Vehicle sales continued their recovery in May (up +18% year-over-year), with inventory (+18%) and incentives (+65%) normalizing. Battery electric vehicles (BEV) continue to lead the industry (+45%), Tesla was up +38%, and overall penetration hit 7.0% versus 6.5% at year-end and our 7.5% estimate for the year. California continues to lead the nation in adoption of zero emission vehicles, which had 21.1% market share within the state versus 18.8% for 2022. Despite Volkswagen, Audi, and Kia having well-reviewed new EV models, visitation in dealerships in California, one can see that Tesla continues to outpace the incumbents (below).
Stellantis (a partnership between 14 automotive brands including Dodge, Chrysler, Jeep, and others) continues to hemorrhage market share (11% in May, down -810 basis points year-over-year) despite having the most inventory on dealers’ lots and the highest incentives. Toyota and Honda are beginning to recover from their large declines beginning in 2021 due to semiconductor shortages, as dealer inventory improves, and incentives rise. Looking forward, improved dealer stock, rising incentives, and a still tight used car market, should readily push to the new market higher in the 2H, despite higher interest rates and tighter lending standards.
Ford has restructured its business to focus on the transition with its BEV segment named Ford Model-e. The restructuring is to allow for agility, speed, focus, and accountability. In terms of focus, its product focus for BEVs is large pickup trucks, SUVs, and iconic breakthrough cars (namely the Mustang). Ford Model-e dealerships are to become more points of service/discovery points versus points of sale. Last month, Ford held an investor day where they revealed the latest on the restructuring and plans going forward. As a reminder, management envisions a run-rate production capacity for Ford Model-e of 1M EVs by the end of 2026 (for comparison, Ford produced 4.2M vehicles in 2022). Ford CEO Jim Farley discussed the company trying to achieve an iPhone-like business and transformation with Model-e with a lifetime of services sold to customers, many of which don’t exist today or that have even been imagined (thus relying on app developers’ ingenuity and creativity). And where Ford targets gets substantial revenue and margin from the 2nd and 3rd owner of a Ford-made vehicle versus none today. (See our discussion of this iPhone moment analogy as it related to Tesla.) How this looks is shown in the figure below.
Source: Ford Capital Markets Day 2023 Presentation
As it relates to building the brand, consumer demand, and consumer connections, Farley said, “We're matching these vehicles with a modern and simple customer experience that starts with one major breakthrough, non-negotiable price…We're going to reduce physical inventories dramatically in Model-e, and deploy a new marketing model that focuses on loyalty and customer communication and building a community rather than spending billions on TV advertising and broadcast media.”
What this means for commercial real estate is more physical place investments: more in-person consumer connections and communication. Resource eVAdoption, which tracks the EV industry, reports that in 2025, there will be over 150 EV models for sale in the U.S. Also of note and not accounted for in the +150 EV models, China is the largest exporter of EVs in the world year-to-date as they seek to command a higher unit contribution profit than they can command in China. That’s a lot of models and inclusive of no models from Honda and only a few from Toyota. It also highlights why Ford is emphasizing speed to market for its BEV portfolio and getting that portfolio in front of consumers to touch, sit in, and test drive. The conclusion? In late 2023 and early 2024, the BEV industry can become a substantial new category for CRE which will be helpful given what may be a difficult environment for the discretionary goods retail category.
