There are two simultaneous narratives around electric cars going on right now. The first one is to say that automakers overstated demand for electric cars and are now facing the consequences. The other is to say that people are just naysayers and the data shows more electric cars are being sold. Who is right? Who is wrong?
They’re actually both right and both wrong. Automakers overstated demand for $50-60k electric crossovers and underestimated demand for cheaper, smaller, and lower-range electric cars. Electric car sales are growing, but not at a sustainable pace to match investment by many automakers.
If hope is the thing with feathers, then the unlikely birdie singing a song of possibility in our ears this morning is Goldman Sachs.
And while we’re on the topic of electric cars, Ford’s going to give dealers that want to sell their EVs a bit of a break. Hybrids, though, have their place, especially in China as we’ll discover.
Finally, Nissan joins other non-unionized automakers in offering union-style concessions, which is another huge deal.
Why Cheap Batteries Are The Ball Game
It was not long ago in The Morning Dump that we were talking about how much demand for electric cars was starting to backslide. This was based on a global survey from S&P Global Mobility that outlined consumer sentiment towards EVs and hybrids.
[P]rice fatigue has set in, driven by rising interest rates and inventory shortages that have only recently seen relief, said Brian Rhodes, director of connected car and vehicle experience for S&P Global Mobility.
Depending on where an EV is manufactured, changes to the tax-credit program in the US now force consumers to lease – rather than purchase – many models.
As David learned with his BMW i3 with a bad battery, the value of an electric car is tied primarily to its battery pack. Currently, the cost of an electric car pack averages about $150 per kWh. That means a Mach-E, with a 98.7 kWh battery pack, starts with an almost $15,000 premium. However, this is an average price, and the Mach-E almost certainly costs more to produce because Ford doesn’t make enough batteries (the price has been estimated as high as $20,000).
How does Tesla afford to keep lowering the price of its cars? There are many reasons, but cheaper batteries are definitely part of it.
Lower the cost of a battery and you can significantly lower the price of an electric car. The most obvious ways to do this are to:
- Scale up production to make the production costs cheaper.
- Lower the cost of the expensive stuff inside the batteries.
Scale is coming, albeit slowly, in the form of many new plants. But that’s not going to help if the stuff inside is still too expensive to mine and refine. That’s where this report from Goldman Sachs is so important.
The investment firm looked into all the pieces that make up a battery and they suspect that battery costs will fall by 40% in 2025 compared to 2022 prices, a pretty big improvement over their original estimates. That would be about $99 per kWh. Why?
Goldman Sachs Research now expects battery prices to fall to $99 per kilowatt hour (kWh) of storage capacity by 2025 — a 40% decrease from 2022 (the previous forecast was for a 33% decline). Our analysts estimate that almost half of the decline will come from declining prices of EV raw materials such as lithium, nickel, and cobalt. Battery pack prices are now expected to fall by an average of 11% per year from 2023 to 2030, writes Nikhil Bhandari, co-head of Goldman Sachs Research’s Asia-Pacific Natural Resources and Clean Energy Research, in the team’s report.
As battery prices fall, Goldman Sachs Research estimates the EV market could achieve cost parity, without subsidies, with internal combustion engine (ICE) vehicles around the middle of this decade on a total-cost-of-ownership basis.
That last little bit I underlined there is important. Goldman thinks BEVs will reach parity by mid-decade on a “total-cost-of-ownership basis,” so that means it’ll still be more expensive to buy than an ICE vehicle but that price difference will be made up fairly quickly. Goldman’s research, though, has this extremely dope chart, to walk through that:
Man, that’s good data. That little dotted line is the three-year payback period, which is the point at which the Toyota Prius started experiencing breakout sales. Goldman gives three possibilities for how long it takes to reach that magic three-year line depending on the cost of oil (WTI Crude is about $77 right now).
Getting back to my original premise here: Many people want EVs, but they can’t afford them. Both the mix of EVs we offer (expensive crossovers with batteries) and the underlying costs are all wrong. If automakers kept producing $60k EV crossovers forever we’d probably never sell more EVs than gas-powered cars.
Lower the price of a battery pack by 40%, though?
Then you’re a lot closer to price parity with gas-powered cars and, with government incentives, you’re probably there depending on the model. Then watch what happens with demand.
Ford Walks Back EV Dealer Program That Ford Dealers Hated
Ford dealers were told last year that, if they wanted to be “Certified Elite” dealers and get better allocations of electric cars they’d need to invest a lot of money in training and electric chargers.
Some dealers revolted, including in Illinois where the state motor vehicle board said Ford broke the law with the requirements. The company is now starting to walk that back a little, according to this Automotive News report:
The company said “Certified Elite” dealers — the more expensive of the program’s two tiers, primarily for those in larger markets — have to install three Level 2 chargers instead of the five it previously was mandating. The company also is removing a requirement to add a Level 3 charger by 2026.
Dealers on the lower-priced “Certified” tier are now required to install two Level 2 chargers instead of five.
For both tiers, the deadline to have chargers in place has been pushed back six months to June 30, 2024. A spokesperson said the company moved the deadline because of “charger supply chain and infrastructure delays.”
The report also notes that training costs were also cut in half for 2024.
Interestingly, one of the arguments dealers in Illinois made was that an expensive Level 3 charger doesn’t really matter given that the cars sit for long periods of time and test drives aren’t for hundreds of miles. A Level 2 charger should work just fine.
Chinese Consumers Love Hybrids
“People are increasingly accepting that a car can be equipped with both an electric motor and a gasoline engine, as they are highly complementary,” said Xu Min, a professor at Shanghai Jiao Tong University’s Institute of Intelligent Vehicle. “Wherever the gasoline engine is low in efficiency, we can make up for it with the electric motor.”
Two types of hybrids – plug-in hybrid (PHEV) and extended-range hybrid (EREV) – are enjoying strong demand, with their combined shipments surging 85% and outpacing a 14% growth in pure electric car sales this year, industry data showed.
The popularity of these hybrids is so strong that the segment is now half as big as the pure EV market and accounts for 12% of total passenger vehicle sales, according to data from China Association of Automobile Manufacturers (CAAM).
Should we make “Year of the hybrid shirts” or am I the only person who’d wear one?
Nissan Raises Wages, Too, Following UAW Victories
If you ask a union organizer which automaker currently building cars in the United States is the most anti-union, they might say Tesla, but if they have a long memory they’ll probably point to Nissan. The UAW has been trying to organize Nissan for as long as I can remember and the campaigns have always been brutal.
It’s therefore quite interesting that Nissan, of all people, quickly joined other automakers in responding to the deal the UAW made with GM, Ford, and Stellantis. The company will raise wages for factory workers by about 10% starting in January and will eliminate wage tiers.
Here’s Automotive News again with the skinny:
Nissan said the pay hikes reflect its commitment to its employees in the U.S. “and enhancing our competitiveness.”
Nissan said over the last three years it has increased wages at its three manufacturing sites by 12-18.5 percent in total; previously cut time needed to reach top pay from eight to four years; added two paid holidays and increased paid parental leave for production workers.
That was quick.
The Big Question
Seeing as how the price of oil impacts the value proposition of an electric car, where do you see gas prices going over the next three years?
Top image: Goldman Sachs/Ford