December 2023Automotive & Assembly PracticeWill today’s environment affect vehicle purchase decisions for US consumers?The economic environment has US consumers rethinking their next car purchase. At the same time, interest in environmentally friendly vehicles continues to grow. by Natascha Buresch, Russell Hensley, Nicholas Laverty, and Felix Rupalla If you feel as though you’re seeing more electric cars on the road, it’s because you are. Electric-vehicle (EV) registrations in the United States have increased 45 percent annually since 2017, with US coastal states leading in consumer demand.1 This growth can be partially attributed to improving charging infrastructure, more and better models from which to choose, and EV cost improvements over time. For instance, research from McKinsey Battery Insights shows that battery cell costs today are just one-third of what they were a decade ago. Regulatory changes aimed at helping the country achieve its emission-reduction targets, such as the California Air Resources Board’s air pollution programs and the federal Inflation Reduction Act, have also likely played a role.Yet consumers are facing mounting fiscal pressure that could affect their purchase decisions. Interest rates are up from 0.05 percent in early 2022 to 5.33 percent today.2 And the average annual cost of owning a car for the first five years has surpassed $12,000, up from about $10,700 in 2022; that is 16 percent of the median household income before taxes.3 1 “Vehicle registration counts by state,” US Department of Energy Alternative Fuels Data Center, 2022.2 “Effective federal funds rate,” Federal Reserve Bank of New York, accessed October 30, 2023.3 Brittany Moye, “Annual new car ownership costs boil over $12K,” AAA Newsroom, August 30, 2023; Gloria Guzman and Melissa Kollar, “Income in the United States: 2022,” US Census Bureau, September 12, 2023.4 State of the automotive finance market Q2 2023, Experian, August 31, 2023. To better understand the impact on car buyers, we surveyed more than 1,000 consumers, representing average US car buyers (see sidebar, “About the survey”). The survey revealed that while the current economic environment may have people rethinking EV and other car purchases in the short term, EV interest continues to grow. The future is still electric—it may just take longer to get there.People expect to delay new purchases for both EVs and other cars because of reduced purchasing powerThe current high-interest-rate environment has likely reduced purchasing power for a large share of US consumers. Seventy-seven percent of respondents noted that reduced purchasing power is causing them to either postpone large expenses or be more conscious about spending. Car purchases are likely to be affected: nearly 40 percent of respondents who had intended to buy a vehicle are postponing that purchase, while a...
