Although electric vehicle (EV) prices have decreased in the last few years, most still remain unprofitable for manufacturers, as EV production costs are exorbitantly high compared to cars powered by internal-combustion engines.
This is one of the key findings of a new report from research firm Lux Research, titled “The Electric Vehicle Inflection Tracker: 2020 Edition”. According to the report, consumers who buy EVs now, are likely to pay significantly less than they would have three years ago; however, this means many vehicle manufacturers are still not making any profit from sales, with some even losing money.
The research found that an average manufacturer's suggested retail price for a battery electric vehicle (BEV) declined to $33 901 in 2019 compared to $42 189 in 2016.
With the automotive industry being under pressure to reduce emissions, both from government regulations and from consumers who are growing more environmentally conscious, government policies, market expansion and the global economic downturn are among the reasons EV prices have declined.
However, automakers could continue losing money from sales, unless certain elements are addressed, according to Lux.
Although many consumers are open to considering a plug-in vehicle for their next purchase, today, these vehicles remain less than 5% of overall sales. Those hesitant often cite concerns like limited range, slow charging and the higher price tag.
The good news, according to the Lux research, is that most of the automakers’ attention has been focused on making EVs that are profitable while addressing consumer pain points related to charging speed and range anxiety.
“Nearly all automakers now sell some form of BEV, so the focus has shifted to making them profitable,” says Lux Research senior analyst and lead author of the report, Christopher Robinson.
“Consumers want to know how far can this electric car go and what will it cost? Fortunately, BEVs are consistently making progress on how far they can go, with the average range now 230 miles [370km]. Since 2011, range has consistently increased, with a CAGR of 13.7%.”
As automakers continue to improve charging speed and minimise battery size, more consumers are expected to seek out EVs.
Lux’s long-term EV forecast projects it will take until between 2035 and 2040 for electric vehicles to make up more than half of all vehicle sales.
China remains the largest market for plug-in vehicles and has a unique BEV ecosystem where models tend to be cheaper than in other markets.
The 10 models which provide the lowest cost per range are all China-specific models, with EVs from GAC, Hyundai, Kia, Chery and Chana reported as the most efficient vehicles in the country.
Addressing pain points
The high production costs of EVs primarily come from the batteries, which use raw materials as well as the expensive processes involved in battery production, notes the report.
Lux believes automakers should focus on their battery supply chain: battery shortages have already caused some automakers to reduce their BEV production plans. To fix this issue, which will only be exacerbated over the next few years as more electric vehicles come to market, automakers should secure raw materials like cobalt and lithium for their future vehicles.
In response to addressing some of the consumer pain points, electrified powertrains (the components that generate power) are a promising avenue to reducing or eliminating emissions from vehicles, according to the report.
Electrified powertrains make up a range of options, including lower-cost hybrid vehicles (HEVs), which use a battery to harness energy normally lost during braking BEVs, which are solely powered by electricity, and plug-in hybrids, which can be used in both ways. Among these powertrains, BEVs are seeing the most significant growth.
Currently, BEVs are more expensive and less convenient to use than their non-electric counterparts, but Robinson is of the view that technology will continue to close this gap.
In the near future, efficiency, front and centre will be the next major focus of BEV design, with automakers either downsizing packs to increase profitability or offering more range.
“We’ve seen a large focus on electrifying high-priced brands. This is because luxury brands offer vehicles at higher price points and are able to absorb the additional costs of the battery pack,” adds Robinson.
“This is also partly due to the need to offset higher emissions of their larger internal combustion engines, which cause more emissions due to their vehicles being larger and more powerful.”
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