really not a lot there. There's a Bolt. There's a Hummer. And what they have coming this year that is even in the realm of competing with the Tesla Model Y, it's new, and it's probably gonna be limited by inventory. So I don't think that even-- price cut probably doesn't even need to be addressed there.

I think Ford, the Mustang Mach-E being a natural competitor-- something that's been in the market for a little while-- to the Model Y, I could see why that would make sense. But even those price cuts were not necessarily very dramatic across the board. There were a few trim levels. But I do think that automakers will be looking at their pricing strategies and making sure that they could come in-- or have some models if possible to come in within the federal tax credit limits.

SEANA SMITH: Jessica, what are you seeing in terms of traffic on Edmunds? We just had a few numbers up there, but, overall, after the price cuts from Tesla, how much did some of that interest, did that demand spike on your site?

JESSICA CALDWELL: It definitely spoke-- it definitely spiked a lot. I think whenever you have someone like Tesla-- and the thing about Tesla's announcement was that it was very atypical in the sense that incentives are usually very targeted. When they come out and you say something like 20% for every vehicle, every region, that applies to everyone out there versus a specific location, a specific vehicle, a specific trim level, which is very different. So we saw the traffic pretty much double in terms of Tesla's share on our site as people were thinking, wow, maybe now is time to get a good deal. Let me research that.

DAVE BRIGGS: As people do begin to look for new models in particular in the EV space, you have some advice before they begin that process. What is it, Jessica?

JESSICA CALDWELL: Well, I mean, I think pricing obviously is a big one. Do the vehicles fall within these price limits? Because we do know that in March, the IRS is likely to issue guidance on mineral components, battery components, and that could change up that strategy. So if you are in the market in the short term, I think you really have to think about what's out there. Can you still get that credit? And I think that that would be really important.

Another thing to keep in mind is really interest rates. Those are going up. In the fourth quarter, people were paying-- I mean, we're closing in on a 7% interest rate on new car loans, which is obviously crazy because they've not been that high in quite some time. And you really have to factor that in when you are considering that most vehicles, at this point in time, are-- they're transacting at over $40,000. So a lot of money we're talking about now.

SEANA SMITH: Jessica, if you're one of those Tesla owners, you're a little bit upset because you bought before the price cuts. What's your advice to those people? Should they hold on to their Teslas?

JESSICA CALDWELL: Well, I think that used values, of course, it doesn't feel good for that to happen, but it's only going to affect you if you want to sell it soon. So all those people that were thinking, let me buy this vehicle and flip it, which we saw a lot last summer when used values were just going off the charts, hopefully people are not doing that come December.

But if you are one of those people that just bought a Tesla, if you're going to drive it for many years and keep it for a long time, these price cuts shouldn't affect you too much. It's just I think if you were going to sell it in the short term, that probably wouldn't be a great idea. So keep and hold I know doesn't sound as fun, especially as these people generally want something probably every-- in a faster cycle than the norm, but I think that probably would be the best way to mitigate these price cuts.

DAVE BRIGGS: Jessica Caldwell from Edmunds, thanks so much.