If you get the sense that electric cars are for the wealthy, you’re right.
The average price paid for a new electric vehicle in October 2022 was $65,291, according to Cox Automotive, versus $44,288 for your average mainstream vehicle. But as any new car dealer will tell you, the pricier the vehicle, the smaller the market for potential customers.
That’s not good news for manufacturers of EVs, many of whom fearlessly price their vehicles close to or more than $100,000.
Consider Lucid, which is working through a backlog of 34,000 orders. That was 37,000 orders, so progress is being made. But some of the decline comes from cancellations. So it may come as no surprise that the California-based EV maker is offering its employees an $18,000 discount if they buy the $154,000 Air Grand Touring by years-end.
The discount is paid out $500 at a time, doled out in each paycheck until the $18,000 is paid out. So employees must remain with the company to get receive the spiff.
Large order backlog remains
While that may boost sales in the long run, Lucid’s current production pace is tepid, with 3,687 vehicles built in the first three quarters of 2022. The company is promising to build 6,000-7,000 by year’s end, but it remains to be seen whether they will reach their goal, one that’s expected to burn through $3.4 billion in cash according to analysts’ estimates.
Then there’s the 100,000 vehicle orders from the Saudi Arabian government, which agreed to buy the vehicles over the next 10 years. The first 1,000-2,000 vehicles are expected to be built in 2023.
The company is also offering a 2.81% annual interest rate for those customers using its in-house financing to purchase their car, saving $15,000 in interest charges.
Not the only one cutting prices
But one observer doesn’t think much of Lucid’s chance of survival. That would be Elon Musk, who, according to Barron’s, quipped, “They are not long for this world.”
Yet Musk’s snide commentary on Lucid discounts comes as his own company not only cut vehicle prices in China, despite manufacturing more than 100,000 vehicles at the company’s Shanghai plant, according to the Chinese Passenger Car Association. Tesla’s Chinese website is giving potential purchasers ¥6,000 discount, or about $840, if they take delivery of a new Tesla before years-end. Similarly, just this week, U.S. Tesla buyers can now receive a $3,750 credit if they take delivery of a new vehicle by the end of the year.
And even as Musk hurls snide remarks, Wall Street has its own thoughts, as Tesla’s share price has declined approximately 49% this year.
Why EVs cost so much
The price of essential raw materials used in BEVs is the main determinant of the cost to manufacture EVs. According to a forecast by S&P Global Mobility, growing raw material prices will reach their pinnacle in 2022. However, they also anticipate that crucial raw material costs for the automotive industry would be up to 75% higher in 2030 than in 2019.
But S&P also expects stricter emissions regulations will increase the cost of vehicle technology and emissions controls on internal combustion powered vehicles. And as buyers switch to EVs, the economies of scale that traditionally powered vehicles now enjoy will dissipate, even as EV economies of scale grow.
The company predicts that EVs will have a 51.5% market share in the United States by 2031, nearly 78% in Europe, 74% in China and about 27% in the rest of the world.