Washington policy makers are pushing electric vehicles as a solution to climate change. But an uncomfortable truth remains. Battery-powered cars are too expensive for most Americans.
Congress has begun to address the issue. The climate and energy package, the Inflation Reduction Act passed by the Senate on Sunday, gives tax credits to buyers of used electric vehicles.
But automakers complain that credits will only apply to a small percentage of their vehicles, mainly because of domestic procurement requirements. and says broader action is needed to put enough electric vehicles on the road to significantly reduce greenhouse gas emissions.
Soaring prices are caused by shortages of raw materials such as batteries, lithium, and components such as semiconductors. Strong demand for electric vehicles from wealthy buyers means automakers have little incentive to sell cheaper models. Another obstacle for low- and middle-income people who don’t have their own garage or driveway is the lack of adequate public facilities for charging.
It will take years before the bottlenecks are eliminated. Automakers and battery and chip suppliers will have to build and equip new factories. Commodity suppliers must open new mines and build refineries. Charging companies struggle to install new stations fast enough. Meanwhile, electric cars remain largely the domain of the rich.
Automakers follow their usual strategy to some extent. They have always introduced new technologies at luxurious prices. As time goes on, new features and gadgets come to cheap cars.
But emissions-free technology has an urgency that voice navigation and massage seats don’t. According to the Environmental Protection Agency, transportation accounts for 27% of US greenhouse gas emissions. Battery-powered cars emit far less carbon dioxide than cars that run on petrol or diesel. According to many studies, this is true even when considering emissions from power generation and battery manufacturing.
Just a few years ago, analysts predicted that electric cars would become as cheap to buy as gasoline cars. Electrification is easy given the fuel and maintenance savings.
Instead, rising prices for commodities such as lithium, an essential ingredient in batteries, pushed the average selling price of an electric vehicle up 14% last year to $66,000, $20,000 higher than the average for all new vehicles.
Demand for electric vehicles is so strong that models like the Ford Mach E are virtually sold out, while others have long wait times. Tesla’s website has informed buyers that they can’t expect delivery of the Model Y with a purchase price of $66,000 until sometime between January and April 2023.
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Demand is so high that there is little reason for automakers to target budget-minded buyers. Economy car stalwarts like Toyota and Honda have yet to sell enough electric vehicles in the United States. Scarcity is good for automakers like Ford and Mercedes, which are making huge profits despite selling fewer cars than they did before the coronavirus pandemic.
Axel Schmidt, senior managing director at Accenture, which oversees the consulting firm’s automotive division, said automakers “are not offering further discounts because demand is outstripping supply.” “The general trend today is that no one cares about low prices.”
Advertised prices for electric vehicles tend to start at around $40,000, excluding the $7,500 federal tax credit. Good luck finding an electric car at that semi-affordable price.
Ford has canceled orders for the Lightning electric pickup. The advertised starting price is around $40,000. Hyundai advertises the electric Ioniq 5 starting at around $40,000. However, a search on the company’s website showed that the cheapest model available from a New York-area dealer was around $49,000 before tax.
The Tesla Model 3, which the company started producing in 2017, was supposed to be an electric car for the average person with a base price of $35,000. However, Tesla has since raised the price of the cheapest version he has to $47,000.
Second-hand electric cars are scarce. Popular models like the Tesla Y and Ford Mach E can sell for thousands of dollars more used than new. Buyers are willing to pay a premium to get an electric car right away, even if it’s used.
Los Angeles entrepreneur Joshua Berliner was looking for a used Tesla Model 3 sedan, but found the price to be higher than a new Tesla. Berliner said in his email that he “was saying the same thing for almost every manufacturer we surveyed.”
Berliner, who owns a Tesla and wanted another for his wife, said he almost bought a petrol car in desperation. “I don’t normally consider internal combustion engines, but if gas prices were lower, I might have pulled the trigger,” he said.
The Inflation Reduction Act, which is likely to pass the House, will give used car buyers tax credits of up to $4,000. A place to ride.
However, the used car tax credit only applies to those sold for $25,000 or less. Scott Case, CEO of Recurrent, a research firm focused on the used-car market, said less than 20% of used electric cars fit into that category.
The supply of used cars will increase over time, Case said. He said it wasn’t until 2018 that the Tesla Model 3, which has sold more than any other electric vehicle, became widely available.
Another provision of the Control Inflation Act, a $7,500 credit for new electric vehicles, would help drive prices down across the board and filter the used-car market, Case said. Between May and June, we sold about 200,000 new electric vehicles in the United States. As these new cars age, used electric vehicles will “be available to more people,” Case said.
The problem is that many new electric vehicles may not qualify for the $7,500 credit. The Control Inflation Act sets standards for the amount of vehicle batteries that must be manufactured in North America using raw materials from trade allies. Several automakers and suppliers have announced plans to build battery factories in the United States, but few have started production.
“We’re running out of material capacity right now, and I don’t think there’s a product that can fill that today,” said Carla Bairro, director of the Automotive Research Center in Ann Arbor, Michigan. “Tesla may be close, but the rest of the manufacturers are unlikely.”
The law also exempts imported electric vehicles from the tax credit. While this provision is intended to protect US jobs, it would undermine the price advantage of Chinese brands expected to enter the US market. SAIC’s MG division sells electric SUVs in Europe for around $31,000 before applying incentives.
New battery designs offer hope for cheaper electric vehicles, but it will be years before they appear in lower-end models. As expected, next-generation batteries with faster charging and longer range could first appear in luxury cars like Porsche and Mercedes-Benz.
Companies working on these advanced technologies claim that packing more energy into smaller packages will ultimately cost everyone less. A smaller battery saves weight and reduces the cost of cooling systems, brakes and other components. This is because it can be designed for lighter cars.
“worldJustin Miro, CEO of Kensington Capital Acquisition Corporation, helps battery maker QuantumScape go public and prepares fledgling battery maker Ampurius Technologies for stock market listing “There is this multiplier effect.”
The U.S. Department of Energy is trying to encourage startups to focus more on mass-market batteries. Division provided in May $45 million With grants to companies and researchers working on long-lasting batteries among other things, to create a greater supply of used cars.
Halle Cheeseman, program director for batteries at the Advanced Research Projects Agency Energy, part of the Department of Energy, said:
Gene Berdichevsky, chief executive of Sila Nanotechnologies, a California company working on next-generation battery technology, argues that prices are curving just like solar cells. Solar panel prices rose when demand began to grow, but soon resumed their steady decline.
The first vehicle to use Sila’s technology will be a Mercedes luxury SUV. I am here to make every car electric. ”
Some manufacturers offer cars aimed at the less wealthy. A utility hatchback, the Chevrolet Volt is listed at $25,600 before incentives apply. Volkswagen this month started making entry-level versions of the 2023 ID.4 electric sport utility vehicle at the German automaker’s Chattanooga plant starting at $37,500, or about 30,000 if eligible for a federal tax credit. Announced that it will start with the dollar. .
Then there is the Wuling Hongguang Mini EV, produced in China by a joint venture between General Motors and Chinese automakers SAIC and Wuling. The car has reportedly outperformed the Tesla Model 3 in China. The $4,500 price tag is a bargain, but few Americans would buy a car with a top speed of just 60 miles per hour and a range of just over 100 miles. There is no indication that the car will be exported to the US.
Ultimately, automakers will run out of wealthy buyers and go after the remaining 95%, says Bairro of the Center for Automotive Research.
“They listen to their customers,” she said. “Eventually, demand from high-income earners will wane.”
