EV investment grows, yet demand is still low

EV investment continues to ramp up, from government subsidies to the production of charging stations across the country. Yet the demand for electric vehicles remains low. One of the reasons for this seems to be affordability, considering inflation and higher interest rates, buying an EV is a costly affair. Recently, EV giant Tesla (TSLA) announced it would cut prices of its slower-selling models to help affordability. This calls into question whether or not the continued investment is worth it.

Ronald Jewsikow, Guggenheim Securities Vice President – Automotive Equity Research, and Craig Irwin, ROTH Capital Partners Senior Research Analyst, join Yahoo Finance Live to discuss what investors should consider when buying and investing in EVs.

When asked what it would take to see more adoption of EVs, Jewsikow says "It's a mix of time, macro, and then also the proliferation of technology bringing down costs ultimately, because it is prohibitive for the average buyer today."

Click here to watch more of Yahoo Finance's special coverage "EVs: The Road Ahead."

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Video Transcript

JOSH LIPTON: Ron, I have kind of a broader question for you. I was-- you know, we've had car dealers come on, Ron, on Yahoo Finance. And they'll say that the demand really is for gas-powered trucks and SUVs, not-- SUVs, not for electric vehicles right now. And I look at Tesla. And I don't understand why you'd have to be cutting prices if demand is as strong as they say it is. Is there any risk, Ron, in your opinion, that we're overstating how strong consumer demand really is for EVs?

RONALD JEWSIKOW: Yeah. At least in the US, I think that is probably a fair characterization. I think what we've seen this year with Tesla's price cuts. Give or take, the Model Y entry level is roughly 30% cheaper than it was at this time last year. And I think a lot of that is attributable to buyer preference. We've done a lot of work on the TAM of buyers. It tends to be very central-- I mean, it tends to be very coastal in terms of who the buyer is. And it tends to be very affluent.

So I think the benefit of the Inflation Reduction Act tax credits hasn't been as much as analysts would have thought this time last year. But no, I think that's a fair characterization that we think a pickup truck buyers, they tend to be more loyal to the brands. And I think what we've seen so far at least with the early entrance into the EV pickup market, there's been a strong preference for the gas, gasoline-powered options.

JOSH LIPTON: And, Ron what did you what do you think would change that or motivate more demand for the EVs? Is that going to be a function of building out the infrastructure? What are the variables, the factors?

RONALD JEWSIKOW: Yeah. I think economics matter here always. So the starting price points for electric pickups are quite a bit higher than the starting price points for gasoline pickups today. And to really realize the benefits of an electrified pickup, it's over the life. But right now, purchase price and, more importantly, interest costs, so that monthly payment number are really prohibitive for a large portion of buyers in the US.

So I think it's a mix of time, macro, and then also like proliferation of technology bringing down costs ultimately, because it is prohibitive for the average buyer today.

JULIE HYMAN: So Craig, let's bring it back then to the ecosystem that is being developed around these vehicles as well, right, not just the ecosystem today, but the ecosystem that's receiving a lot of investment right now, including from the US government. Do you think that the sort of charging system that's being built out in this country is too big for what's-- for what's expected in terms of EV adoption?

CRAIG IRWIN: No, I mean, I think I think that there's room actually over the next few years for incremental funding in this space I think would make a lot of sense. What we're going to see and the tension that we're seeing in Detroit right now is strikes because the EV industry is going to change the future versus what combustion engines have been doing. So, you know, the labor content is going to be different. And, you know, that's something that Detroit will have to adjust to.

So infrastructure is a very, very important part of adoption. The automotive industry in this country has been heavily subsidized for decades at different times through things like TARP and other mechanisms. You know, frankly, to build the EV charging infrastructure out there, we probably need another $10 to $20 billion on top of the 7 and 1/2 that's been set aside. But, you know, there's bright spots, right? You can actually drive coast to coast. EVs are a good option in most areas of the country. And quite frankly, utilization is growing on the networks out there.

So one of the stocks we're recommending investors look at closely is EVgo. We're bullish on EVgo right here. Why? Because even though inventories are climbing on the lots of the mainline auto dealers, many, many of them are seeing their inventories at 90 days or plus. EVgo is not seeing it, right. They're seeing actual charging rates on their networks become 10% of miles driven versus what they were at about 5% just a couple of years ago.

And you compare that to Tesla drivers, you know, 15% up there. So there's a discrete mix towards people charging not in their home, not at their workplace, but to using EV chargers to go longer distances to drive their EVs more. I think the investment in infrastructure is the right thing to do, because it drives jobs in America. And, you know, it's not really that heavy compared to some of these other things that have happened out there.