Rising prices are reducing EV demand — and battery costs are a primary reason
Back in 1996, GM introduced the EV1, an electric car and the first mass-produced vehicle from a major manufacturer without a gas engine. Three years later, the company abruptly canceled the program, repossessed nearly all of the cars, and ended its foray into electric vehicles (EVs). This became fodder for a number of conspiracy theories (the documentary film Who Killed the Electric Car casts blame on everyone from car companies to the U.S. President to sinister and spooky hydrogen cells), but the end result was that initial optimism about electric cars was gone in a flash.
But EVs made a comeback. Tesla — which started life by jamming hundreds of laptop batteries into an obscure British sports car — joined the expanding orbit of Silicon Valley billionaire Elon Musk and became the symbol of a new generation of all-electric innovation. At the same time, Nissan and Chevrolet introduced their own electric vehicles. Fifteen years after Who Killed the Electric Car slammed the auto industry for giving up on gas-free driving, the filmmakers released a follow-up called The Revenge of the Electric Car highlighting the technology’s triumph over adversity.
EVs have now been part of the landscape for more than a decade, with more options for consumers every year. Unsurprisingly, the number of EVs on the road has increased every year, and several major manufacturers have committed to retiring gas engines entirely. Many of these vehicles have long waiting lists of up to 18 months, which is seen as proof that electricity is the future. In theory, this should be good news for manufacturers because it shows strong demand, but experts are seeing a drop in demand for the first time.
Bumps in the road
Morgan Stanley auto analyst Adam Jonas, who writes extensively about EVs, sees a number of issues manufacturers need to confront, predicting “the brakes are screeching on EV demand.” In fact, Jonas predicts EV penetration of new car sales in the U.S. will hover around 11% and 26% in the years 2025 and 2030, respectively — far below his original estimated of 13% and 32%.
How could this be happening, and what can the industry do to turn the tide?
One of the major issues is that EVs have always been more expensive than gas cars. It’s an extra cost many buyers have been willing to absorb to ditch their gas vehicles, but in a weakening economy this discrepancy is leading budget-conscious customers to cancel their pre-orders.
According to Investors’ Business Daily, a major reason for prices remaining high is the cost of lithium-ion batteries, up by 7% after years of decline. This is having a ripple effect throughout the EV world, which has seen the cost of gas and electric vehicles on a path to convergence for the last five years. This will not be possible if battery prices continue to rise. For example, the electric version of the venerable Ford F-150 pickup has spiked from around $40,000 up to nearly $60,000, out of the price range of many potential buyers.
The cost of lithium-ion batteries is rising because the cost of the elements to create them is rising, and there are no easy ways to get around that. China is rapidly creating a monopoly on the production and distribution of lithium, and finding alternate sources is expensive, time-consuming, and dangerous. The longer prices stay high for American, European, Korean, and Japanese EVs, the more time China has to expand globally — potentially putting outside companies out of business.
Thus, it is imperative for automobile companies to double down on their electric vehicle programs while looking for alternative types of batteries that will deliver the same amount of power at a lower cost per kilowatt hour. This is exactly what Alsym has been working on for several years, and the good news is that several large vehicle makers are on the same page to help broaden the kinds of batteries available to the EV industry. It’s not going to happen overnight, but if we truly want to get away from internal combustion engines, there is no option other than exploring and developing batteries not dependent on lithium and other expensive and difficult-to-access elements.