THE ELECTRIC VEHICLE PRICE PARITY DISCUSSION IS FLAWED

Despite that fact that seemingly every automaker has announced a new lineup of electric vehicles as of late, these battery-powered machines remain relatively uncommon here in the United States. That said, things are sure to start shifting before the end of this decade, as more governments across the globe begin to embrace an electrified future. The rapid pace at which things are moving has breathed new life into the discussion surrounding price parity between traditional gasoline-burning vehicles and their electric counterparts. Most notably, this involves the idea that EVs will one day become just as affordable the cars and trucks we see on the road today. According to one Road and Track article, this time may never come.

For quite a few years now, the price parity discussion between EVs and ICE vehicles has centered around one thing: the cost of lithium ion batteries. These are the most expensive components within an EV, though prices have fallen sharply over the past decade. Bloomberg New Energy Finance notes that the price of these battery packs has fallen from $1,100 per kWh in 2010, to just $137 per kWh in 2020. That represents a reduction of 89 percent in just 10 years. When the next-generation of battery packs with solid-state technology arrive, the price should sink even more dramatically.

That said, major players like General Motors and Tesla have already managed to get their costs down to under $100 per kWh, which has long been considered the magic number in the price parity discussion. Despite this massive milestone, EVs aren’t suddenly flying off dealer lots in droves. This is because using battery costs to determine price parity is flawed, as it ignores the top priority of any automaker: profit.

Let us use General Motors as an example. The GMC Hummer EV debuted with a gigantic 200-kWh battery, more than double the size of the largest battery Tesla makes. Even if GM is only paying $100 per kWh during manufacturing, the battery in the truck alone costs $20,000. That is acceptable in a vehicle that is priced at $112,595, but not as profitable in a more “average” priced machine.

Speaking of average prices, Edmunds reported that the average price of a new car has just surpassed $40,000 in the United States for the first time. Troubling, because it’s actually more than the median income of the USA. This is likely a direct result of automakers forgoing entry-level vehicle segments in order to bolster their profits in the luxury SUV and pickup truck market. While the automakers call it buyer preference, this shift was spurred on by Wall Street not Main Street. There is no evidence to suggest automakers plan to curtail these practices just because their new products are powered by batteries and not dead dinosaurs. That isn’t how business works, and automotive executives know this. Deep down, you know this too.

This isn’t to say electric vehicles won’t become more affordable as times go on. We will eventually see cheaper battery powered offerings, but they’ll never get down to the cost of entry level gas powered vehicles, which are already disappearing regardless of what powers them. Just take VW’s European strategy as an example.

The all-mighty VW Golf is slated to be replaced by the ID.3 overseas in the coming years, as gasoline is outlawed across the continent. When it made its debut in Germany, the ID.3 carried an MSRP of $42,000. That is a far way off from the $23,195 MSRP our American Golf carries. Yes, VW has plans to offer cheaper versions down the line, but you will sacrifice a useable range in the process.  This isn’t an edge case, it will become the norm.

Let’s all do ourselves a favor and end the electric vehicle price parity discussion. It did its part in pushing the industry forwards, but we know better now. Electric vehicles may be the future, but they aren’t going to come cheap. Bless corporate interests.