As electric car production falls short, palms escalate
In the early morning hours of October 2020, Brent Estes turned his insomnia into $35,500.
The 39-year-old Californian was in bed scrolling through Hummers on his phone — specifically, the GMC Hummer EV, one of the rarest and most coveted machines in a parade of all-new electric vehicles. Estes was found awake during a small window in which a $100 deposit reserved the right to buy one of the first models off the assembly line. In 10 minutes, all the first editions were spoken, including the one he managed to get.
It wasn’t until nearly two years later that Estes, vice president of a commercial heating and air conditioning contractor, finally got the truck. He shelled out around $125,000 under strict instructions from his wife: Don’t let her drive or she might want to keep it. So Estes drove the Hummer straight to his father’s garage, where it stayed for three weeks. On September 28, he sold it at auction for $160,500.
“It’s a bit like winning a mini lottery,” he says. “It’s an amazing truck, but to me it’s not worth what others are willing to pay.”
In the automotive world, returning a brand new vehicle is a practice as old as seat belts, and historically reserved for sports cars made in small series. However, the emergence of electric vehicles has led to a sort of rollover frenzy. Demand is at an all-time high for mainstream and premium models, and factories are struggling to keep up. This means that savvy EV owners or lucky enough to get a first edition of a highly coveted car often choose an immediate sale (and a handsome profit) over the credibility of being an early adopter. And the practice is accelerating, as the staggering sales numbers prompt newer buyers to immediately list their cars.
“The collective car market and the enthusiast market have grown and appreciated so rapidly over the past couple of years and this fits right in there,” says Brian Rabold, vice president of automotive intelligence at Hagerty Inc., an underwriter specializing in collector cars. . “If you wanted an electric pickup, you literally had no choice until now.”
Rabold cites several factors as priming the market for short-term sales. On the one hand, electric cars are still a relatively new phenomenon, a sea change in technology arguably unprecedented to date. Second, these battery-powered cars and trucks are coming in concert with a slew of peer-to-peer online retail platforms like Facebook Marketplace; Bring a Trailer (launched in 2007) and Cars & Bids (launched in 2020). These sites have created a much more liquid market for used cars, and particularly coveted classic cars. Finally, there is an industry-wide shortage of new cars, and especially of battery-powered models that have only just entered production.
General Motors Co. spokesman Mikhael Farah said those reserving early versions of the company’s hottest new cars — for example, the Hummer that Estes overturned — generally intend to lead them. There’s no evidence that bots or other digital hijinks have sucked up car reservations like concert tickets, and Americans are keeping their cars longer than ever these days – the average age of a car in the United States is just over 12 years old, according to S&P Global Mobility. Yet for many new owners of electric vehicles, the potential profit outweighs the actual utility. “My opinion is that it’s very opportunistic,” says Rabold. “I would expect a lot of those people to come back on the waitlist.”
Consider Ford’s new electric pickup, the F-150 Lightning. In the first half of the year, Ford made around 2,000 Lightnings and at least 31 of them were auctioned off online. The Lightning has a starting price of just under $40,000, and higher end versions sell at dealerships for around $80,000, but the vehicles have fetched an average of $97,000 on the used market.
The turnaround is even more frantic with Rivian Automative Inc., which assembled nearly 5,000 of its R1T pickups between January and June. In March, Rivian raised the price of the truck by 17% to nearly $80,000, essentially locking in a profit margin for early customers who bought at the original price. At least 51 of the trucks were sold at online auctions, averaging $106,000.
“It’s just kind of the reality of the automotive world,” says Doug DeMuro, founder of Cars & Bids and host of a popular YouTube vehicle series. “You can spend $100,000 and get a Rivian today or $91,000 and get one in two years. It makes sense.
Tesla buyers tend to cling to their cars, in part because the company’s fine print says it will cancel any orders for a suspected pinball machine. However, DeMuro expects Tesla’s long-promised Cybertruck to be well-suited for quick profits if and when it arrives.
Tesla isn’t alone in frowning: DeMuro’s site and its eruption of Hummers and Lightnings are no shortage of heartburn in Detroit’s C-suites. Not only are automakers missing out on much of the potential profit when a new car is resold, but customers waiting for their own buying opportunity are thrilled to see affluent drivers jump the line.
This friction came to a head in 2017, when Ford sued actor/wrestler John Cena for selling his Ford GT supercar a few months after it was delivered. Ford’s filing said Cena was among 500 hand-picked buyers who were under contract to keep the vehicle for at least two years. The case was settled when Cena paid an undisclosed sum, which Ford allegedly donated to charity.
GM, for its part, recently implemented a policy that voids the warranty on any Hummer resold within six months. At the dealer level, stores often buy blackball fins from future orders, but there’s not much more they can do. “It’s definitely not something we encourage,” says Farah. “It’s about protecting the brand, protecting the customer and protecting the retailer.”
Car flipping usually runs its course quickly: novelty in the automotive industry usually lasts for a maximum of 12 months, until the next model year arrives. But the electric vehicle fever is hotter than many auto executives expected, and it will likely be years before assembly lines catch up with order books. Likewise, those hoping to pay anywhere near the list price for one of the new batches of EVs should wait.
Ford, for example, hopes to have the capacity to make 150,000 Lightnings a year by the end of 2023, but by December 2021 it had over 200,000 orders. GM just stopped taking orders for its 90,000 Hummer EV; by July it had produced only 1,510.
The shortage is even more glaring among EV startups. Rivian said this summer it had more than 98,000 orders for its first pickup and SUV, but aims to assemble just 25,000 vehicles this year as it seeks parts. Around the same time, Lucid Group halved its production target for the year to between 6,000 and 7,000 vehicles.
Knowing full well the slow pace of shipments, the dealer who sold Estes his Hummer offered to buy it back on the spot for $150,000, but Estes declined, thinking he could do better on the open market. He was right. The winning bid went to Brett Jensen, a real estate developer who lives just outside of Houston. Jensen recently purchased a bloated 2022 Cadillac Escalade-V, which came with a contract that said the warranty would be void if it was resold within six months, a stipulation he described as “a bit goofy.” His new Hummer has no such restrictions.
“I just knew it would take forever to order one,” Jensen says. “The whole auto market is crazy right now.”
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