Will EVs Ever Going to Be Within Reach for the Masses?
Vehicle affordability has been one of the dominant topics in the automotive industry, which is no wonder given today’s economic woes. Average new car prices were at $48,763 in February, according to Kelley Blue Book, which is almost 30% higher than three years earlier (thanks Covid). At the same time, interest rates have inched up over the past year, making even affordable cars harder to make payments on.
When considering the push to go electric, it’s even harder. EVs are about 35% pricier than comparable gas-fueled models, but market pressures and new government incentives are inching them closer to affordability. But what, exactly does that mean?
The 2023 Automotive Insights Symposium, held at the Bank’s Detroit branch in January, really dug into this topic from both the consumers’ and the the manufacturers’ perspectives. Here are the toplines we took away.
1. Sometimes used is the only option. It’s not uncommon now to see customers taking 72-month car loans so that they can afford the monthly nut. They’ve spent the pandemic relief payments they received and there’s been a “big spike in delinquencies–but not nearly as big an increase in repossessions of vehicles. People are trying hard to make things work, but many just can’t afford anything other than a good used car. This puts EVs out of the equation for many.
2. Salespeople need to pivot their pitch. Sometimes affordability is about helping people see what’s right for them. This can be due to a lack of education or simple lust for something that, when looking closer, just doesn’t make sense for the buyer. Typical driving patterns matter a lot, and sellers have to recalibrate the conversations and say, ‘What can your budget, from a total cost standpoint, support?’ When they do the math, unfortunately, EVs are usually off the table.
3. EVs are currently for the upper income. As it stands today, EVs are an average 1/3 higher than their counterparts, which puts them out of reach for the disadvantaged. Federal clean vehicle purchase and lease incentives may increase interest, but it is uncertain which vehicles will qualify–and for how much. We’re doing our best to report on the latest. However, despite the high upfront cost, the overall cost of owning one becomes cheaper over time–with savings from financing, maintenance, fuel, and insurance being seen around year seven. This is a hard sell for folks trying to make their ends in short term.
5. Volume production may bring soon velocity. Increased production of EVs will help drive affordability. Many manufacturers are really ramping up, and when that happens, we will see pricing go down. Pledging to be completely electric by 2035, GM, for instance, is introducing new EV models quickly and aims to be building one million EVs a year in North America by 2025. They are also designing multiple vehicles on shared battery and software platforms, which really helps. Nissan is doing this as well, equally dedicated to bringing costs down via volume.
6. More incentives will mean more momentum. Incentives and market momentum are making EVs more affordable. While less than 6% of new vehicles sold in the US are EVs (due to their higher cost and luxury market concentration), measures are being taken to reduce the cost of EV batteries. This will help bring their cost down. The recently passed Inflation Reduction Act also contains incentives for clean vehicle manufacturing that may help to lower costs. As a result, the US market is projected to reach 20% EV penetration by 2025.
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