Electric cars are too expensive for many, even with the help of the climate bill

Policymakers in Washington are promoting electric cars as a solution to climate change. But the uncomfortable truth remains: Battery cars are too expensive for the vast majority of Americans.

Congress has begun to try to address this problem. The The Senate approved the climate and energy package on SundayThe Inflation Reduction Act gives buyers of used electric cars a tax credit.

But automakers have complained that the credit will only apply to a narrow segment of vehicles, at least initially, largely due to local sourcing requirements. Experts say broader steps are needed to make electric cars more affordable and get enough of them on the road to seriously reduce greenhouse gas emissions.

The price hike is caused by a shortage of batteries, raw materials such as lithium, and components such as semiconductors. Strong demand for electric cars from wealthy buyers means that automakers have little incentive to sell cheaper models. For people on low and middle incomes who do not have their own garages or driveways, another obstacle is the lack of sufficient public facilities for recharging.

Unlocking the bottlenecks will take years. Automakers and suppliers of batteries and chips must build and equip new plants. Commodity suppliers have to open new mines and build refineries. Shipping companies are struggling to install stations fast enough. In the meantime, electric cars remain largely a province of the wealthy.

To some extent, the automakers are following their usual game plan. They have always introduced new technology at a luxury price. Over time, features and gadgets are making their way to cheaper cars.

But zero-emissions technology has an urgency that hasn’t been found in voice navigation or massage seats. Transportation accounts for 27 percent of greenhouse gas emissions in the United States, according to the Environmental Protection Agency. Cars powered by batteries produce much less carbon dioxide than cars that run on gasoline or diesel. This is true even when accounting for emissions from electricity generation and from battery manufacturing, according to numerous studies.

Just a few years ago, analysts were predicting that buying electric cars would soon be as expensive as buying gasoline cars. Given the savings in fuel and maintenance, it wouldn’t be hard to think about using electricity.

Instead, rising prices for goods like lithium, a key component in batteries, helped push the average label price for an electric vehicle 14 percent last year to $66,000, $20,000 more than the average for all new cars. , according to Kelly Blue Book.

The demand for electric cars is so strong that models like the Ford Mach-E are effectively selling out, and there are long waiting times for others. Tesla’s website tells buyers they can’t expect delivery of the Model Y, with a purchase price of $66,000, until sometime between January and April.

With so much demand, automakers have little reason to target budget-conscious buyers. Economy car companies such as Toyota and Honda have not sold large numbers of all-electric models in the United States. The scarcity has been good for Ford, Mercedes-Benz and other automakers that sell fewer cars than they did before the pandemic but are making big profits.

The automakers “are not offering any further discounts because demand is higher than supply,” said Axel Schmidt, senior managing director at Accenture who oversees the consultancy’s automotive division. The general trend right now is that no one cares about low prices.

Advertised prices for electric vehicles tend to start around $40,000, and do not include a $7,500 federal tax credit. Good luck finding an electric car at this nearly reasonable price.

Ford has stopped taking orders for Electric Lightning trucks, starting at around $40,000, because they can’t make them fast enough. Hyundai announces that its Ioniq 5 electric car starts at around $40,000. But the cheapest models available from dealers in the New York area, based on research on the company’s website, were about $49,000 before taxes.

Tesla’s Model 3, which the company began producing in 2017, was supposed to be an electric car for ordinary people, with a base price of $35,000. But Tesla has since raised the price of the cheaper 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 used than they did new. Buyers are willing to pay a premium to get an electric car, even a used one, right away.

Joshua Berliner, a Los Angeles businessman, was in the market for a used Model 3 but discovered that the prices were higher than those of a new Tesla. “Roughly the same is true for every model we looked at,” Berliner said in an email.

the master. Berliner, who owns a Tesla and wants another for his wife, said he became so desperate that he almost bought a gasoline car. “I usually don’t think about combustion vehicles, but if gas prices were lower, I would probably pull the trigger,” he said.

The law to limit inflation, which seems likely home datesUsed car buyers are given a tax credit of up to $4,000. The used car market is twice the size of the new car market and is where most people get their cars.

But the used car tax credit will only apply to those sold for $25,000 or less. Less than 20 percent of used electric vehicles fit in this category, said Scott Case, CEO of Recurrent, a research firm focused on the used car market.

The supply of used cars will increase over time, mr. He said the case. He noted that the Model 3, which has sold more than any other electric vehicle, became widely available only in 2018. New-car buyers typically keep their vehicles three or four years before they are traded.

A $7,500 credit for new electric cars, another provision of the inflation-taxing law, will help drive prices down across the board and liquidate into the used-car market. He said the case. Automakers sold nearly 200,000 new electric vehicles in the United States from April through June. As these new cars age, used electric cars will become “more accessible to more people.” He said the case.

The problem is that many new electric cars may not qualify for the $7,500 credit. The Inflation Control Act sets standards for how much a car battery must be manufactured in North America using raw materials from trading allies. Many car manufacturers and suppliers have announced plans to build battery plants in the United States, but few have started production.

“Right now with our lack of material capacity, I don’t think there is any product that meets that today,” Carla Bailo, president of the Center for Automotive Research in Ann Arbor, Michigan, said of the standards. “Tesla is probably close, but the rest of the manufacturers, no way.”

The legislation also excludes imported electric cars from the tax exemption. This provision is designed to protect American jobs but will undermine the price advantage of Chinese brands expected to enter the United States. MG unit in SAIC An electric SUV sells for about $31,000 in Europe before incentives.

New battery designs It offers hope for cheaper electric cars, but it will take years to show up in cheaper models. As expected, next-generation batteries that charge faster and go further are likely to appear first in luxury cars, such as those from Porsche and Mercedes.

The companies working on these advanced technologies argue that they will eventually reduce costs for everyone by packing more energy into smaller packages. A smaller battery saves weight and lowers the cost of cooling systems, brakes and other components because it can be designed for a lighter vehicle.

“s“You can actually reduce everything else,” said Justin Miro, CEO of Kensington Capital Acquisition, which helped battery maker QuantumScape go public and list on the stock market for fledgling battery maker Amprius Technologies. “It just has this ripple effect.”

The Department of Energy is trying to encourage startups to focus more on batteries for the masses. In May the department presented 45 million dollars In grants to companies or researchers working on batteries which, among other things, will last longer, to create a greater supply of used cars.

“We also need cheaper batteries and batteries that charge faster and perform better in the winter,” said Haley Cheesman, program manager focusing on batteries at the Advanced Research Projects Agency-Energy, part of the Department of Energy.

Gene Berdichevsky, CEO of Sila Nanotechnologies, a California company working on next-generation battery technology, argues that prices follow a curve as solar cells have. Solar panel prices rose when demand began to rise, but the steady decline soon resumed.

The first vehicle to use Connection technology will be a luxury SUV from Mercedes. “I am not in this to make toys for the rich,” Berdichevsky said. “I am here to make all cars go electric.”

Few manufacturers offer cars aimed at the less affluent. The Chevrolet Bolt, a utilitarian hatchback, lists $25,600 before incentives. Volkswagen said this month that the entry-level version of its 2023 ID.4 electric sports utility vehicle, which the German automaker began making at its Chattanooga, Tennessee, plant, will start at $37,500, or about $30,000 if credit-eligible. Federal tax.

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

Finally, Ms. Automakers will run out of wealthy buyers and target the remaining 95 percent, Bailo of the Center for Automotive Research said.

“They listen to their customers,” she said. “Eventually this demand from high-income people will recede.”