Lessons From the EV Industry: When Supply Does Not Equal Demand
In the January 2024 Finance 'In-Action,' government (management) decisions impact the EV industry, highlighting concepts of Inventory Turnover and potential Cash Flow issues.
“Electric vehicle inventories on US dealer lots reached a new high in December, with a 114-day supply ... up from a 53-day supply a year ago and compares to 71 days' worth of inventory for the overall auto industry”.
Inventory Turnover reflects the number of days (or times per year) required to sell the inventory. Selling inventory more often is generally better since it provides cash for the business sooner, allowing for more timely payment of expenses.
Demand for EVs in the US was fuelled by an April 2023 decision by the US government to mandate that 50% of all new vehicle sales be electric by 2030.1
According to 4,000 dealerships, representing different brands across the US, the slowdown in demand is caused by a ‘mismatch’ between the government rebates and eligible vehicles, a lack of supporting infrastructure (charging stations) and a disconnect between ‘planned & actual’ customer buying patterns.2
A similar inventory issue may also exist on this side of the border as Canada faces the same demand constraints: “High prices, need for charging stations and lack of rebates cited as impacting sales.” 3
EV Inventories Hit Record High in US as Cars Pile Up on Dealer Lots, Bloomberg, December 14, 2023.
1. FACT SHEET: Biden-Harris Administration Announces New Private and Public Sector Investments for Affordable Electric Vehicles, The White House, April 17, 2023, 2. A New Letter from Auto Dealers to the President, EV Voice of the Customer, November 2023. 3. The Federal Government wants Canadians to switch to electric vehicles. Are they interested? CBC News, Mark Gollom, December 25, 2023.
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