Could rising electric car prices derail the government’s ambitious goals? Rising fuel costs are driving demand for new and used electric cars. So far this year, every fifth new car purchased has been a battery electric (BEV) or plug-in hybrid (PHEV).
Despite the fact that electric vehicles (EVs) are cheaper to run, the higher purchase price remains the biggest barrier to sales. But as gasoline and diesel car prices rise due to tighter emissions regulations and electric battery costs fall, the gap between the two will narrow, leading to price parity and rapid mass adoption of electric cars. Reaching a point where electric cars become cheaper without government subsidies is considered a major milestone in the transition away from fossil fuels and is expected to be reached by around 2024.
However, recent events threaten to undermine the assumption that electric car battery costs will continue to fall. Battery costs are rising as prices of key commodities have skyrocketed following Putin’s invasion of Ukraine. Nickel prices have roughly doubled in recent weeks as Russia is a major producer of battery-grade nickel, accounting for about 15 percent of global supply. Nickel is a key component of electric car batteries as it has the energy density and therefore the overall range. Any increase in commodity prices will inevitably lead to rising battery costs for electric vehicles and could reverse a trend of falling battery prices.
So what are the implications for consumers, automakers and government? Currently, consumers are paying a premium for new electric models compared to similarly sized gasoline and diesel cars, but higher raw material costs will make electric cars even more expensive. Electric car prices are already rising in Ireland; Some models have increased by a few hundred euros in the past month, others by thousands. Tesla’s Model 3 had a list price of 49,990 euros at the beginning of the year and now costs from 52,990 euros.
Even if consumers are willing to pay a higher price, current stock levels are low and waiting times are increasing. Many buyers are already enduring long waits due to lockdown plant closures and the resulting semiconductor shortages that are still struggling supply chains. Car markers are also directly affected by the war in Ukraine – a shortage of wiring harnesses has led to production at some car plants being halted. Volkswagen has cut electric car production by 1,200 units a day because of the bottlenecks.
As auto production continues to be hampered by global chip shortages, manufacturers have prioritized the production of higher-profit models, and many are abandoning volume strategies. To deal with additional costs, manufacturers can either absorb inflation and accept lower profit margins, or pass the increases directly to consumers and charge higher prices. Most will probably do a combination of both.
What about the government’s goal of one million electric vehicles on our roads by 2030? A significant increase in the purchase price of electric cars could clearly undermine the ambitious plans, since the targets depend on electric vehicles dominating new car sales in the second half of the decade.
Price parity will also mean the end of the government tax breaks and subsidies that currently exist to close the cost gap between electric vehicles and fossil fuel cars. So what is the government’s plan B when the affordable electric car is further away than ever? How feasible would it be to increase grants and grants to artificially create affordability? The need to incentivize EV sales longer than anticipated would put a significant strain on our already dwindling resources.
Industry analysts expect higher prices to continue for at least a year or two. So the extent to which increased battery costs could slow the transition away from fossil fuels depends on how very high prices and long waiting times will weaken demand for electric vehicles and reduce their attractiveness. One thing is certain: the turning point of the electric car is further away than planned.
https://www.independent.ie/opinion/comment/rising-prices-a-turn-off-for-electric-switch-41557857.html Increasing prices discourage electrical switches