Without a doubt, the transition of the automotive industry from internal combustion engines to battery power is accelerating. Furthermore, infrastructure, charging networks, and government support for this change are expanding. Consumers are listening, learning, and becoming more interested in transitioning to EVs. The current financing market dynamics indicate that this may become even longer. The promise of a new EV is in the works.
For example, Tesla, the EV market leader, has not expanded its model lineup in a long time, and even the Model 3 starts at $45k. Ford has the F-150 Lightning and Mach E, but both are expensive and difficult to obtain. And, yes, the Cadillac Lyriq sold out in a matter of hours, but it is in very limited production and costs more than $60,000, which is much more than the majority of new car buyers can afford. There is no EV tax credit for this vehicle because GM is no longer eligible. However, GM recently reduced the price of the Chevy Bolt. So GM is clearly considering EV affordability.
A recent Consumer Reports survey found that 14% of people would definitely purchase an EV, but twice that number (28%) would definitely “would not” consider an EV. What about the 58% who fall somewhere in the middle? What will it take to persuade them to change their minds?
How the high price affects EV
The main issue right now, I believe, is not range, charging infrastructure, or fear of new technology. It’s all about money. EVs are currently prohibitively expensive. It was far too expensive! And it appears that things will continue in this manner. It Is clear that many different types of electric vehicles will be available soon, some of which will be more affordable. Every OEM is moving quickly. Take a look at the center spread of this week’s Automotive News (shown below) and you’ll notice that every automaker is accelerating their efforts to transition their product lineup to include more EVs. And states like California are transitioning to all-electric vehicles. However, much of this fantastic new product development is not yet assisting buyers, as the models currently on the market are all simply too expensive.
However, not all of the new EV vehicles are yet available. And people are in a hurry to buy something or upgrade their current vehicle. The ongoing semiconductor chip shortage is limiting supply. And, as EV demand grows, battery component material prices are rising, particularly for lithium and cobalt. The current situation is summarized in the article below from Alix Partners, a research firm. This comparison is a key point they make. “In the US, the ICE raw-material content was at $3,662 per vehicle, which makes it nearly double the pre-pandemic levels. This pales in comparison to the cost of BEV raw materials, which is now $8,255 per vehicle. The price of cobalt, nickel, and lithium is largely to blame for the disparity.”
While new advances in battery technology such as “solid-state” batteries promise a longer range and greater material supply, they are currently four times the price of standard lithium-ion batteries, exacerbating the current problem. Toyota is well positioned to lead in this area, but it will be some time before the majority of vehicles are equipped with solid-state batteries.
With rising global inflation, which means you can buy less for the same money, and a war in Ukraine keeping energy markets volatile, it’s no surprise that consumers are hesitant. While they are paying $5 for gasoline and don’t like it, saving up for a new EV is becoming increasingly difficult. For example, the average monthly payment on a new car is now more than $700. Because the cost of borrowing is rising as the Fed raises interest rates to combat inflation, car buyers must either buy fewer vehicles or contribute more of their income to the purchase of a vehicle. They are feeling the pinch because all other prices, such as mortgage payments, groceries, and school supplies, are also rising. And, because the average car loan term is now six years, consumers who buy ICE vehicles today will be “upside down” for a few more years, meaning they will owe more for the car than it is worth. A case of negative equity.
How can we manage the price problem?
This phenomenon has occurred several times in the automobile market, and it never benefits either the consumer or the automaker. It delays purchases and keeps people stuck with outdated technology. The average car on the road in the United States is now 12.2 years old, which is much longer than in the past.
So, if OEMs want people to switch to EVs, they must make them affordable. They must collaborate with the government and their ecosystem to ensure the widespread adoption of EV infrastructure. Of course, the government must increase EV incentives and encourage more people to switch from ICE to EV, and not just with tax breaks. What about assisting people in paying for the installation of home chargers? While the current administration is committed to this, these programmes are not yet simple, practical, or easy to access. Why not implement a “voucher” system that allows anyone purchasing an EV from a dealer, or even online, to receive a rebate on the cost of a home charger? Tax credits are difficult to obtain.
Because automakers’ product development cycles are many years long, the overall consumption will shift to electric vehicles. The ocean liner makes a slow turn. As a result, new car buyers will have a plethora of EV options in a few years. Even high-volume categories like pickup trucks will be EV-competitive. Thus, this shows a positive approach towards the future.
