Are Americans falling out of love with EVs?

Sales of all-electric models in the U.S. have plateaued around the 100,000-a-month mark for the past half year after a period of rapid growth. Inventories are piling up and prices are falling, led by market leader Tesla. The average new EV sold for about $52,000 in October, down from around $65,000 a year ago, according to Cox Automotive.

Whether or not adoption of EVs in the U.S. is actually stalling—the jury is out—it is clearly weaker than manufacturers were anticipating. Ford and General Motors have both pushed back investments, and even Tesla Chief Executive Elon Musk hinted on the company’s October earnings call that he might slow down. While the course correction is starker in the U.S., there are similar moves across the Atlantic: Volkswagen has put a plan to build a fourth battery plant on hold.

Musk likes to blame higher interest rates, which push up the monthly amount consumers pay for car loans. But the wider U.S. car market has been strong despite the tighter financial environment and average vehicle prices that remain high, so this can’t be the full story.

The bigger picture is probably that the affluent tech enthusiasts who fueled the first wave of interest in EVs already have them. The next cohort of consumers may need a combination of lower prices, better charging infrastructure and benchmark-setting new products to make the big switch. Baby steps are easier: Hybrid leader Toyota was one of the few manufacturers to say it was boosting its investments recently.

Some potential EV buyers may be waiting for Tesla’s refreshed Model 3, which has just become available in China and Europe but not yet in the company’s home market. Another reason to wait is Washington’s $7,500 EV tax credit: Starting next year, it will be accessible as a rebate at the point of sale rather than months later when filing tax returns. This change could give the EV market a lift next year, but it is hard to be sure because the sourcing hoops manufacturers must jump through to qualify for the subsidy also will get tighter.

The most powerful brake on EV adoption is probably price. A survey published this month by S&P Global Mobility, for example, found that cost was the primary reason for waning consumer openness to buying an EV, followed by charging issues.

Ironically, cutting prices doesn’t always make EVs more affordable. As HSBC analyst Mike Tyndall points out, cars sold through leases are reliant on robust forecasts for secondhand values to keep monthly payments down. Price cuts have wreaked havoc on the used-EV market, making such forecasts harder to justify. Leasing went quiet during the pandemic, but is making a comeback with EVs because leased models qualify more easily for the federal tax credits.

The only long-term solution is for manufacturers to lower costs through radical re-engineering. Except for Tesla and a few Chinese companies, today’s EVs are even more expensive to make than to buy. Ford, which is unusual in breaking out its EV business, continues to report massive losses on a portfolio including the Mustang Mach-E and F-150 Lightning.

Ford hopes to launch a leaner generation of products in 2025. Its French peer Renault said at an investor day on Wednesday that it would reduce production costs for midsize EVs by 40% over the next four or five years. This is easier said than done, though. Cut the fun as well as the fat and consumers may simply stick with gasoline cars. Musk called the next-generation $25,000 Tesla “utilitarian" on the last earnings call, which didn’t inspire confidence.

Sourcing in China, the center of the global battery industry, is a shortcut to savings. But it comes with geopolitical risks, particularly in the U.S., where qualifying for tax credits depends on cutting the world’s biggest EV producer out of the supply chain. Ford’s plan to get technology from Chinese battery giant CATL appears to be on pause while it negotiates with Washington, though the delay might also be about the EV slowdown.

The basic problem is that metal-rich batteries and electric motors are more expensive than the gasoline tanks and engines they replace, particularly for the heavy sport-utility vehicles and pickup trucks Americans favor. EV running costs are lower, but most consumers only pay attention to fuel efficiency during gas-price spikes. Manufacturers need to assume that the average car buyer won’t pay a premium.

That leaves them trying to reinvent car manufacturing as well as the car to find savings. EVs have fewer moving parts, which should theoretically make vehicle assembly simpler, faster and cheaper. In practice, though, the Detroit Three’s recent battle with the UAW underlined how tough cutting costs will be in a heavily unionized industry. And nonunionized EV startups such as Rivian have had even bigger cost problems than Detroit.

The industry will work it out in the end—governments with climate targets are forcing it to. But it will take years and will burn through unconscionable amounts of shareholder capital. Meanwhile, don’t be surprised if the next generation of EVs cracks under the pressure of making up for its profligate parents.

Write to Stephen Wilmot at stephen.wilmot@wsj.com