Electric Cars Too Expensive for Many, Even With Aid to the Climate Bill

Policymakers in Washington are promoting electric vehicles as a solution to climate change. But an uncomfortable truth remains: Battery-powered cars are too expensive for most Americans.

Congress has started trying to find a solution to this problem. The Inflation Reduction Act, a climate and energy package passed by the Senate on Sunday, will give tax credits to buyers of used electric cars.

But automakers have complained that the credit will only apply to a narrow slice of vehicles, at least initially, largely due to domestic sourcing requirements. And experts say sweeping steps are needed to make electric cars more affordable and get enough of them on the road to make a serious dent in greenhouse gas emissions.

The high prices are due to shortages of batteries, raw materials such as lithium, and components such as semiconductors. Strong demand for electric vehicles from affluent buyers means carmakers have little incentive to sell cheaper models. For low- and middle-income earners who don’t have their own garage or driveway, another obstacle is the lack of adequate public facilities to recharge.

It will take years to overcome the obstacles. Car manufacturers and suppliers of batteries and chips will have to build and equip new factories. Commodity suppliers have to open new mines and build refineries. Charging companies are struggling to set up stations fast enough. Meanwhile, the electric vehicle remains largely the province of the wealthy.

To some extent, carmakers are following their usual game plan. They have always introduced new technology at a luxury price. Over time, features and gadgets have made their way into affordable cars.

But emission-free technology has an imperative not to do with voice navigation or massage seats. According to the Environmental Protection Agency, transportation accounts for 27 percent of greenhouse gas emissions in the United States. Battery-powered cars produce far less carbon dioxide than petrol or diesel-powered vehicles. According to several studies, the same is true for emissions from generating electricity and making batteries.

Just a few years ago, analysts were predicting that electric vehicles would soon be as cheap as gasoline cars. Considering the savings on fuel and maintenance, going electric will be a no-brainer.

Instead, rising prices of items like lithium, an essential component in batteries, helped raise the average sticker price of an electric vehicle last year by 14 percent to $66,000, $20,000 more than the average for all-new cars, according to Kelley Blue Book. Of.

The demand for electric vehicles is so strong that models like the Ford Mach-E are effectively sold out, and others have to wait a long time. Tesla’s website informs buyers that they cannot expect delivery of the Model Y with a purchase price of $66,000 until sometime between January and April.

With such high demand, there is no reason for carmakers to target budget-minded buyers. Economy car giants such as Toyota and Honda are yet to sell a significant number of all-electric models in the United States. The shortfall has bodes well for Ford, Mercedes-Benz and other carmakers, which are selling fewer cars than before the pandemic but reporting hefty profits.

“Automakers aren’t offering any further discounts because demand exceeds supply,” said Axel Schmidt, a senior managing director at Accenture who oversees the consulting firm’s automotive division. “The general trend is currently no interest in lower prices.”

Advertised prices for electric vehicles start at approximately $40,000, not including the $7,500 federal tax credit. Good luck getting an electric car at that semi-affordable price.

Ford has stopped taking orders for Lightning electric pickups, with an advertised starting price of around $40,000, because it can’t make them fast enough. Hyundai advertises that its electric Ioniq 5 starts at around $40,000. But the cheapest models available from New York area dealers were about $49,000 before taxes based on a search of the company’s website.

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Tesla’s Model 3, which the company began making in 2017, was supposed to be an electric car for the average people, with a base price of $35,000. But Tesla has since raised the price of the cheapest version to $47,000.

Even used electric cars are rare. Popular models like the Tesla Y and Ford Mach-E sometimes sell for thousands of dollars more than new. Buyers are willing to pay a premium to get an electric car, even an old car, immediately.

Los Angeles entrepreneur Joshua Berliner was in the market for a used Model 3 sedan, but found that the prices were higher than for a new Tesla. “The same was true for almost everything we saw,” Mr Berliner said in an email.

Mr Berliner, who owns a Tesla and wants another for his wife, said he was so desperate that he almost bought a gasoline car. “I don’t usually consider combustion vehicles, but if gas prices were lower I would have pulled the trigger,” he said.

The Inflation Reduction Act, which appears likely to pass the House, would give buyers of used cars a tax credit of up to $4,000. The used car market is twice the new car market and this is where most people get their ride.

But the tax credit for used cars will only apply to cars sold for $25,000 or less. Less than 20 percent of used electric vehicles fit into that category, said Scott Case, chief executive officer of Recurrent, a research firm focused on the used vehicle market.

The supply of older vehicles will increase over time, Mr Case said. He added that the Model 3, which has sold more than any other electric car, only became widely available in 2018. New car buyers typically keep their vehicles for three or four years before they go into business.

A $7,500 credit for new electric vehicles, another provision of the Inflation Reduction Act, will help push prices down across the board and filter into the used car market, Mr Case said. The carmaker sold about 200,000 new electric vehicles in the United States from April to June. As those new cars age, used electric vehicles will become “accessible to a lot more people”, Mr Case said.

The problem is that many new electric cars may not qualify for the $7,500 credit. The Inflation Reduction Act sets standards for how much a car battery must be supplied with raw materials from trade partners in North America. Several car manufacturers and suppliers have announced plans to build battery factories in the United States, but few have resumed production.

Carla Bailo, president of the Center for Automotive Research in Ann Arbor, Michigan, said of the standards, “With our lack of capacity for the material right now, I don’t think there’s a product that will be complete today.” “Tesla is probably close, but the rest of the manufacturer, no way.”

The law also excludes imported electric vehicles from the tax credit. The provision is designed to protect American jobs, but would reduce the price advantage of Chinese brands, which are expected to enter the United States. SAIC’s MG unit sells an electric SUV in Europe for about $31,000 before incentives.

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New battery designs offer hope for affordable electric cars, but will take years to appear in lower-priced models. Obviously, the next generation of batteries that charge faster and go further are likely to appear first in luxury cars like Porsche and Mercedes.

Companies working on these advanced technologies argue that they will eventually pack more energy into smaller packages to lower costs for all. A smaller battery saves weight and cuts the cost of the cooling system, brakes and other components because they can be designed for a lighter car.

,You“You can really short everything else,” said Kensington Capital Acquisition chief executive Justin Miro. “It’s just this multiplier effect.”

The Department of Energy is trying to encourage start-ups to focus more on batteries for the general public. In May the department offered $45 million in grants to firms or researchers working on batteries that would, among other things, create a larger supply of longer-lasting vehicles.

“We also need cheaper batteries and batteries that charge faster and work better in the winter,” said Halle Cheeseman, a program director who focuses on batteries at the Agency for Advanced Research on Energy—part of the Department of Energy. focuses.

Gene Berdichevsky, chief executive of Silla Nanotechnologies, a California-based company working on next-generation battery technology, argues that prices are following a curve like a solar cell did. Solar panels prices rose as demand rose, but soon resumed a steady decline.

The first car to use Silla’s technology will be a Mercedes luxury SUV but Mr Berdichevsky said: “I’m not in it to make toys for the rich. I am here to make all cars electric.”

Some manufacturers offer cars aimed at the less wealthy. A Chevrolet Bolt, a utilitarian hatchback, is listed for $25,600 before incentives. Volkswagen said this month that the entry-level version of the 2023 id.4 electric sport utility vehicle, which the German carmaker has begun making at its factory in Tennoga, Tenn., would start at $37,500, or about $30,000 if it were to be sold. Is worthy. federal tax credit.

Then there’s the Wuling Hongguang Mini EV, manufactured in China by a joint venture between General Motors and Chinese automakers SAIC and Wuling. The car reportedly beats the Tesla Model 3 in China. While the $4,500 price tag is unbeatable, it’s unlikely that many Americans would buy a car with a top speed of barely 60 mph and a range of a little over 100 miles. There is no indication that the car will be exported to the United States.

Eventually, said Ms. Bailo of the Center for Automotive Research, carmakers will run out of good buyers and target another 95 percent.

“They listen to their customers,” she said. “Eventually the demand for people with higher incomes is going to go down.”