EV adoption is like 'the chicken and the egg': Analyst

Edmunds Executive Director of Insights Jessica Caldwell joins Yahoo Finance Live to weigh in on the EV market, used car prices, and supply chain issues for vehicles.

Video Transcript

- Like many consumer goods, the cost of cars remains high. But our next guest, though, says that there may be some relief on the horizon. We want to bring in Edmunds Executive Director of Insights, Jessica Caldwell. Jessica, it's great to see you here, so the cost of new cars obviously remaining high. We have started to see some relief when it comes to used cars. I guess, do you expect that relief to stick? And when should we expect to see the cost of new cars follow suit?

JESSICA CALDWELL: Well, it's not, I would say, absolutely fantastic news. But what we have seen this year recently is a return to seasonality in the used car market because every year we see January used values are a little bit higher. And as the year goes on, they decrease. They get older. They have more miles, a little bit more wear and tear. So it makes sense that a vehicle, a used vehicle in September, is cheaper.

However, that's not what we've seen in the past few years because the car market has been so topsy turvy. So I feel like that is the first good sign that things are sort of going back to normal. Things are-- cars, used cars, are still expensive if you compare them year over year. But at least we're not seeing that atypical nonseasonality phenomenon that we've had for the past few years.

- And Jessica, it feels like we used to get bombarded with all these blockbuster sales for used cars and new cars. It doesn't feel like we get that as much. Is that going to come back at any point?

JESSICA CALDWELL: It probably will come back. But I would say those blockbuster events-- I mean, right now we are in September. Usually this would be end of summer sales events. Model year sells down. Those are probably things that you remember. That doesn't have to happen because there's just no inventory to sell down at this point in time.

I just think that inventory will get better. Will it be as much as it once was, where there's just tons of options and every dealer is trying to undercut another dealer? I don't know if we're going to get to that. That seemed to be maybe an unhealthy place. But I think there'll be some it'll be somewhat in the middle. I mean, right now the inventory is far too few. But to go back to those days where the discounts were so heavy, I don't know if we'll exactly get back there.

- The new car dealers I talked to love this dynamic, low inventory, high prices, lower employees. What's going to change this dynamic? And how essential is it for the Fed's fight against inflation?

JESSICA CALDWELL: Yes. So I think for car dealers, this has been a good time. They've got high margins. They're not having to sell as many vehicles. They're not having to just work on volumes, which is a really stressful business of trying to make your number at the end of the month and all of that goes with it.

But I think moving forward, there's just not enough vehicles for consumers. And that is an issue because consumers are walking to a different brand. They're trying to figure out if another car is going to work for them because either they don't want to pay the higher prices or they don't want to wait because that's a new thing too. Americans, we don't want to wait for our goods. We want them today, right now. And that is not happening either.

So I think that this is probably not the system that is exactly ideal. So we probably are just going to have to keep, I would say, adding to the inventory, get it back to a normal level, where it's not as if you're going to lose customers because that really is the danger for auto companies, as well as dealers, is they're just going to walk because someone else can offer them a car in three weeks and maybe at MSP, versus waiting two months and a few thousand dollars over MSRP.

- Jessica, how much of this is because of the-- when we talk about the increase in cost here, how much of it is because of the supply chain aspect of it, the fact that suppliers are raising their costs, and therefore some of these automakers are being forced to pass that along to the consumer?

JESSICA CALDWELL: Yeah, I mean, there's probably a few dynamics going on. And one is consumer driven. Over the years, people, especially in this country, we've wanted larger vehicles. We want more options. As a result, a lot of companies, especially Detroit companies, they shuttered their smaller car lines. So that has naturally driven the price of vehicles up.

And then we hit this supply shortage, mostly led by the semiconductors, which has made inventory really scarce. And I think that is what really has propelled these prices that we see above MSRP or at MSRP. And it's a little more atypical than what we've seen in the past.

This industry has never seen an issue where inventory, not having enough inventory, is the problem. It's usually just sluggish consumer demand. That, of course, is not the case. But a part of these rising prices has been our own tastes. We like nice things. I think that's fairly typical of what we see when we look at cars around.

- And so what are some of the trends that you're seeing in the leasing versus buying decision making?

JESSICA CALDWELL: Right now the leasing market has really taken a hit. People are not necessarily as interested in leasing. A lot of leasing relies to get those low monthly payments that you've seen, the $499, $399 month. It relies on automaker incentives, either subsidizing the interest rate or the residual value. Automakers haven't had to do that right now because inventory is so tight, and people will just buy them outright.

So as a result, the leasing isn't really good for consumers out there. So they're not leasing. Even brands that are normally used at such high rates, like the luxuries, like Audi or BMW, even those guys are not leasing very many vehicles because it just comes down to what just makes more sense. If you're going to pay such a high price, I'm just going to buy the vehicle.

- Electric vehicles, stunning national average transaction is 61,955. Given gas prices are continually falling down and recessionary fears, what's likely to drive that supply back up? And what is the pricing action? Where are we headed with EVs?

JESSICA CALDWELL: Yeah, I mean, the biggest issue with EVs is that automakers can't make enough of them. I mean, there's virtually waiting lists for nearly every EV on the market. I mean, some EVs, like the Ford F-150 Lightning, are so popular, I don't even think you can get on the wait list right now. You have to wait till the next model year comes out. So the issue I think is really supply.

Of course, having a transaction price over 60,000 is not going to be the end goal for a lot of automakers. That is out of reach for a lot of American consumers. So the goal is to bring down the price in terms of product, really, so introducing less expensive vehicles, like we saw a few weeks ago at the Detroit Auto Show with the Chevy Equinox EV. That will be here. That's promised at $30,000.

So I think for this market really to grow, the vehicles have to come down in cost. But it is a bit of a catch because the supply is so short, and it's going to be short because of some of the commodity issues that automakers are facing to build these vehicles.

- Jessica, we did get news today, the Department of Transportation here approving the electric vehicle charging station plans for all 50 states. We know President Biden and his administration has been very ambitious in some of their EV goals. I guess, to what extent does this really move the needle?

JESSICA CALDWELL: It definitely does because I think with EVs, it's sort of a chicken and egg. It's like, do people buy them first without charging? Or are chargers built first, and then people will buy them? So there always has been a lot of confusion. But what we know is that these two markets have to move in parallel.

If people are going to buy EVs at high rates, California, for instance, saying that they're banning ICE sales by 2035, these charging stations are going to have to happen. And Americans do buy cars on the notion that they are going to drive one day across the country, even if we never do.

So having that national infrastructure of charging is extremely important for people to make EVs their sole vehicle because right now we see EVs as a second or third vehicle. But to make it that person's only vehicle, this is going to have to happen. So I think a lot of things have to happen in this market for people to feel comfortable. But infrastructure is obviously a very crucial one.

- It certainly is. All right, Jessica Caldwell of Edmunds. Thanks so much for joining us.