The purchase price of electric vehicles is significantly higher than that of conventional automobiles, which is the primary factor preventing the widespread adoption of EVs.
Numerous studies have shown that owning an electric vehicle (EV) is frequently cheaper than owning a gas burner.
However, many buyers don’t look outside the price on the tag at the car dealer, and purchase prices for EVs still tend to be significantly higher than those of “comparable” fossil rides. It is even though EVs have a lower environmental impact than gas-burning vehicles.
On the other hand, as Christopher Mims points out in a recent article for the Wall Street Journal, the gap is beginning to close.
Battery costs affect the EV prices
Given the automotive industry’s high competitiveness, automakers will likely pass on. It will allow electric vehicle production costs to drop significantly over the next few years due to various factors.
Batteries are the primary factor in an electric vehicle’s consistently falling price, and this trend is expected to continue. The battery pack is the electric vehicle’s single most expensive component, which is why EVs have always been more expensive than traditional vehicles.
However, the price of batteries has been on a consistent downward trend ever since the introduction of modern EVs. It is due to advancements in the underlying technology and economies of scale that have resulted from increased production volumes.
Battery costs are the biggest contributor to the overall change in the cost of EVs, and their premium compared to [internal combustion engine] vehicles, We’ve seen that cost drop 90% from 2010 to 2020
Paul Augustine, Director of Sustainability at Lyft stated on battery costs
This trend started to move in the opposite direction in 2022 when the aftermath of the COVID pandemic caused prices of raw materials to skyrocket.
According to BloombergNEF, the cost of an electric vehicle battery pack increased by 6.9% compared to 2021. It is the first time that Bloomberg has recorded a price increase since the company began tracking the market in 2010.
Some people were concerned that the good times were over and that the price of batteries would either stay the same or keep going up.
Alternative battery chemistries
To begin, the “Invisible Hand” of the free economy went to work, and as a result, higher prices incentivized producers to increase their output. Second, automakers have started utilizing alternative battery chemistries that call for fewer costly raw materials.
To this day, most electric vehicles have used batteries based on chemistries that use nickel and cobalt. These metals are not only costly, but they also originate from areas with poor environmental and human rights records.
Lithium-iron-phosphate, or LFP for short, is an alternative battery chemistry that does not require nickel or cobalt and has been used by Chinese automakers for some time now.
In 2021, Tesla began selling battery packs based on LFP, and now other automakers like VW and Ford are widening their use of chemistries based on LFP.
According to Ryan Castilloux, Managing Director at Adamas Intelligence, iron-based batteries now tally for almost a third of all-electric vehicle batteries produced worldwide, and he anticipates that this share will continue to grow soon.
Nickel-based chemistries, which provide improved energy density, will continue to be preferred for specific vehicle segments; however, lithium-iron phosphate (LFP), which is less expensive and more reliable, will become the technology of choice for mass-market electric vehicles that are priced lower.
Clean Technica reports that it is not just the price of batteries anticipated to go down; other components will also see it. It also receives news of advancements concerning motors, inverters, electronics, and even such mundane parts as brakes and tires — and expanding the range and reducing costs are the top priorities.
EV prices expect to decrease in the future
The development of new technologies will result in cost reductions; however, economies of scale will take an even more essential position. The scale of everything with electric vehicles is anticipated to skyrocket over the next few years.
AlixPartners, a consulting firm, told the Wall Street Journal that carmakers will spend half a trillion dollars in electric vehicle (EV) development and production through 2026.
Their massive investment will be made in electric vehicle (EV) manufacturing lines, battery plants, and the latest sources of raw materials. Battery manufacturers also have huge investments in the works.
All of the factors above should bring about significant price cuts for EVs over the next few years. In addition to that, a great deal more is occurring.
There is a much less well-known segment of the IRA that might have numerous times the effect of the tax credits, but the reworked tax credits that are a part of the Inflation Reduction Act (IRA) will deliver significant cost savings to some buyers of electric vehicles (EVs).
Financing for battery productions credits
In Section 45X, financing for battery production credits is authorized for ten years. These credits can reimburse a manufacturer for a sizeable portion of the battery production cost.
According to Car and Driver’s interview with an electric vehicle battery production expert, Section 45X can reduce the overall cost of a US-made battery pack by one-third and one-half.
When dealing with new technologies, there are bound to be many unknowns, and as a result, it is impossible to make accurate price predictions.
However, it does appear inevitable that the price of EVs will continue to fall, and as Christopher Mims of the Wall Street Journal puts it, prospective buyers of automobiles may soon find themselves in a very peculiar predicament. If they continue to stick with technology from the previous generation, they will have to pay a premium.
See Also
- Rivian cuts 6% of its workforce for the second time in less than a year amid EV price war
- Australia’s update EV prices range from the most affordable to the most expensive
- CES 2023: Higher EV prices force Stellantis to cut cost
- Tesla cuts EV prices in China by up to 9% as analysts warn of ‘price war’
- Tesla vs. ICE: Second-hand EV prices increased 5X more than combustion-powered cars in July
