As governments worldwide push a shift away from internal combustion engine (ICE) vehicles to electric vehicles (EV) to help decarbonise, the race to manufacture a wide range of EV models is well underway. As well as electric car companies, most major automakers are now investing in the development of their EV business, all too aware that the ICE vehicles market will dwindle in the coming decades. But as companies hurry to source the components needed for production and the metals and minerals needed for EV batteries, they must contend with supply chain constraints and high costs. This has led automakers to charge high prices for their EVs, with the cost of buying an EV still generally much higher than an ICE alternative. But now, the age of the low-cost EV could be just around the corner with promises of more affordable options.
Following a huge investment drive in EV technology and manufacturing processes we can soon expect automakers to announce a range of much lower-cost EV models. Tesla, one of the EV market leaders, is expected to announce a next-generation car next year with starting prices between $25,000 and $30,000. This marks a significant decrease in the price of the existing Model 3 manufacturer's suggested retail price (MSRP) of $41,990.
While Tesla has generally been viewed as the more expensive, luxury EV option, other companies have been working to lower the price of their EV models to make them more competitive in a market dominated by Tesla. For example, the Chevy Bolt, Bolt EUV, and Nissan Leaf are all priced under $30,000. Although, many retailers are charging consumers over $30,000.
With the price of new ICE vehicles rising in recent years, by around 30 percent, EVs may finally look more affordable to consumers. And as several cities around the world announce plans for a ban on the sale of ICE vehicles within the next decade, many consumers are looking to switch from ICE to EV, but, until recently, EVs have largely been viewed as the car of the elite due to their high price tag. A lack of charging infrastructure has also put many off. But the U.S. government, like many others around the world, is rapidly introducing policies that support EV uptake, with plans to roll out major EV infrastructure across the country.
The introduction of the low-cost EV is supported further by the Biden administration’s impressive $7,500 tax credit, aimed at encouraging consumers to make the switch to electric. The tax credit was announced under the 2022 Inflation Reduction Act (IRA) to improve the affordability of EVs for consumers. Although fewer new EVs are expected to be eligible for the credit following new Treasury Department requirements coming into place.
In 2022, the U.S. Departments of Transportation and Energy announced almost $5 billion in funding for the National Electric Vehicle Infrastructure Formula Program, established by President Biden’s Bipartisan Infrastructure Law. And in February this year, the Department of Energy announced it would be investing $7.4 million in seven projects to develop medium- and heavy-duty EV charging and hydrogen corridor infrastructure to benefit millions of drivers across 23 states. This is expected to support the uptake of EVs as automakers announce more competitive, lower-priced models.
Until now, the price of EVs in major markets has been between 45 and 50 percent higher than a comparable ICE model, except for in China where it is around 10 percent higher. China is able to achieve this low price point thanks to its huge role in the manufacturing of EV components, as well as its dominance of the metals and minerals mining industries, providing around 60 percent of the world’s lithium supply last year.
Over 60 new EV models are expected to be launched in the coming years, many priced much lower than those currently on the market. In March, Volkswagen announced a model in the European market priced at below €25,000. The startup Fisker hopes to launch its $29,000 PEAR crossover in the U.S. in 2024, while GM is expected to release its sub-$30,000 Chevrolet Equinox electric sport-utility vehicle later this year. These vehicles are expected to change the U.S. consumer car market when you consider the additional tax credits buyers could be eligible for under the IRA.
While high-end EV models will still be available, potentially offering a longer range, more powerful battery, and higher speeds – just as with ICE vehicles, the development of the low-cost EV is well underway and will soon be widely available. With the addition of an impressive tax credit in the U.S., and with similar schemes available in other parts of the world, consumers will likely race to get their hands on a cheap EV model while government incentives are still in place.
By Felicity Bradstock for Oilprice.com