California car sales are down 18% but not for all — electric vehicles are hot sellers

Sales of new cars and trucks in California fell 17.9 percent for the first two quarters of this year, largely due to chronic shortages of computer chips that go into vehicles and a souring economy. But in a first, a pair of electric vehicles finished 1-2 in overall registrations across the state.

The dip in sales led the California New Car Dealers Association to revise its 2022 expectations for new vehicles downward to 1.8 million, which would fall below last year’s total of 1.86 million.

“Demand for new vehicles is likely to soften in the coming months due to lower economic growth and weakening consumer affordability,” the car dealers’ second quarter outlook said, “but it’s not expected to lead to a sharp drop in sales.”

California’s numbers are slightly better than in the rest of the country, where registrations sank 18.3 percent compared to the first six months of 2021.

“The good news is we’re in a little bit less of a decline than the rest of the country but (down nearly) 18 percent is still 18 percent,” said Brian Maas, president of the California New Car Dealers Association. In San Diego County, sales were off 13.6 percent.

A shortage of semiconductor microchips that go into cars and trucks has hindered new car sales for going on 15 months, leaving dealers’ showrooms and lots bare. The silicon chips essential for laptops, game consoles and TVs also go into the brake sensors, power steering, navigation and entertainment systems in modern-day vehicles.

The chip shortage is a byproduct of the pandemic. When COVID-19 hit the U.S. in March 2020, automakers — worried they would have too much inventory on their hands as the economy was put into suspended animation — canceled or delayed orders for microchips.

Semiconductor manufacturers overseas responded by shifting focus to consumer electronics, which saw an uptick in demand for chips used in devices for virtual learning, remote health care and working from home.

But when auto sales bounced back faster than expected in the spring of 2021, microchip manufacturers were unable to keep up with demand, and fewer cars and trucks rolled off assembly lines. The chip shortage was expected to sort itself out in about six months but it hasn’t, partly because of COVID outbreaks in recent months in Southeast Asia, the part of the world where most chips are produced.

“We’re seeing that we’re still going to have issues in the beginning of 2023 and maybe even throughout” the coming year, said Ivan Drury, senior manager of insights at the auto market research firm Edmunds.com.

Dealers says there’s plenty of pent-up demand but rising inflation numbers have raised concerns that customers may hold off on purchasing big-ticket items such as cars and trucks until the economy improves. With the Federal Reserve hiking interest rates, the rates for auto financing have also moved higher.

Drury just completed research showing that for the first time, the average price for a new vehicle in California has surpassed $50,000.

On the other hand, statistics from Edmunds show the average vehicle in California stays on the lot just 19 days. Pre-pandemic, the number hovered around 70 days, indicating the urge to buy is still high.

That seems to be the case, most notably, in sales of hybrids and electric vehicles, called EVs for short.

For the first time, the two top-selling vehicles in the California New Car Dealers Association quarterly report are EVs. Tesla completed deliveries of 42,320 orders of its Model Y in the first six months of the year and the Telsa Model 3 racked up 38,993 units.

A Tesla Model Y Long Range on display in February 2021.

(ASSOCIATED PRESS)

“They deserve a lot of credit for hitting the top-two mark,” Maas said of Tesla. “I think in the future as more electric vehicles are in the market competing on both price point, utility and features, it’ll be interesting to see whether or not this is a one-time blip or something that Tesla can sustain for multiple quarters.”

Overall, EVs accounted for 15.1 percent of the share of new registrations in the first two quarters in California and when sales of hybrids and plug-in hybrids were added, the market share came to 29.6 percent.

The boost in EVs and hybrids came as gasoline prices in California hit an all-time high in June. While the price at the pump has steadily decreased in the past month, the average price for regular according to AAA of $5.35 in the San Diego area is still $1.01 per gallon higher than at this same time last year.

“Is the solution to $5 gas buying at $50,000 or $80,000 car? No, the math is probably not going to net-out,” Drury said. “But gas prices are an emotional topic. We know some of those orders were spurred by people who were essentially over it. They probably said, ‘I don’t care if gas goes down to half the price, I’m still going to do this so I don’t have to feel that way again. I just want to cut that out of my life.’”

Sales of used cars and trucks declined at a lower percentage than new vehicles, down 12 percent in the first six months of the year.

The lack of inventory of new cars and trucks has led to a boom in the sale of used vehicles in the past year, as many customers have been eager to buy cars that are just 1 or 2 years old. In some cases, vehicles with relatively low miles on the odometer have actually sold for more than the manufacturer suggested retail price of a new car of the exact same model.

The Honda Civic was the best-selling used car in the first six months of 2022, making up 4.1 percent of the used vehicle market.

“Seasoned observers are paying close attention to the data,” Mass said, “in the hope that inflation stabilizes, the Fed doesn’t keep increasing interest rates too much more and we can get the supply chain turned around so that we can have availability of vehicles.”