At the moment, only a small percentage of the population can truly afford to purchase an electric vehicle. The average EV costs at least $30,000 to $40,000, not to mention the cost of purchasing and installing a charger at home. For the past couple of years, governments across the world have provided discounts and incentives to reduce the cost of electric vehicles and increase sales.
According to Ford CEO Jim Farley, that situation may come to an end. With the cost of manufacturing electric vehicles steadily reducing, Farley sees a price war on the horizon with the entry of $25,000 models into the market. Furthermore, he says, prices will be non-negotiable and 100% of sales will be done online, allowing potential customers to bypass the dealership model that has vexed so many for decades.
However, several market factors such as supply chain and production constraints coupled with extremely strong demand mean this price war is a way off. Thanks to low supply in the face of ever-increasing demand, EV makers have been able to slap high price stamps onto their vehicles with hardly any pushback.
The high cost of production can be attributed to the scarcity of lithium, a rare metal used to make electric vehicle batteries, as well as an ongoing global computer chip shortage. Ford’s Mustang Mach-E, for instance, has a purchase price of $45,000 with its battery pack alone costing a whopping $18,000. This doesn’t give automakers a lot of wiggle room to reduce their prices, Farley says.
While speaking at the Bernstein Strategic Decisions Conference, Farley stated that he believes the cost of producing zero-emission electric cars will steadily reduce over the coming years until EVs cost as low as $25,000. Cost improvements when it comes to manufacturing electric vehicle batteries as well as Ford’s next-generation EV platform, which is currently in development, will allow the Michigan-based automaker to reduce its manufacturing costs.
This will inevitably lead to a “huge price war,” he says. To out compete other legacy automakers and EV companies, Farley says that Ford is ready and willing to reduce its advertising and distribution costs. However, he did not reveal whether his company has a $25,000 EV model in the development pipeline.
Still, there are a couple of $25,000 EV models in the works. Tesla has talked about developing a $25,000 EV in the past, and German automaker Volkswagen recently revealed a new concept for an upcoming ~$24,000 electric car.
The race for customers will truly be on once different manufacturers such as Fisker Inc. (NYSE: FSR) start selling electric vehicles whose price tag is in the region of $25,000 or even less.
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