The Cost of EVs

The word on the street is that electric vehicles cost too much to buy. Is that still true?

If you ask Carlos Traveras, CEO of Stellantis, he will say yes. So will Jim Farley of Ford and Mary Barra of General Motors. On the other hand, if you ask Elon Musk of Tesla or Wang Chungfu of BYD the answer is likely to be different. Put another way, if you ask honchos in companies that primarily produce ICE cars the answer will be yes but honchos in serious EV makers and the answer will likely be no.

China’s car market is about 27 million vehicles per year. Currently about 3/4 of those vehicles are electric. Clearly the EV market is more mature in China than most other markets except Norway (where it is around 90% electric). As production volume is important to get costs down, looking at what is happening in China is a good way to get a handle on EV prices and, assuming EV sales continue to grow in other countries, get an idea of the future.

The Wuling Hongguan Mini is an extremely popular car in China. It is tiny — a tad less than three meters in length. But, it sells very well and there are no ICE cars in the same price class. The base price is around $7000. It is manufactured by a joint venture with SAIC and General Motors. It’s pretty basic but it is a real EV.

In “the West” you see expensive EVs but they are in a different class. In general, they are more like 5 meters in length and littered with features and comfort. And most — the exception being Tesla — are made by ICE car manufacturers who are doing EVs as little more than a sideline. There are some good deals on EVs in the US compliments of the Inflation Reduction Act but that is an artificially lower price intended to inspire quick market growth. In general, the big ICE automakers are losing money on each EV they sell but that seems to have a lot more to do with them not being serious about making EVs that an EV costing more to make.

Here are some of the issues:

  • EVs are being made on ICE car platforms (having a transmission tunnel is a clue) which make the cars heavier and cost more to produce
  • Tesla is, to the best of my knowledge, the only EV producer in the US market making their own batteries
  • Most US-based manufacturers subcontract for much of the components that go into their cars

If you are going to buy an EV today, the initial purchase price is likely to be higher in the US than an ICE car. The lower operating and maintenance costs will make it cheaper in the long run but, for some, it is harder to budget for the long run. But, that’s changing. As production volume increases and smaller cars enter the market, plus the lower prices of batteries as the technology matures, initial purchase prices of EVs and ICE cars will soon be equal.

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