The rollout of electric vehicle (EV) technology is facing a long battle with market forces—but the sooner they become affordable, the sooner they will see mass adoption.
Key Details
- EVs are seeing record sales, with 7.1% of all car sales in January being electric.
- The average price of new EVs ($61,488) still eclipses the average price of new gas cars ($49,507), according to Kelley Blue Book.
- The average price of a car decreases by an average of 45% over five years.
- With the average selling price of a used car being $26,700, the EVs rolling off the lot right now are still going to be above the average cost of a used vehicle in five years.
- EVs are unlikely to see mass adoption before consumer models sell below the average transaction price for a used gas car.
Why It’s Important
On August 16, 2022, President Joe Biden signed the Inflation Reduction Act, which provides a $7,500 credit for domestically produced EVs. The move was a commitment on the part of the U.S. government to help tackle climate reductions and meet the international goal of net-zero carbon emissions by 2050. Among the provisions, the act pushed for auto manufacturers to eliminate gas-powered vehicle production by 2035.
The passing of the act has coincided with the widespread proliferation of EVs, although the majority of new cars continue to be gas-powered. Efforts to push the mass adoption forward have continued since then, including a February agreement between Tesla and the White House to open new EV charging stations nationwide and make them universal for all EVs on the market.
However, mass adoption is still decades away at the moment. Popular EVs are luxury cars that retain their value relatively well over time. A tax credit isn’t going to be enough to at the moment to convince lower-income consumers to purchase used EVs.
The Problem
Brian Moody is the executive editor of AutoTrader.com. He tells Leaders Media that EV prices are still too high to be affordable for the average consumer. About 20% of the total market is luxury vehicles, and automakers like Tesla have taken an unprecedented position as the new generation of highly-demanded luxury cars.
“Right now, electric car ownership is essentially a luxury vehicle ownership experience. It is expensive—and for people that can afford them, it is great. Tesla is the number-one selling electric car and luxury brand in the U.S. Think about that for a second—a brand that didn’t exist 20 years ago now sells more cars than Cadillac, Audi, and Mercedes-Benz. Thats crazy. It shows there is demand for these, but these buyers are wealthy early adopters,” he says.
“When Tesla lowered the prices on their Model 3s, orders went up. It tells you that some people wanted a Tesla, but the price kept them from getting it.”
With any technology, there will always be an adoption curve. Expensive technologies often begin as toys for the ultra-wealthy before slowly trickling down to the general public and becoming more affordable.
Many electric and hybrid vehicles are already within the average price range of a middle-class consumer, such as the Chevy Volt or Nissan Leaf. However, Teslas remain the most popular EV on the market at the moment, and they hold their values very well over time. This means that the majority of new EVs are not going to be generally affordable within the next five years.
The proliferation of consumer-grade EVs will make a dent in sales over time, but there are problems with their affordability as well. The Ford F150 Lightnings hold 57% of its value after five years and range in price between $52,000 to $97,000.
“I don’t think consumer-grade companies producing EVs will drop the price, but what it will do is get more people interested in electric cars. A Ford F150 that’s electric will get people into the idea of electric cars because it is recognizable and familiar. However, a $40,000 truck still isn’t affordable,” says Moody.
Your Car’s Extended Warranty
EVs do have some novel advantages that are intrinsic to their design. They require less mechanical work, because their structure is designed around a battery rather than a combustion engine with multiple complex components. Teslas are rated for a lifetime mileage of 300,000 to 500,000 miles. This means that future EVs could be sold in the future at an initially high expense and lower operational costs.
The downside to EVs is that the battery component is critically expensive if it fails, and if it fails after the warranty period, it can cost as much as $15,000 out of pocket to replace the battery.
EVs have an unusually long warranty period of roughly eight years to deal with battery issues. Still, it also creates a problem trying to sell EVs once they’re seven to 10 years old and the lifespan of the battery is declining. This could mean that the resale value will radically decrease over time, but consumers will be necessarily hesitant to purchase a 10- to 15-year-old Tesla when the repair costs could rival the sales cost.
“If you buy a $10,000 used electric car, you’re taking more of a chance than a $10,000 gasoline car. If I buy a $10,000 Toyota Camry with 150,000 miles on it, I know what I’m buying. It will have a handful of problems, but it is workable,” says Moody.
What’s Not Being Said
Moody says that an under-discussed part of the ongoing attempts to encourage EV mass adoption has been the proliferation of hybrid vehicles, which have not received as much attention as EVs. Hybrid vehicles burn gasoline but at a much lower rate than conventional gas-powered vehicles. He wonders what the environment would look like if hybrid vehicles could serve as the bridge between the modern automobile and the future.
“It’s possible today to get a hybrid for a moderate price that will get 60 miles per gallon. Do you think the average consumer knows that? It would be worthwhile to ask what it would look like 30 years from now if hybrids were getting 75 or 100 miles per gallon. What do the air and environment look like, then? Hybrids will be the bridge for those who cannot afford a $60,000 car to get there. The more are produced, the more the price will come down,” he says.
While the Inflation Reduction Act has coincided with an increase in EV sales, it was not the cause. EVs are have been growing in popularity for years because Teslas are popular and desired luxury vehicles for those who can afford them. Moody believes that society will have to face a reality check about totally phasing out gas-powered cars within the next 12 years.
“What we’re seeing in this goal of eliminating gas-powered cars is similar to when General Motors said in the 1970s that they couldn’t build any more convertibles. By 2006, they sold hundreds of thousands of them. Predictions need to be taken with a grain of salt,” says Moody.