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Beyond the battery, these are the reasons why electric cars are so expensive

Beyond other advantages provided by the electric car, the difference with a combustion car of similar size and power may be between 40 and 60%, even discounting aid. An additional cost that is deterrent for many buyers who cannot afford such a large initial quantity, even though they will later benefit from savings during use. What is the origin of this price difference?

One of the reasons why electric cars remain a niche market, despite having grown in recent months, is the amount that must be paid to get one of them. Autonomy, waiting times for recharging and the weak public infrastructure that supports it continue to be reasons against it, but they are less important as technology and the number of fast charging points evolve.

With exceptions such as the Dacia Spring, the Renault Twingo ZE or the electric Seat Mii, the price of electric cars that are currently on the market can be considered high compared to their combustion counterparts. This technology is still significantly more expensive than gasoline and diesel in most models. The surcharge can range between 8,000 and 10,000 euros. The battery is the main culprit for this, but there are also other reasons why prices are inflated.

The battery, the great responsible

We start with the battery, the main responsible for this price difference that, but, as will be seen, is not the only thing that needs to be worked on. Whether it’s for a car, a stationary storage system, or a home appliance, a battery is expensive. Normally, with few exceptions, it is imported from Asia. In addition, its chemical components play in a changing market, given the scarcity of the product and the conditions in which it is extracted and transformed. That is why they are very susceptible to price variations.

The evolution of the price of lithium carbonate is a clear example: it went from €6,430 per tonne in January 2021 to more than €45,000 in January 2022. This rebound could put an end to the spectacular drop in the price of batteries that has passed from 684 dollars per kWh in 2013 to 132 dollars/kWh in 2021, according to data from AVERE.

raised finishes

The absence of humble finishes, like those with entry-level combustion cars, raises the price of the electric car. Many, if not all, electric cars are not offered with the most basic trim and equipment. The cheapest versions start from a mid-range finish that is already well equipped, but more expensive than the combustion equivalent. The additional cost of this amounts to from a few hundred to a few thousand eurosjust for having comfort equipment that is not essential.

Battery production.  Image: Mercedes-Benz
The price of batteries has gone from $684/kWh in 2013 to $132/kWh in 2021.

The reason this is happening is that manufacturers are targeting an economically well-off client, so it makes no sense for them to offer the car with a “cheap” finish. In many cases, these customers are looking for a second car for urban trips and do not mind paying a little more for the comforts they offer in their daily use beyond the extra cost they entail. This strategy should end when the electric car is an alternative to combustion for all uses.

low production volume

Among all the manufacturers and among all the assembly plants in the world, far fewer electric cars are produced than combustion cars. Its market share does not reach 10%, so economy of scale cannot be fully developed.

A car that is produced in large quantities can be sold at a lower price than a model with a limited production run. This problem is observed above all in electric cars in segment A, that of urban utility vehicles. It is one of the most complicated when it comes to planning production and marketing strategy. Its profitability depends on a high volume of sales so that the technological investment is compensated by the small benefits that each of them leaves. The drums, which in larger cars already represents between 30 and 40% of the total cost, in this case it rises above that percentage. With its electrification, the investment grows and with it the price, while sales are reduced, so an electric car in segment A is not exactly profitable.

Hyundai to build an electric car factory in Indonesia
A car that is produced in large quantities can be sold at a lower price than a model with a limited production run.

For now, the response of some manufacturers has been to create a new category in this segment: that of the premium utilitiessuch as the Honda e or the Fiat 500e, very small cars, but very equipped and endowed with a striking design, looking for a buyer who does not care so much about price as distinction.

Low diversity of supply

The supply of electric vehicles has been expanded in recent years. Now all brands offer more than one model, with more than one finish and even allowing the customer to choose the mechanics, basically the power and number of motors and the battery capacity.

However, the available offer has many gaps in many of the segments. Beyond the high-end models and the representative vehicles of the premium brands, with affordable prices for very few, most of the models are focused on the B and C segments and on a format, that of the SUV, which It continues to be the one chosen by buyers and the one that is most offered by manufacturers.

Few are those who remain in segment A, where it is difficult to be on the profit side due to the complicated relationship between cost and price, which often makes it unfeasible to remain in it. So much so that many manufacturers have decided not to keep in production the combustion models that they sold until now and, of course, they do not arise the development of the investment in the necessary technology to do it with an electric model.

Jim Farley, CEO of Ford
Jim Farley, CEO of Ford, predicts a change in trend and an upcoming “price war” that will focus on electric models whose price will be around 25,000 euros.

Conclusions

All these factors mean that the prices of electric cars are still far from those of combustion. Although the current situation is raising the prices of cars powered by all propulsion systems, the supply chain of the electric car is beginning to appear as a big problem to achieve what was expected: the price parity between electric and combustion cars at the purchase price level. The economic advantage that results from the daily use of an electric car should do the rest for most people to opt for them.

Although this is the current situation, some, such as Ford CEO Jim Farley, predict a change in trend and an upcoming “price war” that will focus on electric models whose price will be around 25,000 euros.

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