Electric vehicles may see a significant reduction in adoption after the coronavirus pandemic led to a significant increase in EV raw material costs. According to a new AlixPartners report, the cost of crucial electric vehicle inputs increased by more than 100% during the pandemic and subsequent lockdowns, forcing automakers such as Tesla and General Motors to hike the prices of their new vehicles.
The increased production costs are partly due to the increase in cobalt, nickel and lithium prices. These metals are currently quite rare in supply and are integral to building electric vehicle and truck batteries. AlixPartners states in its report that the average cost of EV raw materials more than doubled from $3,381 per EV in March 2020 to $8,255 in May 2022, signifying an increase of 144%.
Electric vehicle-specific production costs have also increased from around $2,000 to $4,500 in the past two years, the report states. Higher production costs aren’t just plaguing the nascent electric vehicle sector; internal combustion engine (ICE) vehicles also saw their raw material costs increase by 106% from $1,779 per car in March 2020 to $3,662 in May. In this case, the higher production costs are driven by increased steel and aluminum prices.
This comes at a time when most automakers plan to release a suite of new electric vehicle models as part of their electrification and green energy strategies. The AlixPartners report predicts that the number of electric vehicle models on the global market will increase from 80 in 2021 to 200 in 2024. Automakers were hedging their bets on steadily reducing production costs to support this expansion.
Last year, experts predicted that electric vehicles would be cheaper to produce than fossil fuel cars by 2027. However, it looks like that may not happen anytime soon as automakers with E models have hiked the prices of their cars in the wake of significantly increased production costs. General Motors recently announced that it would increase the price of the Electric Hummer by $6,250 while Tesla has upped the prices of most of its models.
The cheapest version of the Model 3 has had its price increased by 23% from $38,190 in February 2021 to $45,990. EV startup Rivian also announced a notable increase in the cost of its two models, with the Rivian R1T increasing by 18% from $67,500 and the R1S increasing by 21% from $70,000 to $84,500.
It remains to be seen how different automakers such as NIO Inc. (NYSE: NIO) will absorb the impact of these escalating prices of raw materials without making the cost of an electric vehicle more exorbitant than many people are already finding it to be.
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