It’s no secret that the US is pushing for electric vehicle adoption, with policymakers at both the state and federal levels creating incentives to boost purchases.
But the thing is, EVs are expensive — the average costs about $60,000, while a typical internal combustion engine (ICE) vehicle with similar features costs about $20,000 less. That means customers currently have a choice between a $40,000 gas-powered vehicle or a $60,000 electric vehicle, which is a no-brainer in this tightened economy.
So will prices ever go down? In September, General Motors (NYSE: GM) shocked the electric vehicle space when it unveiled its Chevrolet Equinox EV, an all-electric SUV that’s expected to sell by 2024 for around $30,000.
That got analysts to ask the question: Will GM’s low price force other EV makers to follow suit? The short answer is… no.
“[GM and other EV makers will] have the low end only to find that they are a player at that end of the range,” said Dr. Richard Kilgore, associate professor of management and business administration at Maryville University in St. Louis, to Modern Shipper.
“But especially if capacity is limited early on, actual production will be more focused on the higher-margin vehicles — and particularly vehicles with higher software packages for autonomous driving, larger batteries that are more reliable, and things like that.”
Through his work as an industry consultant, Kilgore has over 20 years of experience understanding the ins and outs of the automotive industry. In his view, GM’s announcement is more of a marketing ploy than anything else. He believes the automaker and its rivals will offer cheaper options to compete with powerhouses like Tesla, but pricier models will continue to take center stage.
“You want to position yourself in the marketplace as a brand that you want to consider if you’re looking for a sub-$40,000 vehicle,” Kilgore said. “Tesla is positioning itself to be more of the Apple iPhone electric vehicle. GM is positioning itself as the Samsung Android of electric vehicles.”
But just as Samsung offers a $300 model and a $1,200 option, GM and other companies will do the same. And Kilgore predicts vehicles at the cheaper end of the spectrum will be in short supply.
“When it comes to having the available capacity to meet demand at this price point, that’s not going to happen,” he said. “There will only be a very small number of these vehicles given their existing and planned capacity.”
So if prices across the board don’t come down and affordable EVs become hard to come by, how will the US meet its goal of having EVs account for half of all vehicle purchases by 2030? An easing should begin when the provisions of the anti-inflation law that came into force in August have been in force for a few years.
One provision established by the IRA is a $7,500 tax credit for consumers who buy a new EV and a $4,000 credit for those who buy a used EV. The catch? To be eligible for the credits, a vehicle must be assembled in the Free Trade Zone, which includes the United States, Canada, Mexico, Australia and some other countries. Remarkably, this list does not include Asian or European nations.
This emphasis on local sourcing and production will ultimately lower prices for consumers, Kilgore believes, because companies don’t have to bear the costs of producing and shipping from abroad.
“The vehicle has to be made in those countries and have a certain percentage of battery material to hit that $7,500,” he said. “So I’m sure that at this price [automakers are] trying to get those who have a $7,500 loan claim to lower the price of the vehicle even more.”
The IRA’s tax credit scheme is, in part, a way to protect the US electric vehicle market from foreign competitors undercutting its price points. For example, an Indian company called Tata has released an electric vehicle that would cost about $10,000, but that vehicle is not eligible for the loans.
However, the fact that there is a low-cost model like Tata’s is a wake-up call for manufacturers within the free trade zone.
“That would only be available in India. The US would prevent this vehicle from being exported to the United States,” Kilgore said. “But that kind of competition out there says to people, ‘Hey, if these Indian manufacturers can build one for $10,000, why can’t GM, Ford and everyone else over here? … If they can do it in India, they can do it in Indiana.’”
Watch: Can infrastructure keep up with demand for electric trucks?
Luckily for US manufacturers, the laws of business should apply. As production ramps up, automakers can spread their fixed costs across more vehicles, allowing them to charge less for each vehicle.
But in the short term, they’ll have to work to corner the burgeoning EV market. Kilgore sees two groups that would be ideal candidates for a vehicle costing around $30,000, like GM’s will.
The first is families with children, which is typically a big market for SUVs. But in the case of GM’s Chevrolet Equinox EV, Kilgore thinks the vehicle class should be placed in air quotes.
“I can turn an existing Tesla into an ‘SUV’ just by raising the rear a bit,” he said. “And I think that’s what a lot of these automakers are trying to sell to the public, which is that this would be a replacement for the current SUV that you have. But in reality, I don’t think that’s the case.”
Rather, Kilgore predicts that families will use an EV like GM’s as their own second vehicle, buy it as an addition rather than a replacement.
“What they’re going to do is fulfill what I think will be the first purchasing decision for a household, which is that they’re going to keep the ICE vehicle for the long commutes,” he said. “But for the person at home who is going to and from the soccer ball or going to and from the neighborhood grocery store, this sub-$30,000 electric vehicle is really a desirable option.”
The other group Kilgore identified were single people in their 20s and 30s who have limited commute times. These typically low-income buyers would be more likely to make a low-cost electric vehicle their primary vehicle for commuting to and from work and is a great marketing target, Kilgore said.
“These two segments will be the main segments attracted to this lower-priced vehicle and I see very, very high demand for it going forward,” he said. “But the problem is capacity.”
With low-cost electric vehicles still a new idea, automakers continue to skew capacity planning toward higher-margin vehicles. But even after they solve that problem, they’ll be faced with another: a malleable customer base who have yet to figure out what they want.
“Unlike traditional ICE buying, there will be very little brand loyalty,” Kilgore said. “Nobody sees Ford or GM or Volkswagen as any different when it comes to electric vehicles, while they see big differences in these companies when they compare internal combustion engines.”
There may come a day when brand loyalty arrives. But until that happens, automakers will have to try to reach a market they don’t fully understand yet.
“There is uncertainty on both sides of demand and supply,” he said. “Manufacturers don’t know their consumers, and consumers don’t know the product. There are range issues, fast charging, hybrid versus non-hybrid, speed of the vehicle, reliability – the manufacturer has to guess which mix of these is the optimal mix for the consumer. At the same time, this consumer has not really decided what he will be looking for. They have never bought a vehicle like this before.”
He compared the problem to the one faced by the fledgling portable laptop industry at the beginning. Both manufacturers and consumers witnessed the emergence of an entire industry and everyone needed to educate themselves about the product before the market adapted.
Likewise, Kilgore believes EV manufacturers should be prepared for an outage early on.
“There will be some companies that will have some horror stories about their launches and recalls, and they will lose their reputation as quickly as they gained it by offering a price that may be too low for the reliability that the The customer wishes. ” he said.
Add to that ongoing problems like battery fires and accidents, and Kilgore predicts customers could wait until prices come down and automakers work out the kinks in their designs before buying an electric vehicle. However, his hope is that by 2028 the industry will be sufficiently mature to keep prices under control and help the US meet its lofty goals.
Click here to see more Modern Shipper items by Jack Daleo.
You may also like…
Amazon and Rivian are rolling out electric vehicles in more cities ahead of the holidays
Shipt faces multiple lawsuits over worker classification
Drones are delivering meals to hurricane-affected Florida residents