Over the last decade, electric cars have gradually become popular. Initially, only Tesla was producing electric vehicles. However, more than a half dozen companies are making consumer-ready EVs nowadays.
However, the price of electric cars makes many people reconsider going green because electric vehicles are so expensive that they are sometimes out of budget for many people, even in the US. There are several reasons why EVs are so expensive. In this article, we will explore a few of the primary reasons.
High Battery Cost
One of the vital costs of electric cars is the high voltage battery. Over the years, the price of the necessary metals that are required for the HV battery has gone up manifold.
There are several types of EV batteries, such as Lithium-Ion batteries, Nickel Metal Hydride batteries, and Iron-Phosphate batteries. Over the last few years, the price of Lithium, Nickel, Cobalt, and other precious material essential for electric car batteries, has gone up tremendously. For example, even 10 years ago, lithium from China was selling for $6,000 per ton. However, In 2022, lithium was priced at $75,000 per ton.
In 2016, the price of Nickel was $10,100 per ton. In 2022, this price has increased to $34,000 per ton (source). Similarly, the per ton price of Cobalt in 2014 was $28,000; however, in 2022, One ton of Cobalt cost $74,000.
Therefore, the price of base materials essential for electric car batteries has increased tenfold over the last decade. Therefore, nowadays, the battery costs more. It’s one of the primary reasons why electric cars are so expensive.
Demand Has Increased
Even a few years ago, the per-gallon price of gasoline and diesel was reasonable. However, over the last few years, the price has almost doubled. Comparatively, the unit cost of electricity has remained stable compared to gasoline.
A few years ago, the total ownership cost of an electric car and a gasoline vehicle was almost similar. However, people didn’t like to buy electric cars for unrelated reasons, which we will discuss later.
As the gasoline price has increased tremendously in the last few years, people have been looking for alternatives. It’s why recently, the demand for Hybrid cars and Electric cars has gone up. As there is more demand than the supply of EVs, the price of electric cars has skyrocketed.
Only a handful of companies make mass electric vehicles, such as Tesla, Rivian, Ford, Volkswagen, and Porsche. However, due to a supply chain shortage that started during the last pandemic, most of these companies are failing to secure all the necessary parts required to make an EV.
No other EV manufacturer except for Tesla produces hundreds of thousands of electric cars. Therefore, the total EV market is short in supply, but demand for EVs has increased due to higher gasoline prices. Tesla and other EV makers can get away with higher prices in this hot market. It’s why electric cars are expensive.
Even though we have been hearing about electric cars for the last decade, it’s a relatively new technology compared to gasoline vehicles.
For over a century, Ford and GM have been mass-producing vehicles, and Porsche and Volkswagen have been making vehicles for more than 70 years. However, Tesla only started producing mass EVs in 2018. Lucid, Rivian, Ford, and Volkswagen haven’t begun producing mass EVs yet.
Even though it’s claimed that EVs are simpler vehicles than gasoline vehicles, it’s not entirely accurate. EVs are more complicated than gasoline vehicles.
Moreover, everything that goes into the electric car has to be re-invented. The motors, high voltage batteries, and driver-assist systems must be engineered specifically for EVs.
For example, the high voltage battery in electric cars needs a special cooling and heating system. It also needs a careful battery management system. Moreover, the HV battery also requires extensive engineering to protect itself so that it doesn’t catch fire during an accident.
The motor that is used in electric cars also has to be explicitly engineered for better performance. It has to be lightweight and energy-efficient but powerful.
Furthermore, almost every company making EVs is also investing heavily in self-driving software projects. Even though no one has been successful yet, Waymo, Tesla, and MobilEye have shown progress.
Therefore, these new EV companies have to spend billions of dollars on R&D. The only way these companies can survive when the R&D costs billions is by selling the EVs at a high price. It’s why electric cars are expensive.
Charging Infrastructure Has Improved
For the last decade, one of the primary reasons people have avoided electric cars is that there were not enough charging stations throughout the country. However, Tesla, ElectrifyAmerica, and other third-party companies have created a charging network covering the entire country. Nowadays, a cross-country road trip with an EV is possible.
Moreover, many shopping malls, hotels, apartment complexes, and office parking lots also have charging facilities. As a result, the barrier to owning and operating electric cars has decreased. It’s why more people are buying EVs, and subsequently, their price has gone up.
Due to inflation, everything now costs more. The materials essential for electric car batteries and other materials, such as aluminum, chips, glass, etc., are now expensive. Moreover, the labor cost has also risen over the last few years.
The rising gasoline and diesel price has a direct effect on shipping costs. Thus, the car manufacturers now have to pay more to ship the raw materials and the finished car. However, the impact of inflation on electric vehicles is more than on gasoline vehicles because the EV supply chain isn’t as mature as the gasoline vehicle supply chain. Thus, it got affected more.
Will electric cars become cheaper?
Many industry experts hope that electric cars will become cheaper over the years. They argue that every new technology costs more initially but decreases over time as the price of raw materials decreases. However, we disagree. Electric cars will not become cheaper over time.
As we have already seen, the price of raw materials for EV batteries has gone up manifold in the last few years. It will go up even more because of China’s monopoly on raw materials.
The price increase due to inflation isn’t going to lower. Due to the recent pandemic, inflation has hit every country. Moreover, the global supply chain has been affected severely, which will take several years to fix itself.
Making an EV prototype is easy but producing those electric cars at a scale is very hard. No other company except for Tesla has managed to master the art of EVs mass production. By 2030 Tesla is planning to make ten million vehicles per year. Therefore, they are buying up all the available battery materials. This competition in the raw material industry will increase the battery price even more.
Therefore, it’s doubtful that electric cars will become cheaper in the future.