QOTD: Why Aren’t EVs Becoming More Affordable?
Ford increased pricing on the F-150 Lightning EV substantially this week, citing “significant material cost increases and other factors.” The all-electric model now comes with an MSRP that ranges between $46,974 (for the base Pro trim) and $96,874 (for the Extended Range Platinum). All told, the decision has made the pickup anywhere from $6,000 to $8,500 more expensive than it was just a few days earlier. In exchange, Blue Oval has ever so slightly upgraded the maximum range of some of the lower trims. But some of us would probably prefer a more comprehensive explanation as to what’s causing EV prices to surge in general, because it’s not just Ford that’s been raising the sticker price of in-demand electric vehicles.
General Motors increased the price of the Hummer EV by $6,250 in June – a vehicle that will be impossible to option for under six figures until the delayed “affordable” trims commence production. Tesla also raised its prices around that time, with most products seeing increases of at least a few grand, and was followed by EV startups like Lucid and Rivian.
What gives? One of the biggest appeals of transitioning over to EVs for automakers was a lessened need for manpower and diminished overhead. They’d have to spend less on production, meaning they could theoretically pass the savings onto you. The public was even issued promises on electrics reaching complete parity with combustion vehicles by 2025 by industry groups and market experts for years. But we don’t actually seem to be on course for that to take place, despite companies gearing up for the layoffs as they swap toward building more electrified products.
Ford made numerous assurances that the Lightning would start below $40,000. But it’s looking like that’s not really going to be possible moving forward, even with government subsidies that were allegedly designed to keep EV prices down. Other companies have made similar promises, often while touting EVs as an affordable alternative to traditional combustion vehicles. But many have placed their focus on building high-margin electrics they think people are willing to splurge on, that aren’t really sized in a manner that prioritizes efficient energy usage. Meanwhile, the only EVs that seem to be coming down in price are older models the public seems less interested in – either due to high-profile recalls (e.g. Chevrolet Bolt) or widening technological gaps (e.g. Nissan Leaf).
This seems like a bad situation considering there’s mounting evidence that consumers have just about had it with price hikes – regardless of whether they’re being pinned on inflation, supply chain issues, or corporate greed – and EVs price bumps have been outpacing their combustion-reliant counterparts.
Automakers even lobbied to further sweeten the updated EV tax credit proposals outlined in the massive “Inflation Reduction Act” that was passed in the U.S. Senate earlier this week. Content requirements intended to encourage manufacturers to utilize labor from the United States (or another country with a free-trade agreement) have been a particularly sore spot because a substantial portion of the minerals required for battery production comes from China and African nations the Asian country is on favorable terms with. China has spent years becoming Africa’s largest trading partner and has spent billions on large-scale infrastructure projects in exchange for reliable access to raw materials.
This has effectively solidified China as the world’s dominant battery supplier. And the vertical integration witnessed leading up to and throughout the pandemic has arguably strengthened those (and other) regional monopolies – which have since been complicated by China’s tenuous economic situation, manufacturing shortfalls stemming from ongoing COVID-19 lockdowns, and geopolitical issues that might discourage it from exporting batteries to the West. But demand is also up, as every automaker in the world suddenly wants to build all-electric vehicles, with there being only a few places to source them.
Making cars less mechanical and more digital has likewise boosted chip demand immensely. While the global semiconductor shortage overlaps with most of the above complications, demand is by far the biggest factor here. With everything from toasters to refrigerators becoming “Smart Home Devices” that are perpetually connected to a network, the worldwide desire for chips has grown exponentially since 2010. Automakers’ need for them has historically been dwarfed by the computing and wireless communication industries. But they’re starting to catch up and it’s left many assembly lines with sustained downtime due to component shortages.
Economists have also suggested that a lot of smaller auto-part suppliers were forced to shut down due to health and safety protocols implemented in 2020. Whereas most large businesses managed to wait out the storm or take advantage of government aid, smaller entities struggled and were more prone to go under during the pandemic. So any automaker claiming that a component shortage is still creating problems likely isn’t lying to you. But you’ll have to decide whether or not they should have seen that coming or if it’s a sufficient excuse for any company whose singular task is assembling automobiles.
With inflation being the other popular excuse, we only need to look at the numbers. Consumer Price Index (CPI) data has the annual inflation rate for the United States at 8.5 percent for the twelve months ending in July 2022 – after rising 9.1 in the previous month. That’s pretty bad and would absolutely explain why so many automakers are coming up with clever ways to raise their prices without you noticing. But it doesn’t quite account for why EVs are going up quicker than their siblings using internal combustion engines and seem to be outpacing inflation overall.
Your author’s assumption is that this is down to the fact that certain relevant materials have likewise outpaced the CPI. According to Barron’s, mineral inflation had added roughly $2,000 to the average price of an EV in the first quarter of 2022. Lithium prices gained about 75 percent this year while cobalt is up by more than 11 percent (year-over-year) by March. Edmunds had the typical EV retailing at $61,000 by June, while the average new-vehicle price of all vehicles only went up to $46,000. However, the difference is likely greater today.
That’s a lot of speculation wrapped up in some concrete data, so I feel like we’re getting close to the mark. But there are likely relevant factors that have been overlooked or may have been overplayed in the above text. So we’re throwing it back to you. Why do you think EVs haven’t become more affordable of late and is there any chance of them ever becoming the dominant vehicle type (assuming the necessary infrastructure is in place) in the next few years if prices fail to come down? Has the entire industry shot itself in the foot with EVs or are these just growing pains?
[Image: Ford Motor Co.]
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