Will Falling Prices on Electric Vehicles Eventually Hurt the Segment?

4 years ago by Eric Loveday 44

As Gas Prices Rise....EV Prices Falls...Or So It Seems

As Gas Prices Rise….EV Prices Falls…Or So It Seems Right Now

According to an article in TIME magazine, the slashing electric vehicle prices is neither sustainable nor recommended.

Will Falling Price Hurt the Future of EVs?

Will Falling Price Hurt the Future of EVs?

TIME argues that this electric vehicle price war will make it incredibly difficult to “turn a profit down the line.”

Sure, sales are up due to reduced prices, but there’s no way this trend can continue forever, right?

TIME quotes Kelley Blue Book senior analyst, Alec Gutierrez, as saying this:

“With prices coming down, consumers already on the fence may continue to wait and see if even greater discounts will come later in the year or next year.  This will make it quite difficult to command higher prices in the future, which will make profitability more difficult to achieve. Until battery costs come down, manufacturers will continue to find it difficult to make a profit on EVs, especially knowing that consumers are really only jumping into the segment when the price is right.”

Sort of makes sense, especially when this topic is brought up among the “general public.”  It seems the consensus out there is that we’ll wait a bit longer as the prices continue to drop.   What’s your take?

Source: TIME

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44 responses to "Will Falling Prices on Electric Vehicles Eventually Hurt the Segment?"

  1. ItsNotAboutTheMoney says:

    Two reasons it’s not a problem:
    1) The tax credit allows higher prices closer to current costs.
    2) Companies will only cut prices significantly on low-volume compliance cars. The rest they’ll meet with credits.

    1. kdawg says:

      Also, people will have to do the math. If you think prices are going to drop by $1000 for next year’s model, but you could have saved $1500 in fuel over that year, you are better off buying now.

      I was in this spot for a bit, wondering what was next. Then I told myself, enough is enough, and got my Volt. I have never regretted that decision.

      1. Spec says:

        Well said.

  2. David Murray says:

    I agree with ItsNotAboutTheMoney, but also I believe that battery costs will continue to fall with higher production. This is one thing that makes electric cars unique in the auto industry. Most of the components they use are built in house or by 3rd party contractors and the price of these components is relatively stable for the past many decades, in comparison to batteries. And when you consider this is a large portion of the car’s cost, you can see the cost dynamics of EVs are very different from the gasoline cars they are used to making.

  3. Taser54 says:

    There will alway be a portion of the customer base that is wait-and-see. They’ll typically wait for the 2nd gen of a consumer electronics product for big improvements (see Nexus 7) or buy a product that is the sweet spot of price/performance (see midrange computer processors). Unlike consumer electronics, though, the reality of the situation is that most people NEED cars for everyday living. One can only wait so long with an automobile before a decision has to be made to upgrade. Given that gas prices and commuting distance are big factors that drive decisions, many may conclude that every day that they don’t drive an EV, is a day that they throw money out the window.

    1. Edward Ellyatt says:

      Truer words were never spoken. I’ve got Volt #1506 from Feb 2011 and have saved over $12,000 in gas and maintenance since I bought mine. By the time a lot of perple purchase an EV mine will have paid for itself. 61,000 miles so far.

      Edward Ellyatt

  4. Bonaire says:

    Let’s see, late 2010 is the first deliveries of Volts and Leafs. Seems like they’ve been performing well. Throw in cost-of-scale input cost decreases. As expected. Prices come down. Well, this writer may not understand economies very well. In the beginning of the roll-out, many interviews stated “price of EVs is too high”. Looking back and looking forward, I’m quite convinced that lower prices will mean better sales.

    Case in point: Honda Fit EV in California. They lowered price of the lease and they SOLD OUT nearly immediately. Price is what it is all about. When two years of discussions about “EVs offer low ROI” – well now, with $5-6K decreases in Volts and Leafs, who’s having that discussion now?

    1. Assaf says:

      Comment Uprated.

  5. ClarksonCote says:

    The quote referenced seems to assume a fixed cost for all the technology, and ignores that continued battery advancements will increase performance and lower cost.

    Did Time Magazine put out an article a few years back about how LCD price decreases would hurt profitability for electronics manufacturers? Yet here we are, with larger TV’s that cost a tenth of what the smaller ones cost just a few years ago.

    1. ItsNotAboutTheMoney says:

      However, people seem to concentrate on cell/battery prices but ignore the significant costs of both motors and inverters. There’s also room for some price reduction there. For inverters there’s enough complexity that a breakthrough technology could lower the cost significantly.

      1. Ocean Railroader says:

        I remembered a time when DVD players and DVD’s where like $200 to $300 dollars and the DVD’s themselves where like $25. But now you can get a good DVD player for $40 dollars and you can also pick up a lot of good DVD’s for $5.00.

        Most likely the price in the Chevy Volt came from one of two sources. The first one is battery prices coming down between now and 2010 when it first came out. Most likely something should have happened between now and then. But then their is the idea that maybe the Chevy Volt’s price was a little over bloated to begin with and the price cut is getting it down into reality.

        As for electric cars I also remember that the first Prius that came on to the roads was $35,000 to a $40,000 car and that in the last year the Prius family has cars in the $20,000 to $30,000 and they are selling over 600,000 of them a year. So a price cut for the Chevy Volt and other electric cars can only help it not hurt them.

        1. Edward Ellyatt says:

          I paid $42,500 for my Volt and they start out at $35,000 now. When the battery pack was first out the replacement cost was $10,000 and now the replacement cost if less than $5,000. There is the price reduction right there. Buy a Volt and you will never be sorry.

  6. “especially knowing that consumers are really only jumping into the segment when the price is right.”

    People are funny that way. They want amongst other things, value for their purchases. Once the early adopters rushed out and bought their Volts and LEAFs, many of which would have paid nearly anything to drive electric, the rest of the population looked closer at the cost of these cars and many concluded it didn’t deliver the value they deem necessary. There are many reasons to want to drive electric but people, for the most part, need to believe they were getting good value for the money they spent.

    As others here have mentioned the price for EV’s will continue to go down and it won’t be long before the cost of an EV is the same to a comparable ICE vehicle without discounts and tax incentives. We’re just not there yet and incentives and discounts will still play a role in getting theses cars out there and letting people experience how great electric drive is.

    1. Ocean Railroader says:

      There is also a lot of superstition about EV”s in that I have heard a lot of crazy EV myths in my area about them where it’s almost comical.

  7. Spin says:

    250 miles of range for 25k will get many to seriously consider an EV.

    1. kdawg says:

      If it’s $100 per EV mile, then I’d pay $30K for a 300 mile BEV 🙂

  8. Brian says:

    I agree with Taser54. People will continue to buy cars. If today’s EVs make sense to them, what does it matter if 3 years from now they are cheaper/better? The alternative is today’s gasoline cars. That is what they will be cross-shopping against. And that equation gets better every year!

    The thing I do worry about is depreciation. Look at the Leaf – the MY13 is cheaper and (in some ways) better than the MY12. As a result, the resale value of the MY12s have dropped hard and fast. Afterall, who is going to pay $20k for a 1-year-old car when you can buy a new one for $18k (in some states, anyway).

    1. ItsNotAboutTheMoney says:

      Worrying about depreciation is for people who spend too money on cars.

      1. Ocean Railroader says:

        The costs of a used EV going down are good for people like me who might view the falling costs of a used EV as a good way to buy one.

        The stories though the price of EV’s falling on Ebay though are not true in that they still get $18,000 a car for them on Ebay.

        1. Assaf says:

          Worrying about depreciation is for those who buy their EV outright. This is a small minority of us.

          And those people who buy outright, often run a high mileage that prevents them from signing the lease deal.

          Which means that their raw gas+maintenance savings are $3k/year compared to an ICE car.

          Which means that they too can afford some depreciation while saving all that $$ up front.

          1. Assaf says:

            ~$3k/year or more, raw savings if you do >15000 miles/yr on average (I think the most expensive Leaf leases require <15000 miles/year

            1. Arnold says:

              I’m leasing a 2013 SL for 24 mo & 15k mls/yr. The dealer said 17,500 mls/yr would increase the lease price significantly

  9. Anderlan says:

    The entire capitalist system does not exist so that companies can turn a profit. It exists so that as many firms as possible can compete desperately, killing their profits and more often than not themselves in finding the most efficient methods of production. Wealth of Nations describes a 3 dimensional edifice. There are things for both low-awareness selfish individuals and the transcendent larger integral human body to appreciate in it.

    1. Aaron says:

      Um, I think you’re looking for paranoid-governmental-conspiracies.com…

      1. Anderlan says:

        I only meant to say it’s an odd argument to say that because margins might be tight that means a market is doomed.

      2. David Stone says:

        nothing he wrote even remotely indicated conspiracy in any way.
        He wrote about basic economic theory, the basic concept of capitalism.

        Don’t insult someone because you are ignorant about an academic subject.

  10. pjwood says:

    I don’t think falling prices will hurt the segment.

    This site has some of the best financial savvy of any car enthusiast site, regardless of green, or horse power. It may also agree auto-culture, be it the writers of Detroit, the analysts of the segment, or places like IHS, Kelly Blue Book, or Edmunds, are all filled with the anti-regulatory mindset as it tranes its sights on their baby. That’s where the answer lies. Time and left media reach for “auto-expertise”, and wind up regurgitating the views of these “experts”. I could go on, and we know how R&D per unit sold to date, and other distortions weigh on the perception of “EV”.

    I could see ZEV mandates backfiring all over again, and would agree that the economic narrative of EV’s and the consumer could be swamped by the “compliance” stigma. It did it through GM and Toyota ~10 years ago. I could also see them working. Tesla went from 68, to 51mm in ZEV revenues last quarter, and will be a bedfellow of CARB if the proportion of earnings coming from such sales remains so high (higher if Toyota dumps the rav4). It doesn’t matter that they don’t count on them in earnings projections because they know how it looks. California, through CARB, and the half dozen, or so, other states basically mimicking them, hold’s the cards. Tesla’s impact, not through units, but because of its odd lack of fallback on ICE vehicles, and address, may be a bigger factor than many think. He serves as a proof to what is possible and can’t follow by definition. I’d sooner believe Toyota would chew off its own Tesla leg, if they though they could get mileage from a sustained narrative of Tesla’s dependence on ZEV credits. The recent ‘insideev’ financial analysis of dumping the RAV4, and instead buying them, may underrepresent Toyota’s mind set. They are better off financially if they help kill off EV’s and cling to their hybrid penetration.

    I’m just a financial analyst who believes rational economic behaviour just about always wins, which is why I don’t think low prices hurt. But I also consider myself savvy in how profit can come not by serving consumers, but by playing with their perception. Not leading, but resting on the cows of parts sales, or an uncompetitive fuel-price landscape. Sometimes playing dirty. There’s plenty of money in that. And it will seize all EV price info, as kdawg put it, with a “booo” whether its up, or down.

  11. Bloggin says:

    This is why over 80% of those looking to drive an EV will lease it. This is first generation EV/Battery technology and it’s not the smartest move to buy it if you don’t have to.

    Battery pricing is dropping, but lease pricing is remaining pretty consistent. Which means by the time the 3 year lease is up, the consumer should be able to get more range for the same lease price, or a slightly lower lease with same range.

    It wil be interesting to see what happens in 2014 when the first 9k 2011 Leafs come back from lease. We could see some $99/mo leases on used Leafs with about 75% battery capacity. Unlike ICE vehicles, the gas tank does not shrink and create additional depreciation for the vehicle.

    1. Ocean Railroader says:

      I’m surprised no company has come up with a aftermarket battery pack upgrade for the leaf. In that if say a company makes a new type of battery pack that can get a 120 miles of range with more advanced batteries can be put into a used leaf there might be a good market for that. Or maybe the after market companies are waiting for their to be more leafs on the road before they launch it.

  12. Lou Grinzo says:

    Of course technologically and economies-of-scales driven price drops will kill the EV. Remember about 35 years ago, when some crazy companies tried to start a market for (get this!) home computers!? (At least one was named after fruit(!) and another used a silent film star in their ads. Really! You can look it up!) Prices dropped, and what happened? Computers completely disa…

    Oh, wait…

    1. robster says:

      🙂 Good comparison, think you’ re right.

  13. Fred says:

    Makes no sense. They say “Until battery costs come down, manufacturers will continue to find it difficult to make a profit on EVs, especially knowing that consumers are really only jumping into the segment when the price is right.”

    So they’re saying that they need to lower prices.
    But lowering prices is bad.

    Can’t complain both ways.
    Nissan says they dropped their price because they managed to reduce costs

  14. Ocean Railroader says:

    Another thing not taken into account with this story is gas prices in that they are steadily going up and I bet they are not going to go below $3.00 any time soon. And if their is a oil shock like with the Middle East bending and buckling under political stress that is decades in the making it could trigger a massive oil storage. Such as think of what could happen if a Middle eastern spring where to happen in Sandi Arabia which has had Spring events happen in all the counties around it but not in it. In a event like that the rioting like that trashes the main oil pumping stations or at least has them shut down for a month or a few weeks. Now picture what would happen to the global oil picture if 8 to 10 million barrels of oil went away especially in this globalized world of tight oil. Gas would break the eight to nine dollar mark in a lot of places and electric cars would go flying off of the selves.

    1. Edward Ellyatt says:

      Agree. And what if Egypt manages to cut off the Straits, what will happen to the price of oil then? Sure am glad I already have my EV. Demand then could drive the prices of oil and EV’s up. The question might not be what is the price of gas but more like can I buy it anywhere?

  15. Assaf says:

    My response to Tuttle’s Time article: ****SNOOZE****

    Wake me up when the lazy conventional-thinking analysts predict anything but gloom-and-doom for EVs. First they were too expensive (until they became cheaper); then there wasn’t enough range (until the Tesla S came along); now they are too cheap. What’s next?

    They laughed at Tesla, now they’re trying to ignore it. Quite tellingly the word “Tesla” does not appear in this ridiculous op-ed.

    At present affordable-EV makers’ biggest worry is Tesla coming out with an affordable 200-mile car before they have an answer to it – not about getting demand today. Demand exceeds supply right now for the Leaf, the FitEV the half-shafted 500e, the Spark EV, etc. etc.

  16. Bill Howland says:

    The situation you describe is called Deflation and I don’t think we have to worry about that just let. Prechter of Elliott Wave International says there has to be inflation first.

    But your own picture proves why so many people buy EV’s in California what with high gas prices (about 50 cents higher than already high prices in NY State) and the many incentives available. NY offers none, unless you live in manhattan.

    1. Rick says:

      The reason why so many people buy EVs in California has less to do with gas prices (although that’s certainly part of the equation) and more to do with CA’s compliance laws. EV manufacturers have to sell them at a $10,000 loss to comply with the law. So while 3% of car buyers in CA are buying cheap EVs, the other 97% of you are subsidizing those people though higher prices on your ICE cars. Or did you think the auto manufacturers were giving away discounts out of the goodness of their hearts?

      1. Spec says:

        They don’t have to sell them at $10k loss. They have to sell ZEVs, buy ZEV credits from others, or pay a fine (or don’t sell cars here). They can do whatever they deem best of those 3. It is a level playing field and they all can compete.

        1. Tom A. says:

          +1 Spec

  17. Spec says:

    There certainly is a danger. But as long as we get price reductions eventually, it won’t matter.

  18. Paul says:

    Electric cars are only more expensive because they are made in smaller numbers. Would the numbers be equal today, electric cars would be cheaper today, even with the still expensive batteries.

    This is already proven. By the Tesla Model S. They sell in equal/larger numbers then their direct concurrents of around the same price and tests tell us the S is better. This means that if you would define ‘direct concurrents’ not by ‘equal price’ but by ‘equal quality’, the Model S is cheaper.

    Which is not surprising, because if you have the experience and the volume, EVs are easier to built, since they are less complex (less moving parts, less parts in general I guess, easier to get high security because of the frunk, etc.).

    Of course first you have to get that experience (Tesla is ahead of the pack) and the volume. But it will come, so prices will go down without hurting margin. Time Magazine is wrong.

  19. scott moore says:

    like every other product, EVs fork into people who pay the same or better to get improved range or other performance characteristics, such as faster charge times. And remember there are plenty of other ways besides getting more battery volume to extend range, for example aluminum construction or even carbon fibre.

    The other side is what the Spark has already touched on, and is really the strong point of an EV. A cheap, below $20k car that has essentially zero maintenance and running costs for the 20 somethings in a city or college environment. You know, kids who have to borrow the cash from their parents and have no idea what that red “oil” light means.

  20. Dan Frederiksen says:

    Did Time just hire Broder?
    because that’s nearly the dumbest thing ever. (I exaggerate of course because there is really some stupidity going on in this world on a massive scale)

    Prices can easily come down more with profit and that’s what the segment needs. There is no segment without lower prices. The current prices are ridiculously high and Time and Kelly Blue Balls don’t know what the f they are talking about. Morons.

  21. Visitor says:

    This makes no sense whatsoever. I wonder if the writer has ever been inside a Costco; if not they should, in order to get a quick lesson on economies of scale, volume and profit margins.