The Future

We’re gonna rock down to Electric (Car) Avenue

When prices are lower instead of higher
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The Future

If I’m lucky I’ll be able to buy an electric car before I’m dead

There are a mind-boggling number of elements that factor into a vehicle’s price, and throwing a battery-powered engine into the mix makes things even more complicated.

It is 2020, and there are so many electric cars. Jaguar makes one. So does BMW, and so do Kia and Hyundai. Ford is making a big-ass electric SUV that it’s calling the Mustang Mach-E for some reason, and a company called Bollinger is making an even bigger electric SUV that looks like a Humvee, plus a pickup truck that also looks like a Humvee. And, as always, there is the Cybertruck, Tesla’s upcoming electric pickup that will look great in a Pusha T music video.

The future of motorized transport, it seems, will be electric — as long as you can afford it. The average price for an electric vehicle sits at around $55,000, while the average new gas-powered car costs around $36,000. While it is true, as this Quartz article proclaims, that electric vehicles have gotten cheaper by 13.4 percent from 2018 to 2019, that’s not very helpful to most American consumers. If, say, the average NBA player got 13.4 percent less good at basketball, I would not be able to play in the NBA, and I cannot afford an electric vehicle just because the average electric vehicle’s extremely expensive price has gotten slightly less extremely expensive.

So when will I, a person who recently decided to splurge on a used Volvo from CarMax, be able to buy one of these things?

In order to figure that out, I first wanted to understand why any new car costs what it does. The answer, said Tom McParland, who writes about buying cars for Jalopnik and runs Automatch Consulting (think of him as a buyer’s agent, but for cars), is that it’s complicated. Car companies actually set two prices — a cost they give to car dealers, and then the cost they give to consumers. The dealer invoice price is determined by production costs for the manufacturer — which McParland said includes materials, labor, distribution, marketing, and research and development — plus a few thousand dollars of cushion for profit. Add in another few-thousand dollar cushion, so that the dealer can make some money too, and that’s the price you’re presented with on the lot.

That’s one side of the price. The other is how much people are willing to pay, which is a little more intangible. A Porsche Panamera sedan, McParland pointed out, is going to cost more than a Honda Accord, simply because Porsche is viewed as a luxury brand by consumers while Honda is a more utilitarian one. While a top of the line, fully-loaded Accord will go for about $37,000, the Panamera’s pricing starts at $87,200 (the most expensive versions of the vehicle can top the $200,000 mark once you start customizing them). “If it costs Honda to $25,000 to make a sedan, is it really costing Porsche four times that to make one?” McParland asked. “Of course not.”

Sometimes, people don’t just want an eco-conscious car simply to have one; they want something that lets everyone else on the road know that the car they’re driving is eco-conscious, and that they’re willing to pay a premium for it.

Before I go any further, I should clarify that electric vehicles are not, strictly speaking, a modern invention for a world attempting to mitigate the traditional costs (environmental and otherwise) of gas-powered cars. In the early days of automobiles, there was no standard for what actually provided a vehicle with its power — at the turn of the 20th century, electric and steam engines were duking it out for dominance over the American vehicle market, while gasoline-powered engines were in a distant third. That all changed once Henry Ford came along and introduced the gas-powered Model T, which became ubiquitous in part by undercutting competitors’ prices — a 1914 Model T Runabout cost $500, while the 1914 Detroit Electric Model 46 cost $2,400 — and in the process set an industry standard for what was under the hood. This means that gasoline engines have had over a century to iterate and evolve, becoming more powerful and more efficient over time.

Electric engines, and the batteries that power them, have some catching up to do. To illustrate the gap between the two technologies, the automotive journalist Norman Mayersohn noted in 2015 that the Chevy Volt (an electric-engine car supplemented by a 1.5-liter gas engine, from which it drew a little bit of power) featured a 16-kilowatt-hour battery which “accounted for about $8,000 of the car’s cost” and “stores the energy equivalent of one gallon of gasoline.” In the five years since Mayersohn’s piece, manufacturers have learned to be more efficient with their kilowatt-hours, but only just so: many of the cheapest all-electric vehicles, such as the Fiat 500e ($34,705) and the lease-only Honda Clarity ($199/month with $1799 down) have ranges of under 100 miles, ruling them out for anyone who needs a car for more than zipping around a city.

“The more technology that gets infused into a car, the higher the cost goes,” McParland said. Even advanced features that work with gas-powered cars, such as automatic cruise control and automatic braking, said McParland, “start out on high-end cars because those [buyers] want the latest and greatest tech.” By initially selling their fanciest features on their fanciest vehicles, car companies can get rich people to subsidize the costs that went into developing them. As time passes, those costs are recouped, and they get integrated into mass-market models. Given that a battery-powered electric engine is a piece of technology that represents a fundamental shift in what makes a car actually run, it makes sense that, under this model, car manufacturers would electrify their priciest vehicles before moving that technology down the chain.

There’s another potential reason that electric vehicles cost what they do, though: Some people are willing to pay a premium for them, the same as with a Porsche Panamera. Steven Sexton, Ph.D, is an environmental and energy economist at Duke University, and wrote his dissertation on consumer demand for the Toyota Prius hybrid. Sexton found that part of the car’s success wasn’t just that it was environmentally friendly, but that it incorporated styling elements that went out of their way to “signal that it was a green car,” he told The Outline. “People are willing to pay thousands of dollars for that distinct design.”

In other words: Sometimes, people don’t just want an eco-conscious car simply to have one; they want something that lets everyone else on the road know that the car they’re driving is eco-conscious, and that they’re willing to pay a premium for it. Sexton believes that in the world of electric vehicles, Tesla may be “the successor to the Prius,” largely for those same reasons. However, he stressed that similarly, this doesn’t necessarily mean that consumer demand for Teslas should be conflated with demand for electric vehicles on the whole. (Personally, I don’t really care about owning an electric vehicle, but if I had the means, I would buy the shit out of a Cybertruck, primarily because I am an idiot.)

Jaden Smith performing on top of a Tesla Model X.

Jaden Smith performing on top of a Tesla Model X.

The easiest way to drive prices down on the manufacturer side is to achieve an economy of scale, the point at which you’ve streamlined the making of a thing to the level that it’s actually cheaper to create more of them than less of them (it costs a certain amount of money to grow an apple tree to get one apple, but it costs substantially less per apple if you just pick all the apples off the tree). And given that the battery is the most important part of an electric car, as well as perhaps the most expensive, if electric vehicles are going to get cheaper, someone’s will have to achieve an economy of scale in the battery-manufacturing department.

Problem is, that may have already happened. Electric vehicles run on lithium-ion batteries, the same ones that are in modern phones and computers — the only difference between them is an electric vehicle’s battery pack can weigh over a thousand pounds. “We’ve been producing this type of battery for a long time,” Sexton said. “I’m not sure there are cost savings there.”

And just like in a phone, an electric car’s battery slowly dies over time, meaning that nobody really wants a used electric vehicle — Tom McParland pointed out that they go for “pennies on the dollar” on the secondhand market, in part because electric car batteries are eye-gougingly expensive to replace.

So until someone comes up with a better, or at least cheaper, type of battery (it’s on the horizon, but only distantly so), electric cars are going to be relatively expensive to make. However, that doesn’t mean that they have to be expensive for the consumer. Both Volvo and the soon-to-launch company Canoo are experimenting with selling month-to-month “subscriptions” to their vehicles instead of selling them outright, a model which if adopted as an industry standard could help defer costs on an electric vehicle. McParland told me that for this model to work, there would need to be a societal “shift in perception of how we look at automobiles” away from an ownership mindset to something more casual.

Besides, he explained, “those cars aren’t going to be in the subscription fleet forever. There’s going to come a point in time where they need to be handed off,” as in sold to another party, potentially at cut-rate auction prices to used car dealers. To make a profit, car companies looking to offer subscriptions will need to set their monthly rates in a way that will make up the difference between the auction price and something above their break-even costs. So far, Volvo’s cheapest subscription vehicle, the XC40 small SUV, starts at $700 a month. Canoo, whose waitlist launches on January 21, has not yet announced its prices, but given that the thing looks like what you’d get if you told Jony Ive to design a minivan fit for a Blade Runner sequel, I’m going to guess it won’t be cheap either.

We’re supposed to buy electric vehicles, we’re told, because electric vehicles are better for the environment; if we don’t make the switch, we’re part of the problem.

At the same time, there is one mechanism in place that truly does make electric vehicles more affordable: the federal government offers a $7,500 tax rebate to customers who buy electric vehicles as well as plug-in hybrids, and certain states, such as California, offer customers a tax break on top of that one. The catch is, Congress’s 2009 bill enacting the credits only authorized 200,000 rebates per auto manufacturer, meaning that if you bought one of the first 200,000 Teslas ever sold, you got a tax break. But if you were Tesla buyer number 200,001, your rebate was cut by half. Those rebates were cut in half again every six months until January 1, 2020, when they shrunk to nothing. For Tesla, this might not matter too much — again, to a certain subset of people, the point is to own not just an electric car, but a Tesla — but for General Motors, which has quietly been moving Chevy Bolts and the now-discontinued Volt by the boatload, may feel the pinch as competitors roll out vehicles priced similarly to the $36,620 Bolt, but which will come with a full $7500 tax break.

Then again, even if a $7500 tax break sounds great to a car buyer, there’s basically no way car manufacturers aren’t taking advantage of them. “Part of those tax breaks was almost surely being captured by the auto manufacturers,” said Sexton. “They were charging higher prices than they would have in the absence of the tax break.” As a manufacturer’s electric car tax breaks expire, it may be forced to actually lower the sticker price on its electric vehicles — though, Sexton pointed out, “it won’t be of a magnitude equal to those subsidies.”

To me, one thing that’s troubling about electric vehicles is that they represent the sort of market-based solutions that the late Mark Fisher referred to as “ideological blackmail” in his book Capitalist Realism. We’re supposed to buy electric vehicles, we’re told, because electric vehicles are better for the environment; if we don’t make the switch, we’re part of the problem. I worry that this is a message that’s spread through culture not for altruistic reasons but economic ones: Most modern cars are incredibly reliable and last longer than ever, meaning that few people truly need a new car, no matter what’s making it go. But if we were to be, say, passed on a sense of environmental guilt about driving around in a gas-powered car, that might provide us with an incentive to buy one anyway.

Currently, there’s not a substantial difference between a car running on gas or electric power from an environmental perspective — most of America’s electricity comes from coal, so at this point, electric vehicles really only offer a degree of separation from the unpleasant feeling that you’re getting around by burning fossil fuels. Additionally, buying an electric vehicle implicitly means you’re purchasing a gigantic iPhone battery, the creation of which presents an ethical and environmental minefield in and of itself. Electric vehicles will surely play a part in a clean-energy future, but it’s going to have to be one in which we completely revamp our electric grid, deriving electricity from solar, wind, water (and perhaps nuclear) power, and find a way to store that energy in a more sustainable and humane type of battery. By that point, we might have decided we don’t actually need cars at all.

Drew Millard is The Outline’s Features Editor.