Electric vehicles are becoming more affordable due to increased competition, government subsidies, and falling prices for lithium and other battery materials.
The tipping point at which electric vehicles become as cheap or less expensive than cars with combustion engines could occur this year for some mass-market models and is already the situation for some luxury vehicles.
Prices are expected to fall further as Tesla, General Motors, Ford Motor, and their battery providers build new factories and reap the cost savings that come with mass production.
New electric vehicles from Volkswagen, Nissan, and Hyundai will increase competition.
According to the automaker, the battery-powered version of General Motors’ Equinox crossover will start at approximately $30,000 when it arrives this fall.
This is $3,400 more than the base gasoline-powered Equinox. However, with government subsidies, the electric Equinox should be less expensive.
The car, like all-electric vehicles, will require less maintenance, and the electricity used to power it will be less costly than the gasoline used by its combustion engine substitute.
Used EV sales soar because of waiting lists
Just a few months ago, electric vehicle consumers experienced extended waiting lists and sticker prices that were thousands of dollars higher.
Used electric vehicles often sold for more than new ones because consumers were willing to pay a higher price to get one right away. According to Kelley Blue Book, the average cost of an electric vehicle in 2022 was $61,488, compared to $49,507 for all passenger cars and trucks.
Some models, such as the Ford F-150 Lightning pickup truck, still have waiting lists, but it has become easier and less expensive to find and purchase new and used electric vehicles.
The first significant break in the rising price trend occurred in January when Tesla reduced prices for the Model 3 and Model Y, the two top-selling EVs, by thousands of dollars.
A Model 3 costs $300 less than the lowest-priced BMW 3 Series sedan, with a base price of $43,500 before government incentives. A Model Y costs about the same as a comparable Lexus RX at $55,000 before tax credits.
Ford also reduced the price of its Mustang Mach-E, the second-best electric vehicle in the US after Teslas.
Even Lucid Motors, a manufacturer of premium electric sedans that do not meet the criteria for tax credits, is under pressure to reduce prices. This week began offering $7,500 discounts on vehicles starting at $107,400.
More tax credits for EV buyers
Tesla saw there is increasing competition, and some of the competition is quite good,
f the No. 1 seller of a certain type of car reduces their prices, that will impact the average
Brian Moody, Executive editor for Kelly Blue Book stated on
The Inflation Reduction Act, passed by Democrats in Congress last year that gives tax credits of up to $7,500 for electric car buyers, was a major impetus for the price drops.
To meet the criteria, battery-powered or plug-in hybrid sedans must sell for less than $55,000, while pickups and sport utility vehicles must sell for less than $80,000.
Ford and Tesla raised the number of models eligible for tax credits by lowering their prices.
Manufacturers are working to continue to attract shoppers by making these vehicles eligible for tax credits
Jenni Newman, editor-in-chief of Cars.com, an online auto sales site stated on tax credits
Incentives reimbursed to companies that produce batteries in the United States could be more significant as part of the Biden administration’s effort to create a domestic supply chain and reduce the dependence on China.
The subsidies, also included in the Inflation Reduction Act, could reduce the cost of producing electric vehicles by up to $9,000.
According to the International Council on Clean Transportation, a research and advocacy group, this break and the tax credits for electric car consumers could let battery-powered vehicles achieve price parity with gasoline vehicles as soon as this year. That is three to five years earlier than would be the case if no incentives were in place.
If the automakers pass that on to consumers, consumers will benefit
Stephanie Searle, Program director stated on tax credits
Used EV prices dropped
Used electric vehicle prices are dropping as new car prices fall. According to Recurrent, which tracks the used car market, they have dropped 17 percent since July.
This is primarily due to Tesla lowering the price of the Model 3 and General Motors lowering the cost of the Chevrolet Bolt by nearly $6,000 last year.
Used vehicles can also apply for a tax credit of up to $4,000 under the Inflation Reduction Act. This is significant because the majority of people buy used cars.
Falling costs for materials such as lithium and cobalt have also helped. The price of lithium used in batteries has dropped 20% since its peak in November, but the metal still charges more than twice as much as it did at the end of 2021.
Cobalt prices have dropped by more than half since May, partly because automakers are selling models that do not require it, lowering demand.
New lithium mines are starting to produce ore, which may keep prices under control. According to Ana Cabral Gardner, Sigma Lithium’s chief executive, Sigma Lithium will start shipping raw material from a facility in Brazil to its primary customer, LG Energy Solution, as early as April.
The site will be Latin America’s first new lithium source in several years.
It’s doable, and we’re there
Ana Cabral Gardner, Sigma Lithium’ Chief executive stated on raw material shipments
Moreover, these benefits may fade due to new supply chain issues. Lithium is still in short supply, and prices may rise again. Starting next month, new regulations controlling the $7,500 tax credits will enable electric car batteries to be produced in the United States, Canada, or Mexico using North American or another trade ally’s raw materials.
It is still being determined how many vehicles will comply with those specifications.
Inflation Reduction Act tax credits are currently obtainable for vehicles assembled in North America, which protects US automakers from competitors such as Hyundai.
The Ioniq 5 has done well for the company but is imported from South Korea. Hyundai is constructing a factory in Georgia that will begin producing electric vehicles in 2025. (Buyers may still receive an indirect tax credit if they lease foreign-made electric cars.)
This month, the Treasury Department, which is in charge of enforcing the Inflation Reduction Act, caved into auto industry lobbying and categorized several popular crossovers as SUVs rather than sedans.
This allows vehicles such as the Mustang Mach-E and all Model Y variants to be eligible for tax credits if they sell for $80,000 or less. Previously, the Mustang and lighter versions of the Model Y were categorized as sedans and were subject to the $55,000 limit.
The decision relieves some of the pressure on automakers to maintain low prices. Tesla quickly increased the Model Y’s price by $2,000. Ford stated that it has no plans to raise the cost of Mach-E.
Many congressional Republicans also oppose the Inflation Reduction Act, although carmakers and battery companies are locating factories in Republican-leaning states such as South Carolina, Texas, and Tennessee.
However, the commodity markets and Washington are not the most potent forces driving down prices.
Innovative EV market
Automakers are getting better at producing electric vehicles as sales soar, up 66 percent in the United States last year to 810,000, according to Kelley Blue Book.
Ford has decreased the weight of the Mach-E by 70 pounds by removing some wiring, increasing range, and lowering costs, according to Jim Farley, the company’s CEO, who spoke to investors earlier this month.
Ultium Cells, a joint venture between General Motors and LG Energy Solution, began creating batteries at a new plant in Ohio last year.
A second Ultium plant is set to open in Tennessee this year, and a third is planned for Michigan. Costs generally decrease as a company produces more of a product.
According to auto executives, designing and building new electric vehicles is more accessible and less expensive than gasoline-powered vehicles.
Lithium battery cells, for instance, are part of a set of components that can be paired together in various vehicles. Car manufacturers have long utilized the same platforms in various models, but this strategy works even better with electric cars, which have far lesser parts than internal combustion vehicles.
The Ultium platform reduces the time required to build a new vehicle by nearly two years, according to Dan Nicholson, vice president of electrification at General Motors, who spoke at a Federal Reserve Bank of Chicago meeting in January.
As a result, General Motors will be able to launch three Chevrolet electric vehicles this year: the Equinox, a Silverado pickup truck, and a Blazer SUV. “That’s how we get economies of scale,” said Mr. Nicholson.
Suppliers, too, have been looking for ways to save money. Matthews International, based in Pittsburgh, has created a method for wrapping the metal foil that separates a battery’s positive and negative electrodes. The process employs a powder rather than a liquid solution.
According to Greg Babe, the company’s chief technology officer, the process needs less equipment and much less space. Such incremental changes lower costs without requiring major technological breakthroughs.
Since President Biden approved the Inflation Reduction Act, there has been a surge in attraction to Matthews’ approach.
It changed almost instantly, the floodgates have been opened
Greg Babe, Chief technology officer stated on technological breakthroughs
