News on the economy and inflation has been almost universally negative in recent months. Everything seems to be getting more expensive, and everything is taking longer to ship and receive, especially cars. Research firm AlixPartners recently released a report on price increases on electric vehicles, and the numbers are surprising.

Tesla has increased its prices several times in recent months, to the point that some Teslas now cost nearly 10% more than they did at the beginning of the year. Rivian, Ford, General Motors, and others are on the same track. The new GMC Hummer EV got a $6,250 price bump last week due to rising materials costs, which are up 144 percent from March 2020.

There are still plenty of reasonably priced EVs for sale, but there’s no way around the fact that prices are rising. In May, buyers paid an average of 22% more for a new EV than they did the year before, as the average sale amount climbed to $54,000. To be fair, prices for gas vehicles are on the way up as well, though to a lesser extent. Buyers paid an average of $44,400 in the same period, a 14 percent increase.

Why are EVs becoming so much more expensive so quickly? Well, inflation is a significant part of that, but there are other factors, too. Automakers are pushing EV prices to compensate for the increases they’re seeing in raw materials costs. Some components have nearly doubled in cost since before the pandemic, wiping profits off the boards for even the most popular models. Ford Finance CEO John Lawler told reporters that the shift had all but killed the automaker’s earnings on the Mustang Mach-E, so prices got a bump to offset the pain.

The costs of research and development of new EVs also drive sales prices, as automakers have to recoup their upfront costs with each unit sold. AlixPartners told the Wall Street Journal that the shift to electrification will cost car companies a combined $526 billion by 2026, and we’re still not out of the woods regarding supply chain issues, so that total could grow as time goes on.

Finally, it’s hard to expect automakers to loosen prices on a product category with the explosive growth in demand that electric vehicles have seen in recent years. Buyers were chomping at the bit to get new electric models even before gas prices skyrocketed, and now that the pain at the pump has become extreme, that excitement has grown.

Of course, prices can’t keep climbing forever and the early adopters will eventually move on, so automakers will have to balance pricing with costs carefully going forward to maintain demand. Widespread EV adoption will depend on there being affordable and readily available vehicles in the future, so it’s a cooling off in pricing will be in everyone’s favor. 

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Source: www.autoblog.com