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The race to make electric cars cheaper is making electric cars more expensive

Alexa St. John   

The race to make electric cars cheaper is making electric cars more expensive
  • Electric cars aren't exactly the most affordable right now.
  • Automakers say they are racing to change that.

The auto industry's scramble to make more affordable electric cars has actually driven the price of these vehicles up — at least in the short term.

The industry is desperate to build less expensive electric vehicles for the masses because (alongside concerns around range and charging availability) price is one of the biggest barriers to mass EV adoption.

The new EVs cost an average of $65,041 in November, according to Kelley Blue Book, while gas cars averaged $48,681 that month.

Automakers say they are doing all they can to introduce cheaper EVs. For instance, the Chevrolet Equinox SUV EV, to launch in 2023, should start around $30,000. Many have long been targeting that number, though Tesla somewhat tapped out of the race this year. Elon Musk told investors earlier this year his company wasn't prioritizing the $25,000 EV anymore.

High EV prices stem, in part, from the domination of luxury vehicles in the market. Ford's F-150 Lightning electric pickup starts at nearly $56,000; the GMC Hummer EV costs more than $100,000. Startup Rivian tacked a $73,000 based price tag onto its R1T truck, and Lucid raised the price of the cheapest variant of its Air sedan to $87,400.

But the more stubborn problem comes from the battery industry and the simple law of supply and demand.

The world of batteries influences your EV's price tag

Automakers are pouring more than $515 billion into all-electric lineups over the next several years. GM and BMW are planning for at least 50% of their new vehicle sales to be EV by 2030, and GM wants to eliminate all emissions-producing cars by 2035. Ford's targeting 40% of its global cars sold electrified by 2030. Mercedes is only making newly launched cars electric starting in 2025. Scaling up will inherently make electric cars less expensive over time.

But in the short term, the surge in demand was enough to reverse a decade-long decline in battery prices, according to a recent analysis from BloombergNEF. This year, prices for crucial lithium-ion batteries rose about 7%.

It's simple: The more EVs that carmakers plan to make, the more they need raw materials for their batteries. The less available supply there is, the higher the prices for those materials can go — and the more expensive your battery is overall.

The demand has ultimately sparked a frenzy that continues to make the battery the most costly part of an EV.

A price drop is in sight

The price of lithium alone skyrocketed 500% this year, according to McKinsey. That metal could be the biggest roadblock to cheaper EVs.

"You're going to have more and more people trying to source larger quantities of the supply of lithium to make sure that they have whatever they need to operate for the next fiscal year," Craig Dillard, partner at firm Foley & Lardner, told Insider in the fall.

"They need to be thinking about where the material is sourced," Dillard said, and "how much the price of lithium impacts not only their profitability, but also pricing in general for their products."

Some signals suggest that might not be the case for long.

Higher adoption of lower-cost battery mixes plays a role alongside recycling, as will easing lithium prices as a result of more extraction and refining coming online.

"We'll see an excess of demand relative to supply building up over the next few years," said McKinsey partner Andreas Breiter — driving costs up.

But, driving costs back down, he says: "The lithium prices will trigger more supply to enter the market."