Why the Cost of EVs Is Increasing Despite Drop in Battery Prices

Over the last 10 years, the price of batteries has declined significantly. Analysts expected that the prices of electric cars would drop as the prices of batteries reduced, as batteries are the most expensive feature of these cars. This, they expected, would make electric cars more affordable.

Despite the lower battery prices, the price of electric cars remains high. Figures show that since 2012, the average cost of the battery of an electric car has dropped by more than 80% while the price of a new electric car has increased by over 80%.

The primary reason for this gap is that most auto manufacturers are currently focused on developing luxury electric car models before they expand to mass-market cars, which will be more affordable. Other reasons for the high price of electric vehicles would be factory shutdowns and semiconductor shortages, which have driven an increase in the price of electric as well as gas-powered vehicles.

Michelle Krebs, an executive analyst at Cox Automotive, stated that it was common for auto manufacturers to deploy new technologies on more expensive vehicles first as purchasers of luxury cars could bear the cost. Once automakers increase their production volumes and reduce costs, they can then deploy these features on models which are more affordable.

Krebs gave the example of stability control systems and anti-lock brakes, which were first deployed on luxury vehicles before being introduced to models which are considered more affordable.

Additionally, the electric vehicle market is shifting toward luxury vehicles. In 2011, the Nissan Leaf was going for about $33,500 and made up about 95% of the electric vehicle market in America. A year after the Nissan Leaf’s debut, the Model S sedan developed by Tesla entered the market. This model, which was going for about $57,500, soon displaced Nissan’s electric car model.

Since then, the electric vehicle market has shifted greatly, with Tesla now dominating the electric car industry. Startups such as Rivian and other auto manufacturers, including Honda, General Motors and Ford, are also participating in the electric car market by churning out expensive SUVs and pickup trucks. Auto manufacturers are also using expensive and bigger batteries in their models to offer the consumer longer range, which comes at a hefty price.

While auto manufacturers will have no problem finding buyers of their expensive electric models in the short term, companies such as Fisker Inc. (NYSE: FSR) will need to develop more affordable electric car models in the long term, especially if America is to meet its electrification goals.

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