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Massive Electric Vehicle Push in the U.S. Puts Outsized Pressure on Pricing

Automakers in the U.S. are investing billions of dollars on a rapid transition to electric vehicles that could see EVs account for one out of every two new cars sold by the end of the decade. The massive switch is placing a heightened focus on affordability, as car makers increasingly look beyond higher-end markets and early adopters to ramp up their sales volumes in the coming years. In this Energy Market Insight, we examine the current EV pricing landscape and the challenges that lie ahead as automakers target more of the mass market.

To illustrate the sheer magnitude of EV sales volumes on the horizon, the chart below shows the targets set by major automakers in the U.S., North American, and global markets. The middle of the pack includes U.S.-based automakers Ford and General Motors, as well as multi-national Stellantis (formed from the merger of Fiat Chrysler Automobiles and the French PSA Group). Their targets are aligned with the Biden administration’s goal for EVs to account for half of all new car sales by 2030.

These commitments – along with improved EV performance and supportive polices like the Inflation Reduction Act (IRA) – are making the U.S. EV sector primed for accelerated growth. According to the International Energy Agency, as much as half of all new car sales in the U.S. are projected to be EVs by decade’s end, representing an eight-fold increase from 2022.

However, standing in the way of achieving these sales goals is the high cost of producing EVs. In fact, the higher sticker prices for EVs is actually tied with access to chargers as the number one concern among prospective consumers according to a AAA survey conducted last year. Moreover, as automakers look to tap into the mass market for growth, they will contend with more price-conscious buyers.

As the chart below shows, a majority of model year 2023 EVs are aimed at the higher-end and luxury markets, with prices above or well above the average expenditure for a light duty vehicle of about $42,000 USD. EV models with above-average prices make up over 70% of the product offerings today, including Audi (Volkswagen Group), BMW, Cadillac (GM), and Lincoln (Ford).

To help tamp down EV prices and accelerate a transition away from conventional vehicles, the Biden administration created the clean vehicle credit under the IRA. The federal program awards tax credits of up to $7,500 for qualifying EVs. To be eligible, EVs must have final assembly in North America and a battery capacity of at least 7 kilowatt-hours. EVs must also meet strict requirements for the location of the manufacturing and assembly of the batteries, as well as the sourcing of the batteries’ critical minerals.

Backed by federal loans, many automakers are spending billions of dollars to reconfigure their manufacturing operations and supply chains to meet these criteria. However, as the chart below shows, currently just 35 models from seven automakers have been identified by the U.S. Department of Energy as qualifying for some or all of the clean vehicle credit. Among those that are eligible for some or all of the credit, only about half are priced at or below the average paid for a car even after applying the credit.

The success of the Chevrolet Bolt is a testament to the importance of affordability. As the chart above shows, it’s among the cheapest EV offerings on the market today, with a starting price of about $26,000 USD. Strong sales of the Chevy model helped to catapult General Motors ahead of Hyundai and rival Ford to become a top EV producer in the U.S. over the first half of the year, trailing only Tesla, Kelley Blue Book data shows.

Signs are already emerging of mounting pricing pressure. Perhaps most notably, Tesla, which has dominated the U.S. EV market for the last five years, has cut U.S. prices of its Model Y, Model 3, Model S, and Model X.

As automakers compete for more market share among the price-sensitive mass market and first-time buyers, and as more competitors enter the fray, pricing and affordability will be pivotal for both their success and that of a larger EV adoption.

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Jonathan is a Senior Research Analyst with BTU Analytics, a FactSet Company, specializing in power markets. Before joining BTU Analytics, Jonathan was an editor and a director of product for Carbon Pulse and reported on energy markets and regulations for Bloomberg LP and S&P Global Market Intelligence. He received his master’s in journalism from the University of Maryland.

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