Inflation & Battery Costs Could Hobble The EVolution

In a recent piece at The Wall Street Journalwe learn that the prices of electric vehicles, like all vehicles, are skyrocketing:

“Overall, the average price paid for an electric vehicle in the US in May was up 22% from a year earlier, at about $54,000, to JD Power. By comparison, the average paid for an internal-combustion vehicle increased 14% in that period, to about $44,400.”

EV manufacturers blame the $10,000 price disparity over gas vehicles on the rising costs of battery materials, especially rare earth minerals. Ford says that its whole profit margin for the Mustang Mach-E has been wiped out, and other manufacturers are seeing similar struggles.

We’ve always known that the cost of battery packs is the reason EVs cost more than ICE cars, despite having much simpler powertrains and better design flexibility, but just two years ago prices were on the way down, with some experts predicting that the price of EVs would drop to that of gas-powered cars by 2024. Even worse, they predicted that EVs would only cost $2,000 more than gas cars by this year, which obviously didn’t happen.

Rosy predictions that EVs would be as affordable as gas cars led to many jurisdictions placing their regulatory bets on EVs. Countries and US states, one after another, announced future ICE vehicle bans that would prohibit the registration of new fossil-fueled vehicles after a certain date, most often between 2030 and 2040. But, some of them have outs for future price changes, and all of them could be modified or repealed if EVs aren’t affordable enough to mandate without overburdening people.

So, these price increases should concern us all because if price parity or near-parity can’t be achieved, much of the work toward getting EVs into mass adoptions, not to mention the mandates, is all put in danger. Battery material and refining industries need to expand greatly if they’re going to lead to competitive pricing, but we need to take a hard look at all other factors driving prices up and getting those addressed, too.

In the short term, our economic problems have one small silver lining for EVs: high gas prices. Automakers aren’t struggling to get people to buy EVs right now, largely because the cost of operating their gas-powered vehicle is as high as it’s ever been. Facing large monthly gasoline or diesel costs, the higher price for an EV just doesn’t look as painful. This is no comfort to people who can’t afford an EV, though.

Even With Parity, High Prices Can Hurt All New Vehicle Sales

Price party isn’t the whole story. The overall price of new and used cars can also threaten the near and long-term future of EVs, especially in places where wages are low.

Some recent vehicle shopping I did illustrate this pretty well. It’s no secret that I’m not happy with my Nissan LEAF. I’d like to get a better EV with liquid cooling and better charging rates for regional driving, and having some more room wouldn’t hurt, either. But, until recently, I was “upside down” in the car because I got fooled by a dealer into paying too much for the car. Recent price spikes for used cars has my car’s value a little higher than what I owe, now, so I figured it might be a good time to jump ship.

But, when I started looking for a used EV, the reality sunk in. Used Teslas are all over $40,000. New EVs tend to mostly be over $50,000 (assuming you can find one). The cheapest used EV I could find that wasn’t a compliance car was going for $30,000 and I couldn’t get the dealer to budget more than $400. Some better deals could be found on sites like Carvana, but every single electric vehicle is marked “sale in process,” so that was a dead end.

The only thing that might be an option would be a new Bolt EV or Bolt EUV, oddly enough. That’s only because Chevrolet is offering big factory incentives on them, which would put the price in the range I’d like to pay for one. But, I’m having a hell of a time finding a dealer who’s willing to sell them for MSRP minus the incentives (which would still turn the dealer a decent profit).

Instead, they’re counting on the high demand for EVs to enable them to basically steal the factory incentive. By concealing that GM is offering discounts, many dealers are selling the vehicles for MSRP and putting as much as $6300 in their own pockets. Are they in any hurry to sell it to me for what’s basically an MSRP? Not at all.

If I was trying to get rid of a gas-burner and trade it for an EV, I’d probably be in worse shape. I’m fortunate that our family has another gas vehicle we occasionally use on road trips, so I can get the cheapest EV on the market and still be OK if I need to take a road trip. But, if I only had one car, I couldn’t realistically consider trading it for a Bolt of any kind (EV or EUV), as its 50 kW max charging rate wouldn’t be realistic for longer trips in most cases.

Will This Derail EV Buying For People On Lower Incomes?

Now, I know that with enough inflation for long enough, employers are going to have to start upping pay to keep families from shopping around for other employment options, but it’s pretty clear that the price of everything from food to gasoline to cars is vastly outpacing Any gains people are making in pay right now.

If these prices, relative to incomes, for new and used EVs are here to stay, I think it could. It’s going to hurt people, especially in poor states and regions. If someone toward the bottom of the economic totem pole can’t afford anything but a used compliance car, EVs won’t be a realistic option for them. Frugal people at all income levels certainly wouldn’t waste time entertaining expensive EVs.

If this is a temporary situation, and prices start going back toward not only parity, but affordability, then it’s possible that EVs still have the bright future we want and need them to have.

Featured image provided by GM.


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