The EVolution #24: EV = expensive vehicle?
Three reasons why electric car prices remain stubbornly high
The best-selling electric car in the country, the Tesla Model Y, now costs at least $66,000 (with a months-long wait, too). That’s $16k higher than it was in spring 2021. Popular new EVs from Ford, Volkswagen, Hyundai, Kia, and more all start north of $40,000 and usually sell for much more. What gives?
(1) Battery prices stopped falling
In recent years at least 30% of the cost of an electric vehicle has been associated with the price of its battery. The cost of EV battery packs/cells had been plummeting. Industry watchers were giddy in 2020 and early 2021 as those costs came tantalizingly close to the $100/kWh level long dreamed of as enabling real price competitiveness for electric cars.
Since then though, we’ve hit a speedbump. A shortage of critical components and a surge in EV demand halted a decade-long run of year-over-year falling battery costs.
(2) Amid limited supply, premium trims are taking precedence
Sure, Tesla has consistently been selling out its entire production volume, but now—likely due to elevated gas prices, growing climate consciousness, and the arrival of more attractive EVs—consumer demand has outstripped the early expectations for several other manufacturers. Carmakers have had to pause orders or notify customers to expect months-long waits for their vehicles.
The excited early adopters snapping up the Mach-E, F-150 Lightning, Ioniq 5, and EV6 typically aren’t buying “base” models, either. They want the bells and whistles! So while it may be possible on paper to get a ~$40k version of the car, many buyers are actually paying $50k, $60k, or more for premium trims.
EV manufacturers, trying to optimize their low production volume capabilities, are often prioritizing making these more expensive versions. Some cheaper trims may be a year or two down the road—if they don’t disappear forever. Take, for example, Chevy’s buzzed-about announcement of a “$30,000” Equinox EV; only in small print on their website do we find an estimated “spring 2024” arrival, several months after an already far-off debut for its high-end version.
(3) Gas cars have gotten a lot more expensive, too
It’s important to note that high car prices are not just an EV problem. Over the past couple years, automobiles across the board have gotten more expensive. Blame semiconductor shortages, volatile raw materials prices exacerbated by Russia’s invasion of Ukraine, and Americans’ continued preference shift to luxury vehicles and more expensive SUVs and trucks over cheaper sedans.
Per KBB, July 2022’s average transaction price for a new car in the US was a whopping $48k. That’s an increase of over 25% from the start of the pandemic in spring 2020.
BUT… it will get better!
The good news is that electric vehicle prices should eventually come back down, as many of the driving factors discussed above are temporary in nature. Supply chains are being unsnarled and manufacturers are diversifying and securing their future battery sourcing. Per Reuters:
Experts say battery costs could stay elevated for the next year or so, but then another big drop is probably in store as big-ticket investments by automakers and suppliers in mining, refining and battery cell production, and a move to diversify raw material sources, tip the balance from shortage to surplus.
"It's like a bubble -- and for that bubble to settle down, it's going to be at least the end of 2023," said consultant Prabhakar Patil, a former LG Chem executive.
For now, the sub-$35,000 new EV market remains limited, with only the older-generation Chevy Bolt, Nissan Leaf, and possibly Hyundai Kona and Kia Niro, offering acceptable range for most drivers. Whichever carmaker can reach at-scale production of an attractive new vehicle in this price range will, I’m confident, grab significant market share.