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Interest rate cuts would alleviate EV affordability problems

While Ford (F) remains committed to its EV business despite demand slowdowns, what pricing trends will emerge in the electric vehicle segment of the US auto market?

Cox Automotive Executive Analyst Michelle Krebs and Tom Narayan, RBC Capital Markets Lead Equity Analyst — Global Autos, comment on how pricing and lack of charging infrastructure is dissuading American car buyers from going all in on an EV.

Interest rate cuts “will certainly be a huge help. High-interest rates have pushed a lot of people out of the market, have pushed monthly payments really high,” Krebs explains.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor’s note: This article was written by Luke Carberry Mogan.

Video Transcript

SEANA SMITH: Michelle, we’ve seen the price wars play out, obviously. It has been a challenge, a headwind here for so many of these automakers. When you take into account, Michelle, what we heard from Jim Farley last night, also the fact that Ford now seems to be focused on this cheaper EV, do you think we’re going to see a continuation of these price wars given the fact that consumers are very much still under pressure?

MICHELLE KREBS: Absolutely. Especially in the EV segment. We have double the inventory of EVs that we have of regular gas-powered or total vehicles. And so, that means there will be more incentives, there will be more discounts, there will be more price cuts. So it’s going to be a very cutthroat business in the next year or two.

BRAD SMITH: And with that in mind, what do consumers need to see from what you’re hearing on the Cox Automotive side in the broader infrastructure for electric vehicles to feel comfortable buying into them to get to some of the targets that Tom was just talking about these automotive manufacturers have laid out?

MICHELLE KREBS: Well, first of all, price. That’s always been the number one barrier for EV adoption, especially as we move into the more mainstream buyers. You know, so far, a lot of the EV buyers have been very affluent. They probably have multiple vehicles in the household. But now we’re moving into that heart of the market and that’s going to be a bit of a tougher sell.

So price is one. But the EV charging infrastructure, it needs to be more expansive, but it also needs to be maintained because we have seen just horror stories of– there was one in Chicago during the storm of people waiting for chargers. They drive up to one and it’s not working. So that’s got to be worked out as well.

BRAD SMITH: Just lastly, and we’d love to get an answer from both of you on this, when you think about the interest rate environment and how much consumer sentiment is tied up within that, especially for financing large purchases like automobiles, if we do see cuts and the pace of cuts perhaps that were anticipated by some consumers and economists out there for this year, what will that do in terms of perhaps a dam-breaking type of moment for people getting back into purchasing in the automotive market? And Michelle, I’ll go to you first. And then, Tom, I’d love to get your thoughts.

MICHELLE KREBS: It certainly will be a huge help. You know, high interest rates have pushed a lot of people out of the market, have pushed the monthly payment really high to the point that some people just walk away. So that will be a huge benefit.

I would say the number one thing for consumer sentiment, though, is gas prices. If you watch gas prices, that’s where consumer sentiment goes. But interest rates are not far behind.

BRAD SMITH: Fair point. Tom?

TOM NARAYAN: Yeah, I totally agree with that. The interest rate environment is what Elon called out in every one of his earnings calls, right? And it totally impacts affordability. What we’re noticing, though, is that the pricing is at all-time highs.

So the concern would be is if affordability is in question, you know, if pricing collapses, that is really problematic for these OEMs. So if interest rates do come down, affordability is maintained, they could have another record year of profits. So it is of tantamount importance.

It’s also important for the EV story as we talked about earlier. Pricing, I think, after charging infrastructure is the number one problem people have with EVs. Those prices need to come down.

This article was originally published by a finance.yahoo.com . Read the Original article here. .

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