Electric vehicles likely to equal petrol cars in price this year: Report

Sticker prices for electric vehicles (EVs) are falling closer to the point at which they could soon be on a par with gasoline cars. 

Increased competition, government incentives and falling prices for lithium and other battery materials are making EVs more affordable.

The tipping point when EVs become as cheap or cheaper than cars with internal combustion engines could arrive this year for mass market models and is already the case for some luxury vehicles.

Prices are likely to continue trending lower as Tesla, General Motors, Ford Motor and their battery suppliers ramp up new factories, reaping the cost savings that come from mass production. New EVs from Volkswagen, Nissan and Hyundai will add to competitive pressure.

The battery-powered version of GM’s Equinox crossover, for example, will start around $30,000 when it arrives this fall, the carmaker has said. That is $3,400 more than the least expensive gasoline-fueled Equinox.

Only a few months ago, EV buyers faced long waiting lists, and dealers marked up sticker prices by thousands of dollars. Used EVs sometimes sold for more than new ones because buyers were willing to pay a premium to get one right away.

At the end of 2022, the average price of an electric vehicle was $61,488, compared with $49,507 for all passenger cars and trucks, according to Kelley Blue Book. 

The first major crack in the trend of rising prices came in January, when Tesla cut prices for the Model 3 and Model Y, the two bestselling electric cars, by thousands of dollars. With a starting price of $43,500 before government incentives, a Model 3 is now $300 less than the least expensive BMW 3 Series sedan. A Model Y, at $55,000 before tax credits, costs about as much as a comparable Lexus RX.

Even Lucid Motors, a maker of expensive electric sedans that do not qualify for tax credits, began offering $7,500 discounts on cars that start at $107,400. 

Major impetus for the price cuts came from the Inflation Reduction Act, that provides tax credits of up to $7,500 for electric-car buyers.

By cutting prices, Ford and Tesla increased the number of models that could benefit from the tax credits.

Potentially more significant are subsidies paid to firms that manufacture batteries in the US. The subsidies could cut the cost of making EVs by as much as $9,000.

That break and the tax credits for buyers of electric cars could allow battery-powered vehicles to achieve price parity with gasoline cars as soon as this year, according to the International Council on Clean Transportation, a research and advocacy group. 

That is three to five years sooner than would be the case without incentives.

Declines in new-car prices are pushing down used EV prices, too. They have fallen 17 per cent since July, according to Recurrent, which tracks the used-car market. Under the Inflation Reduction Act, used cars can also qualify for a tax credit of up to $4,000.

Falling prices for materials like lithium and cobalt have also helped. The price of lithium used in batteries has fallen 20 per cent from its peak in November. Cobalt has fallen by more than half since May, in part because carmakers are selling models that do not require it, reducing demand.

These advantages could fade because of new supply-chain problems. Lithium remains in short supply. New regulations will require e-car batteries to be made in the US, Canada or Mexico with raw materials from North America or any US trade ally. It is unclear how many vehicles will meet those requirements.

Right now, the Inflation Reduction Act tax credits are available to vehicles assembled in North America, which partially shields the U.S. automakers from competitors like Hyundai. The company’s Ioniq 5 has sold well, but it is imported from South Korea.

Hyundai is building a factory in Georgia that will start assembling electric vehicles in 2025. (Buyers may still collect a tax credit indirectly if they lease foreign-made electric vehicles.)

The Treasury Department, which is responsible for carrying out the Inflation Reduction Act, gave in to auto industry lobbying this month and classified several popular crossovers as SUVs rather than sedans.

That allows vehicles like the Mustang Mach-E and all versions of the Model Y to qualify for tax credits if they sell for $80,000 or less. Before that change, the Mustang and lighter versions of the Model Y were classified as sedans, subject to a $55,000 limit.

The decision removes some pressure on the carmakers to keep prices low. Tesla quickly raised the price of the Model Y by $2,000. Ford said it has no plans to raise prices of the Mach-E.

The Inflation Reduction Act is also under attack by many congressional Republicans even though automakers and battery companies are building factories in states like South Carolina, Texas and Tennessee, where voters tend to elect Republicans.

But arguably the most powerful force driving down prices is not the commodity markets or Washington. As electric-vehicle sales soar — rising 66% in the United States last year to 810,000, according to Kelley Blue Book — automakers are getting better at making them.

Ford has reduced the weight of the Mach-E by 70 pounds, increasing range and lowering cost, by eliminating some wiring, Jim Farley, the company’s chief executive, told investors this month.

GM and LG Energy Solution began producing batteries at a new plant in Ohio last year through a joint venture, Ultium Cells. A second Ultium plant, in Tennessee, is expected to begin production this year, and a third is slated for Michigan. Generally speaking, costs come down as companies produce more of a product.

Auto executives say that they are finding it is easier and cheaper to design and build new electric models than gasoline-powered ones. The battery cells made by Ultium, for example, are part of a collection of components that can be mixed and matched in many types of vehicles.

Carmakers have long used the same platforms in multiple models, but the strategy works even better with electric vehicles because the cars have far fewer parts than internal combustion vehicles.

The Ultium platform cuts the time needed to develop a new vehicle by almost two years, Dan Nicholson, vice president of electrification at GM, said at a Federal Reserve Bank of Chicago conference in January.

As a result, GM will be able to introduce three Chevrolet electric vehicles this year: the Equinox, a Silverado pickup truck and a Blazer SUV. “That’s how we get the economies of scale,” Nicholson said.

Suppliers have been looking for efficiencies, too. Matthews International Corp., based in Pittsburgh, has developed a process for coating the metal foil that separates the positive and negative electrodes of a battery. Instead of a liquid solution, the process uses a powder.

The process requires less equipment and a lot less space, said Greg Babe, the company’s chief technology officer. Those kinds of incremental improvements reduce costs without major technical breakthroughs.

Interest in the approach developed by Matthews has soared since Biden signed the Inflation Reduction Act. “It changed almost overnight,” Babe said. “The floodgates opened.” 

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