Slate Auto, the electric vehicle start-up backed by Jeff Bezos, is a grand experiment in whether austerity sells — and a warning for the US auto sector.
Slate recently unveiled its flagship: A barebones, two-seater, battery-powered pickup starting at just under $25,000. It is a gray riposte — complete with hand-crank windows — to the spiraling cost of new vehicles, now more than $51,000 on average. Buyers can customize this blank Slate with myriad options. Using the online builder, I quickly put together a truck with a delightfully retro “Sun Seeker” wrap along with upgraded lights and wheels, audio speakers and an EV charger, among other things, for an extra $7,000 or so.
That figure also happens to be roughly how much people pay, on average, above the base price for the 10 best-selling SUV and sedan models in the US, according to Cox Automotive. Americans apparently clamoring for cheaper vehicles are also paying over the odds for upgrades. This seeming paradox doesn’t end there, and understanding it is essential to judging where the US auto market is headed.
The pandemic marked a step-change in new vehicle prices, which are up about 32% since mid-2019. Yet, with per capita income up by a similar amount, they are flat in real terms, especially when quality improvements are factored in.
Such averages conceal disparities between income groups, which helps explain why new vehicle sales fell from a run-rate of about 17-17.5 million prior to the pandemic to about 16 million today, despite a bigger population.
Lower income buyers have been squeezed out, according to new figures from AlixPartners LP. If it seems remarkable that the bottom 60% of households accounted for only a third of new vehicle sales in 2019, by 2024 that was down to about a quarter; an implied drop of almost 1.5 million units. The top 20% of earners, meanwhile, now account for more than half the market, a trend that fits with a general narrowing of consumer spending power.
Lower-income drivers have been displaced in two directions. The first is to make do with what you’ve got: The average age of passenger vehicles on the road has risen to almost 13 years, with the fleet ageing in recent years at its fastest pace since the period following the 2008 financial crisis, when sales collapsed. The second is to buy used cars. The latter, however, have suffered even faster inflation.
From the perspective of automakers, this isn’t necessarily unwelcome. General Motors Co., for example, has enjoyed a 23% bump to adjusted pretax income over the past five years compared with the prior five, despite selling 12% fewer vehicles. As consultant Glenn Mercer writes over at Car Charts, “it is revenues that pay the bills at dealers and car companies;” a function of volume and price. If they can sell fewer, but enough, vehicles to higher-earning Americans willing to buy more bells and whistles, they will do so. The US new vehicle market has, in nominal dollar terms, expanded by more than a fifth over the past seven years.
In this comforting retreat to the upper diagonal of our K-shaped car market lurks danger, however, and Slate’s arrival is a signal of that.
The persistent hope that pent-up demand for new vehicles portends a return to pre-pandemic sales is increasingly hard to square with a narrowing buyer base. “Everybody is talking about affordability,” says Alexander Edwards, chief executive officer of Strategic Vision, a consumer behavior consultancy. While drivers choose upgrades to some extent, Edwards also points to “combo meal” marketing that fills dealer lots with models already loaded with higher-margin extras, pushing consumers to take these over base models. Even the used-vehicle market is increasingly filled with upgraded variants, with Cox noting that “the simpler car consumers seek doesn’t exist in supply.”
Slate’s peculiar value proposition is geared toward addressing that, including potentially winning back used-vehicle buyers. Affordability is just one element of that, however, and Slate’s myriad of permutations are critical. That’s not just to earn higher margins from add-ons but also because even budget shoppers value the sense of freedom and control that choice conveys. “Customization is important even if they all customize it to look the same,” Edwards says. Back of the envelope, he sees this kind of vehicle potentially carving out up to 1.5% of the market, or 235,000 units. If Slate captured half of that, sales wouldn’t lag too far behind the Maverick, Ford Motor Co.’s $35,000 small truck.
Ford, incidentally, reported a big increase in sales of the Maverick’s base version earlier this year, and the company is also developing a cheaper electric truck of its own. Slate’s arrival is a sign of these times, adding to the sense that legacy automakers’ increased reliance on high-priced, fully loaded trucks and SUVs comes with growing risks.
Looming over all this is a set of competitors making waves globally with new models that garner headlines as much for their innovative, consumer-friendly features as for their low prices. While blocked — for now — China’s automakers would find a wide-open gap in the US market to exploit.
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