Broken EVs, Empty Lots, And Other Anecdotes From Our Recent Automotive Field Trip

Image Source: Cleantechnica.com.

Pop the champagne and break out the party hats because . . . it’s Fed Day! Wait, not really. There is always so much news around the Fed decisions that it almost feels like it’s a holiday of some sort. Anyways, with supposedly “cooling” inflation and a fresh new bull market, the Fed was probably in a good position to pause the rate hikes for a month. That said, the Fed is also keenly aware that inflation can get red hot again with the relatively easy monetary conditions right now, continued strength in the job market, and relentlessly rising asset prices making people feel wealthy.  Regardless, we should always be ready for the market to spike/crash on the initial news, and then reverse big during the press conference, then reverse again into the close. We are not necessarily trying to game these moves but can take advantage of the volatility to add to our favorite longs and shorts. You all know that we are still cautious around the overall markets but are bullish on our Revolutionary long names.

Speaking of which, this week we spent some time checking out local car dealerships in New Mexico to try and get a feel for what is going on in the car marketplace. We went to five different dealerships (acting like prospective buyers (which is not totally disingenuous)), and try to find out what we could about inventory levels, customer demand, interest rates, new v. used, and most importantly, to check out and compare the EVs to TSLA.

Before we start, you need to know how much a Tesla costs for comparison purposes. Right now, a baseline Model 3 starts at $40,240 and is eligible for the full $7,500 EV Federal Income Tax Credit, bringing its total cost down to $32,740. Additionally, you can receive an additional $7,500 state income tax credit in California and other select states. Teslas are available for order online at tesla.com, pricing is fixed, and the vehicle will be shipped directly to your address.

Now, here is what we learned at the car dealerships:

The first stop was Toyota. Right off the bat (and this was a theme throughout the afternoon), we noticed that the parking lot was shockingly empty. We parked outside and waited a few minutes, expecting a handful of eager sales reps to greet us. However, after about 5 minutes, Bryce walked inside and actually had to approach a salesman who could show us some cars. What a big change from the last time we visited a dealership! Bryce asked about what was in stock in terms of Tacoma and Tundra trucks, and the salesman took us to the one and only new Tacoma on the lot. He also told us that the lot was supposed to have 250 vehicles in inventory, but only had 15 units. The Tacoma we looked at had just arrived via semi-truck from the factory in San Diego an hour before we got there, and because it had not been through its post-delivery inspection, we couldn’t even test-drive it. The Tacoma ran about $50k plus the dealer put on another $3,200 in “value-added adjustments” which supposedly included a better warranty, better service, blah, blah, blah.

After looking at the Tacoma, we checked out Toyota’s one and only EV on the lot (the name of which neither of us could remember, turns out it was a bZ4X, thus why we could never remember the name). What we experienced next was shocking. The vehicle would not turn on! I sat in the driver’s seat and tried to get the vehicle to do anything for about 5-7 minutes before the salesman sat down and gave it his best shot. The vehicle was charged but it would not turn on. Not the radio nor the infotainment center would turn on. The vehicle simply would not function at all. The only thing the EV would do was constantly ding/beep at us telling us to push the brake before starting the car (which we did obviously). The salesman said that the EV had been on the lot for a few weeks and not only would they waive the “value-added adjustments,” but they would be willing to sell it at “invoice,” meaning less than MSRP, which was about $42,000, and it does not qualify for the $7500 credit.

After kindly thanking the Toyota rep for taking the time to assist us, we moved on to Volkswagen. Unlike at Toyota, a VW rep quickly greeted us in the parking lot and was eager to assist. VW had three new ID.4s on the lot and the salesman was anxious to tell us all about them, even though he hardly knew anything about the cars. Thankfully, the first ID.4 we sat in was able to turn on and we took it for a quick test drive around Las Cruces. In our view, the quality of the vehicle was pretty sub-par compared to Tesla. But most importantly, the acceleration was dismal compared to even a base-model Tesla, or my mom’s Subaru for that matter. Several times when I got out on the highway, I punched it and just could not believe the lack of acceleration and speed for an EV. Also, we popped the hood (expecting a frunk) and we saw what honestly looked like an internal-combustion engine (ICE) and no storage. There were at least three spots to add fluids, only one of which the salesman could explain (windshield-wiper fluid). Turns out the other two spots were for brake fluid and some type of coolant. The ID.4 MSRP was slightly under $40,000, and it is reportedly eligible for the $7500 tax credit.

Next, we went to the Ford house to look for some Mach-Es and Lightnings. Again, another shockingly empty lot, except that there were probably 25 F-150s lined up on the front row. There were no Lightnings in inventory but they did have one Mach-E Mustang SUV in the showroom. Bryce asked about any F-250s or F-350s, and they said they would have to be ordered. The salesman opened up the Mach-E SUV for us and we were pleasantly surprised with the interior, although the infotainment software felt like a 1999 Windows Machine compared to Tesla’s iPad-Pro feel. The MSRP was a little over $70,000 and it was obvious that the Mach-E had much nicer design features compared to the VW and Toyotas we had just looked at. The showroom model was not for sale nor available to test drive but we could have placed a $1,000 refundable deposit down and bought it in a few weeks, once Ford gave the dealership the okay to sell it. The dealer told us they had no indication from Ford on when they would get more Mach-Es or Lightnings, and the best thing to do was just to buy the one Mach-E on display and wait two months to get it. The Mach-E is only eligible for $3,750 in tax credits.

We then walked over to the next-door Hyundai dealership to check out the Hyundai EVs. We were able to get in a limited-edition Hyundai Ioniq 6 sedan which was impressive at first glance. The interior was also nice and we took it for a quick test drive. Thankfully, the Ioniq had much better acceleration than the VW and overall had a pleasant driving experience. However, it was priced around $53k and it is not eligible for federal income tax breaks because it was an import. The dealer did say that it had been on the lot for about a month and they would probably be willing to sell it for less than MSRP.

Lastly, we went to the GM dealership and looked at a Chevy Bolt. It looked so cheesy that we did not even bother to drive it. The dealership only had one in stock and we were not impressed to put it lightly. We did not test drive the Bolt but suffice it to say it is not a car we would buy. It was priced at around $33k and is eligible for the $7500 tax credit (which is honestly pretty reasonable), but the vehicle also looked cheap. We thanked the Chevy salesman for his time and were on our way.

We should also mention that we drove past a lot of used car lots and they were absolutely full of inventory. A stark contrast from the repeatedly empty new car lots.

CONCLUSIONS

We really learned a lot from our expedition into the world of car dealerships. Here are the takeaways:

1. Nobody, and I mean nobody can compete with Tesla in terms of the overall quality, reliability, availability, and price of EVs. The Toyota wouldn’t turn on. Bryce’s 2013 F-350 diesel could have outrun the VW ID.4. The Ford Mach-E was neat, but overpriced and not available for purchase. The Hyundai was a nice-enough car but still lacked the functionality and feel of even a basic Model 3, and cost $20,000 more if tax breaks are accounted for. And the Chevy Bolt looked like a joke of a car.
2. There is still a stunning lack of inventory for new cars and a glut of inventory for used cars. We expect this supply/demand imbalance will eventually work itself out, and by the time the manufacturers finally get caught up with supply of their ICE vehicles, the demand will probably be gone. We think used-car dealers have probably overpaid for inventory in order to meet the demand over the last couple of years and might end up getting stuck with it once the new cars finally start hitting the lots.
3. Ford, GM, Toyota, VW, and all of the other EVs have to play so much catch-up in order to get even close to TSLA. Even though Ford and Hyundai have decent EV products, traditional manufacturers cannot scale those offerings. Moreover, the EVs they can sell are being sold at negative gross margins. Meanwhile, TSLA makes around 18-20% gross margins and is still cutting prices! The traditional automakers probably have 4 or 5 years before they can start really producing quality EVs at scale, and by that time it may be too late.
4. Overall demand for non-Tesla EVs seems to be dismal. While most new ICE vehicles (besides the F-150) have to be ordered or otherwise purchased in advance, most of the new EVs are sitting on the lot for 3-4 weeks or more. Meanwhile, the traditional automakers are spending literally billions of dollars promoting these EVs, and yet no one wants to buy them. Anyone who seriously wants to buy an EV is probably going to end up buying a Tesla.
5. Tesla’s direct-to-consumer distribution and fixed pricing strategy is likely going to become the de facto standard in the car industry. We had trouble understanding the need for massive dealerships sitting on literally acres of land with tens of salespeople standing around with no inventory to sell. Further, the lack of price transparency, inventory, knowledgeable salespeople, and randomly marked-up prices was miserable compared to ordering an amazing vehicle at tesla.com

Thus, after all of our fieldwork, we are sticking with our TSLA long and our F and GM shorts.

We also bought some more puts on LAD after it has made this big run and think that the used-car business will probably really start hurting in the second half of the year.