The electric vehicle craze is cooling off as demand for EVs slows. Major EV makers like Tesla (TSLA), General Motors (GM), and Lucid (LCID) have all felt the effects of this demand drop. RBC Global Autos Lead Equity Analyst Tom Narayan attributes the EV demand decline to affordability and consumer education issues, believing "it's probably not going to go away anytime soon."

Narayan states that for demand to rebound, pricing needs to fall to a point that's affordable for both automakers and consumers in today's high-interest rate environment. He also notes consumers need more education on how EVs actually operate, as many lack understanding of the product and improved consumer literacy on EVs could help stimulate sales.

"It's a lot of education," Narayan tells Yahoo Finance, adding: "Your neighbor needs to get an EV and then you see it and figure out that you want one as well."

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Video Transcript

AKIKO FUJITA: Certainly a lot of excitement about the adoption of electric vehicles, but we're seeing slowing demand that's bringing up certain conversations about the hurdles of the transition. Let's bring in Tom Narayan, RBC Capital Markets Global Autos Lead Equity Analyst. Tom, it feels like a bit of an echo when you think about these earnings calls, what we've been hearing from EV makers. There is a slowdown that's happening. You have the delay in the EV plans for GM. You've got the commentary coming out of Rivian as well as Lucid. What are you seeing in terms of the shift?

TOM NARAYAN: Yeah. I mean, it's definitely happening. There's no doubt about it now, right? I mean, it's very few exceptions. The only ones that have had exceptions are the ones that are not being aggressive with electrification. So I think what's happening is early adopters largely have already bought their EVs, right? You had three years of stimulus during the pandemic, low interest rates. Everybody gobbled up these cars, and they were very expensive. These are folks who live in the suburbs who already had an ICE car, right? And they didn't worry about range anxiety.

Now you're hitting the mainstream America, let's say. These folks don't really know a lot about EVs. They don't have the luxury of having an ICE. And they do care about range anxiety. And then, oh, that's right. These cars are very expensive. And so-- and interest rates are not low anymore, right? We heard what Elon said on the Tesla call. So it's really an affordability issue. Early adopters are gone, that's affecting the entire group. We saw, obviously, Rivian and Lucid, no exceptions yesterday. So this is definitely taking the whole sector by storm. It's probably not going to go away anytime soon.

- And Tom, what does change it, though? What's the catalyst to get demand stronger, moving in the right direction again?

TOM NARAYAN: I think pricing needs to fall. And by the way, I think pricing will fall. it's a prisoner's dilemma, right? It's car companies need to produce as many cars as possible for plant optimization. And all it takes is one or two of these guys to chop pricing and everybody else has to follow suit. So these pricing will come down. The problem is they can't come down too much because then they become really unaffordable.

It really has to do with pricing coming down, charging infrastructure needs to get built, but it is. And consumers need to get educated, the fact that charging infrastructure isn't really that big of a problem. But this takes time, right? A lot of the early adopters, they already understood about how EVs work. A lot of folks now simply don't know. So it's a lot of education. Your neighbor needs to get an EV. And then you see it and figure it out that you want one as well.

So yeah, so I would say it's really pricing needs to come down, people need to get educated. But it'll happen, right? And let's not forget the government is pouring in a lot of capital in the form of the IRA. Now it's going to take a while for these battery facilities to get built in the US. But eventually, this will happen, and that will entice folks to buy these vehicles.