Gasoline prices are up more than 50 per cent compared with last year.
That was the headline from Wednesday’s consumer price index results. General Motors CEO, Mary Barra’s appeal to cost-conscious car buyers is that an electric vehicle can meet all their transportation needs.
To reach GM’s goal of making only electric passenger vehicles by 2035, Barra is going after car buyers in the US$30,000 to US$35,000 price range. A deep price cut lowered the 2023 Chevrolet Bolt to US$26,595 from US$32,495. (The price has not been matched in Canada, but it is one of the cheapest EV models in the country) The new Chevy Equinox SUV is priced at US$30,000.
The average U.S. EV costs US$54,000, so how will GM meet its aggressive pricing targets?
I asked Rebekah Young, vice-president and head of inclusion and resilience economics at Scotiabank, and Brendan Sweeney, managing director at the Trillium Network for Advanced Manufacturing, about what they see as the future of affordability, ahead Shift’s launch event on EV affordability and consumer adoption taking place next Tuesday:
Scale. One of Barra’s strategies is to standardize components like semiconductors to “buy in bulk,” telling The Associated Press that, “We’re also working with a select group of strategic companies to source these for the volumes. We’ll have much better control and a stable supply.”
Sweeney agrees that scale will be an important element of improving affordability for EVs.
“A vehicle assembly plant is generally designed to be making about 200,000—that’s [the] ideal scale. … If you’re only making 30, 40, 50,000 of a particular unit at a plant, you’re barely registering on the efficiency,” he said. “The marginal unit costs are going to start to come down. Now, that’s just at the assembly. … What about when certain parts and components start becoming ubiquitous across models?”
Battery technology. The U.S. Department of Energy estimated that lithium-ion EV battery pack costs declined 87 per cent between 2008 and 2021. Can that trend continue? “There’s some real limits to that now,” said Sweeney. “Demand for some of these commodities is gonna go through the roof. … And if the supply doesn’t keep up? Well, we know what’s going to happen. The price is going to go bonkers, right?”
Chips and economic dips. A chip shortage has slowed production of new cars over the past couple of years. Meanwhile, Young noted, the pandemic led some people to move to the suburbs and avoid public transit, boosting demand for vehicles. All that has led to demand exceeding supply, and passenger-vehicle prices rising 1.5 per cent in June.
Can that trend turn around? Rising interest rates could cool demand for vehicle leases, Young said, which may in turn, allow supply to catch up. Barra said in her interview with the AP that new-car prices have been skewed by automakers saving chips for pricier vehicles, but prices would come down when chip supplies improve and automakers start cranking out their lower-margin cars again.
On the economic side, despite Tesla CEO Elon Musk’s “super bad” feeling about the economy, he has said that if inflation eases, he would consider lowering Tesla prices. Economists are now predicting that inflation may have peaked in Canada. And Scotiabank’s outlook predicts both the U.S. and Canada will avoid a recession.
The takeaway: There are some forces working in favour of lower EV prices over time, but they hinge on assumptions about falling battery costs as mining technology continues to improve, increasingly efficient manufacturing thanks to economies of scale and more chip supplies, and easing economic pressures if inflation can be contained.
We’ll be discussing the EV outlook in more detail at our event next Tuesday. You can register for that here.
Read Shift—The Logic’s authoritative weekly newsletter on automotive technology industry news—for more; and if you know someone who should be reading it, they can sign up here.
