Electric vehicle makers have been marking up prices to offset increasing costs for the massive batteries which power their rides, and to take advantage of the interest being created by sky-high gas prices. So far Tesla, Ford, GM, Rivian, and Lucid have all increased prices on electric vehicles they offer.
A week ago, GM’s electric Hummer pickup saw its price rise by $6,250, bringing the price up to $85,000 to $105,000. Increased commodity prices for the raw materials and logistics costs were cited as the causative factors. Still the truck has a waiting list two years long, according to GM.
Tesla has now increased the price for its top-selling Model Y SUV three times just this year, adding roughly 9% to the total sticker price, which has now reached $69,900.
Overall, electric vehicles are setting their owners back an average of about $54,000 in May, up 22% from a year prior. Internal combustion vehicles only increased in price 14% over the same period, to roughly $44,000.
Companies cite recent price increases in the cost of the raw materials used in the vehicle’s batteries, the most expensive component of the cars. Lithium, Nickel, and Cobalt, have all increased in cost by 100% compared to before the Coronavirus outbreak, according to consulting firm AlixPartners LLP.
John Lawler, Ford’s finance chief, said in an interview that commodity price hikes have eliminated the profit margins on Ford’s Mach-E SUV. Ford has raised the prices to offset inflation.
Major automakers have doubled R&D expenditures on electric vehicles over the past two years. Manufacturers have concluded the EV market is the future of the automotive sector, and all are striving to field product lines so as to capitalize on early adoption by particularly devoted consumers and not be left behind. It is expected that over the five year period spent transitioning to EVs from 2021 to 2026, all companies combined will spend $526 billion on the transition.
But the sudden rise in the costs of the raw materials needed for battery manufacture is now complicating that process. Batteries were always the primary cost in manufacturing an EV, and forced EV companies to accept low profit margins.
Credit Suisse analyst Dan Levy wrote in an investor note that EV manufacturers are going to have to work closely with raw material producers, even directly with Cobalt and Lithium mines, to lower the costs of the raw materials used in their batteries. Such deals will become more necessary as the more fanatical early adopters are satisfied by purchases, and carmakers begin to see the need to lower prices to increase sales beyond the more committed early adopters. Several companies have already inked such deals with raw material suppliers, such as Tesla and GM.
For now, demand for EVs has proven unusually strong, with many automakers reporting multi-year waiting lists for models and tens of thousands of reservations.
Ford Chief Executive Jim Farley said, “The demand for EVs right now is extremely robust at Ford. So we have the opportunity, we believe, for pricing.”
Rivian Chief Executive RJ Scaringe said, “We’re in a world where it almost seems like unlimitless in terms of willingness to pay. We don’t believe this will forever be the case.”
According to car-shopping site TrueCar, a recent survey it did showed consumers are showing interest in EVs due to higher gasoline prices. More than half of respondents said higher gas prices were the driving force behind their interest in EVs.
However EV sales still only comprise about 5% of total vehicle sales. Tyson Jominy, vice president of data and analytics at JD Power points out that to really reach the next level, Automakers are going to have to make EVs available to more than just the affluent.
Elon Musk, CEO of Tesla has said they are looking at potential price cuts at some point. However for now, during Tesla’s monthly conference call with analysts, Mr. Musk noted that Tesla has had some suppliers asking for price increases of up to 30%. And this makes things complicated as the prices Tesla agrees to now on a sale of a car are binding until delivery of the completed vehicle, which will be some time in the future.
Mr. Musk noted, “The current prices are for a vehicle delivered in the future, like six to 12 months from now. So this is our best guess,” what the price will be.
