Government, consumers want lower EV prices, but automakers still pricing high

  • This Aug. 23, 2020 photo shows a long line of unsold 2020 models charge outside a Tesla dealership in Littleton, Colo. (AP Photo/David Zalubowski)

  • A worker inspects a new electric car at a Tesla delivery location and service center Friday, April 2, 2021, in Corte Madera, Calif. Government officials and consumers want to see cheaper electric vehicles, but automakers are launching expensive options as they work to make these types of vehicles affordable down the road. (AP Photo/Eric Risberg)

  • A 2021 Chevrolet Bolt EV, is displayed with 2020 models at Bill Crispin Chevrolet Thursday, Feb. 25, 2021, in Saline, Mich. Opinion polls show that most Americans would consider an EV if it cost less, there were more charging stations along freeways, and if automakers offered a bigger variety of models. (AP Photo/Carlos Osorio)

  • A Tesla Model Y Long Range is displayed at the Tesla Gallery on Feb. 24, 2021, in Troy, Mich. Opinion polls show that most Americans would consider an EV if it cost less, there were more charging stations along freeways, and if automakers offered a bigger variety of models. (AP Photo/Carlos Osorio)

Government officials and consumers want to see cheaper electric vehicles, but automakers are launching expensive options as they work to make these types of vehicles affordable down the road.

The automakers, including General Motors Co. with its “Everybody In” campaign, say they will offer EVs across a wide range of pricing. And, to help speed the transition, they stress the federal government needs to intervene to provide more incentives to customers.

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Once simple and purpose-built to lower carbon emissions, EVs are becoming more of an expensive status symbol — understandable, experts say, because these vehicles are not high-volume products. But with their aggressive EV goals, pricing will have to come down below $30,000 if automakers want to move EVs in volume.

“People with money are more likely to be innovators than your average person who goes to work every day,” said Warren Browne, an auto supplier consultant and former GM executive who worked at the automaker for 40 years. “Innovators with income want the latest little widget on the market. You start high because you’re not going to move elephant volume, so why sacrifice the margin.”

When automakers decide they want to move battery electric vehicles at “elephant volume” — when a product sells more than 200,000 vehicles a year, Browne says — they will price EVs 15-to-20% lower than gas-powered vehicles.

Automakers are still in a “learning curve” strategy of just adding in EVs and not replacing the gas-powered options, Browne said. That’s why it’s OK to price 10-to-20% higher than the current gas-powered equivalent because customers have options.

EVs eventually need to be priced lower “because you’re not going to have the same build figurations to satisfy the customer. You’re still going to have range anxiety. And there’s gonna be a whole bunch of other people in the marketplace that are offering their vehicles.”

Automakers represented by their trade group, the Alliance for Automotive Innovation, have expressed the need for a government plan to quicken EV adoption by incentivizing customers to buy. GM and Tesla Inc. already have exhausted their allotment of $7,500 federal tax credits a customer can claim for purchasing a new EV.

President Joe Biden’s $2 trillion infrastructure plan includes a $174 billion proposal that would boost EV incentives and add 500,000 more charging stations. The plan calls for $100 billion in new consumer rebates, Reuters reported. In a Friday note, Wedbush industry analyst Dan Ives said that “would dwarf the level of tax credits and rebates currently in place for EV vehicles in the U.S. and be a significant bullish catalyst for EV sales domestically over the coming years.”

In an interview last week with Yahoo Finance, Transportation Secretary Pete Buttigieg said it’s important for the government to incentivize for EV adoption.

“We got to make sure that electric vehicles are not just a luxury item …,” he told the news outlet. “First, we have to make sure we are producing them at scale, drive those costs down. And, again, we don’t have time for that to simply play out on its own.”

Pricing matters

Vehicle pricing is important “because people spend their hard-earned money in order to buy something,” Browne said, “so pricing is always at the top of everybody’s mind.”

EVs once were thought of as a “pragmatic” purchase — not one made for the cool elements of the vehicle, said Jessica Caldwell, executive director of insights at Edmunds.com Inc., a vehicle information website.

Then came Elon Musk and his Tesla brand. “They brought out their Model S and it was like: ‘Oh, wow, an EV can be sexy, can be cool, can have good range,’” Caldwell said. “It’s more expensive, but then all of a sudden that attracts a different type of buyer.”

A 2021 Tesla Model 3 sedan, the cheapest of the brand’s four vehicles, ranges from $37,990 to $54,990, according to Edmunds. On the higher end, the Model X SUV ranges from $89,990 to $119,990.

Monika Khanna of Troy leases a Lexus RX 350 SUV, but she would like to hop into a Model 3 or Model Y to reduce the fossil fuels her lifestyle consumes. As a physical therapist, she was out of work last year for six weeks when her employer closed because of the COVID-19 pandemic canceling non-essential medical procedures.

“I am leaning toward Tesla, and that’s the reason I am holding off,” Khanna said. “That’s an expensive vehicle. I want to be absolutely certain about the job situation.”

She’s hoping to have some more certainty in the coming months once more people get a vaccine. Until then, she plans to extend her Lexus lease that expires in May: “If I was going to get another vehicle in a comparable price range, I would go for it, but it’s going to be more than this,” Khanna said of the Tesla. “I want to be absolutely sure going forward.”

GM executives have consistently said there will be electric vehicles offered across a range of pricing.

The Detroit automaker recently unveiled the new Chevrolet Bolt EV and its larger sibling the Bolt EUV, which are both cheaper than the current Bolt model — the Bolt EV by $5,000 and the EUV by $3,000. The new 2022 Bolt EUV is priced starting at $33,995 and the Bolt EV is priced at $31,995.

At the other end of the price spectrum, GM is offering a GMC Hummer SUV EV; Edition 1, coming in early 2023, is priced at $105,595. An extreme off-road package version, which is also available in early 2023, is priced at $110,595.

Edition 1 of the Hummer EV truck coming later this year is priced at $112,595. Both the SUV and truck versions will have cheaper options in later production years.

Jeff Laethem, owner of Ray Laethem Buick GMC in Detroit, has signed on to sell the Hummer and has north of 20 orders. He wasn’t surprised by the higher-end pricing, and the customers signing up for it aren’t concerned about it because “they just want it. They want it because of every element of it.”

“You’re buying a brand, you’re buying a piece of luxury,” he said. “That’s what justifies any of those expenses. And, obviously, if you look at the capabilities of the vehicle when you watch the videos … there’s no vehicle like that on Earth.”

Ford Motor Co. launched its Mustang Mach-E with a list price of $42,895. On the high end, the Mach-E GT has a list price of $60,500. The battery-powered Ford E-Transit cargo van starts under $45,000. Ford hasn’t yet priced its coming electric F-150.

Jim Seavitt, owner of Village Ford in Dearborn, said the Mach-E is attracting a new type of customer: “It’s everything that people who buy those cars want. A pretty loaded one is $52,000. And if you want to go jump into a Tesla you’re paying $100,000.”

When pricing EVs, automakers use as a reference the price equivalent with gas-powered products — and right now prices are high. Gas-powered vehicle prices have continued to rise, especially with the low supply of vehicles due to a global chip shortage.

Edmunds analysts forecast the average transaction price (generally, list price minus rebates and incentives) for new vehicles in March to be $39,950, up from last year’s $38,601.

Tax credit helps

David Dewandeler of Fraser recently picked up his red premium Mach-E from Village Ford. It came with a price tag of $56,000 but Dewandeler will be able to use the $7,500 tax break on it next year.

Not having that $7,500 “could have been a deal-breaker,” he said. “I might have just leased another gas car.”

Dewandeler got the Mach-E because he wanted something different. Unlike many consumers, he doesn’t stick to one brand. He’s driven everything from a Chevrolet Equinox to most recently a pricey BMW SUV.

Pricing may partially play into purchasing a new product for him, but it’s mostly about what the vehicle offers, he said: “I had the Jeep Cherokee, the Equinox, the Ford Escape. Frankly, they were all fine, but they didn’t really excite me. I wanted something exciting to own and drive.”

Ford still can offer the tax-credit incentive, but GM and Tesla have both tapped out of them. Biden’s plan to increase incentives faces an uphill battle in Congress before offering more becomes a reality.

“We support continued consumer incentives, including a modification to the EV tax credit so that customers of first movers like GM are not penalized, and also one that makes used EV buyers eligible,” Stu Fowle, GM brand communications manager, said in a statement. “We have our own role to play in lowering prices as well through R&D, engineering, and manufacturing innovation, as well as scale.”

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Automakers expect advancements in battery technology to lower costs over time. But since the battery technology is more expensive to produce, “it’s going to increase the price of the vehicle in general,” Caldwell said, adding that usually, the cost of a new technology does come down as it progresses.

“For EVs, the challenge is getting people to have a completely different behavior than what they had in the past. That may be one of the biggest challenges beyond infrastructure and cost.”

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