‘Car Wars’ Report Sees More EVs, CUVs in U.S. Market Mix

Automakers continue bringing new electrified vehicles to market despite “uncertainty around consumer adoption of EVs,” the Bank of America study says.

Joseph Szczesny

July 26, 2023

3 Min Read
Toyota Tundra 22
Analysis says ICE vehicles like Toyota Tundra may gain market share.

More new entries will pour into the U.S. automotive market in the next three years as manufacturers press ahead with plans for electric vehicles, which win a small but significant piece of market share, according to Bank of America/Merrill Lynch.

“I think we are on the verge of some really great times in the industry,” John Murphy, head of research for Bank of America, which prepares the annual Car Wars study, says during an Automotive Press Assn. meeting in Detroit.

“We believe the three-plus years of (depressed) sales/production volumes is building for a more robust capital goods replacement cycle, and true pent-up demand (is) to be released over a longer and healthier cyclical recovery,” the Bank of America report adds.

Additionally, inventories, while growing, are still tight and the number of vehicles roughly four to six years old, which are at the heart of the used-car market, continues to shrink, contributing to the strong underlying demand. That demand could carry through the rest of the decade, Murphy says.

But manufacturers also face some difficult choices, particularly around how to configure the powertrains in future vehicles even as electrified vehicles absorb more market share at a steady clip over the next three years.

“Consternation is rising on product strategy with varied powertrain configurations on new models,” the Car Wars study observes.

“This is largely due to uncertainty around consumer adoption of EVs. Additionally, as more automakers push into electric powertrains, there could be opportunities to gain share by offering traditional (internal-combustion-engine) models. This could particularly be the case for light trucks, SUVs and large CUVs which are often used in activities such as towing, where an EV might not be optimal yet,” the report notes.

Overall, the rate at which manufacturers are expected to replace their vehicles between 2024 and 2027 should be considered near the historical average of 15%, according to the study.

In terms of replacement, Tesla, Ford, and Hyundai/Kia appear to be the best positioned, while Stellantis and Honda appear in the worst position. General Motors and Toyota “marginally” lag the industry’s average replacement rate, the report says.

“The Japanese OEMs each have a somewhat volatile product cadence over (model year) 2024 – 2027 with a focus on small and Mid/Large cars,” the study says. “European OEMs’ total replacement rate is in the middle of the range for incumbent OEMs, although VW – including Audi and Porsche – leads on a relative basis, while BMW and Mercedes trail.

Murphy’s analysis also notes that carmakers will launch more compact and midsize or large crossover vehicles between 2024 and 2027.

Volkswagen Taos 22 White Rear Quarter View.jpg

Volkswagen Taos 22 White Rear Quarter View

The crowding could trigger price cutting across the CUV segment, the report notes, but it also predicts the emerging product strategies could lead to fewer choices for new consumers in the years to come.

“Combined with a shift by OEMs away from the car segment, which represents the entry-level product for many brands to attract new customers, we expect this CUV focus will likely create a dearth of entry-level models in the industry,” the report states.

“In response, we expect dealers will increasingly focus on selling affordable used vehicles to consumers, which could result in a structurally smaller new-vehicle market in the future and exacerbating the overcrowding in the CUV segment,” the Bank of America study adds.

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