Inflation turns electric vehicles into luxury items, threatening a broader electric transition
Electric vehicle (EV) prices are rising at a dizzying rate these days. Tesla raised prices to $6,000 per car last week. Rivian increased demand on its battery-powered R1T pickup truck in March, while Ford ran the sticker on the Mach-E.
Add it all up and an electric car now costs $61,000 on average, researcher says Edmunds.com. That’s a lot of money as the average new vehicle price—for all cars—has ballooned to $46,000. And yet, buyers keep coming.
But there is an underlying problem here. New cars are already out of reach for more than half of Americans, which means electric vehicles are only affordable for a limited group of affluent buyers. According to Charlie Chesbrough, senior economist at Cox Automotive, about 30% of all new cars sold last year had a suggested retail price above $50,000, up from just 6% a decade ago.
With many buyers shut out of the new car market, fewer and fewer people will be able to go electric and continue to burn gasoline for years to come.
“It’s clearly an upper crust product,” Chesbrough said in an interview. “It will be a long time before electric vehicles are the majority of cars on the road.”
This is partly due to the natural evolution of new technologies. Electric vehicles are still expensive to build. Ford, for example, is launching the F-150 Lightning plug-in pickup and is spending $50 billion to deploy more electric vehicles, with plans to build 2 million a year by 2026.
Rising raw material costs are making some battery-powered models unprofitable, the automaker’s chief financial officer, John Lawler, told an investor conference this week. He said Ford was seeing an increase in auto loan delinquencies amid rising inflation and higher interest rates.
The CEOs of General Motors, Ford, Toyota and Stellantis wrote to congressional leaders this week asking them to lift limits on federal tax credits of $7,500. GM and Tesla have already hit the program’s 200,000 vehicle cap, and Toyota is getting closer. Given the growth in EV sales, other producers are unlikely to be far behind.
Despite the recent surge in electric vehicle sales, automakers will need to sell to middle-class buyers both to achieve profitable scale with batteries and to reduce carbon emissions. It will be difficult with average prices of $61,000.
GM is the first to act. The company dropped the price of its Chevrolet Bolt and its slightly larger cousin, the Bolt EUV, by $6,000 this month, in part because its credits ran out. The biggest play will be next year, when the Chevrolet Blazer and Equinox go on sale for around $30,000. Both cars could be a game-changer and a game-changer for electric vehicles.