As more and more details of Tesla’s $25,000 electric car emerge, it will have a huge impact on automakers, the car market and buyers. But according to analysts, the cheap new electric car will be comfortable to drive, if a little crude.
Many car buyers probably believe that the most important factor driving down the cost of electric vehicles is the $7,500 U.S. tax credit that was expanded last summer, followed by Tesla’s aggressive cost-cutting efforts to win more market share. The root cause, however, is that car companies are improving EV technology and developing crucial new manufacturing processes.
That has prompted more new models and made electric vehicles cheaper and more mainstream. Tesla has promised that the company’s next-generation electric car, due to go on sale next year, will be sold at a lower price, with an expected starting price of between $25,000 and $30,000. The rise of mass electric vehicles will be an important milestone, whether environmental, economic, financial or political. The Biden administration is pushing reforms to aggressively reshape the auto market in favor of electric vehicles faster than previously expected.
Kelley Blue Book statistics found that the average price of a new car in the United States is $48,763, a rise of 30% in the past three years. If EVs sell for much less than that, the argument that EVs are a product of the rich and elite will cease to exist. If these new models catch on, they will solidify electric transportation as a mainstream consumer product, while also enabling Tesla, a repositioned Ford and General Motors, and a slew of EV start-ups that haven’t died yet to become mainstream automakers. business.
“For Tesla to go to the mass market, it has to come out with a cheaper car,” said Dan Ives, an analyst at Wedbush Securities, who believes Tesla’s cheaper model will be a compact luxury car, similar to the gasoline-powered Audi A3, which starts at $35,400 for a base model. “The mass market will be the most important market for electric vehicles,” Ives said.
Tesla’s cheapest vehicle right now is the base Model 3, which has an MSRP of $41,990. According to market research firm Edmunds, there are currently three electric vehicles with a base model MSRP of less than $30,000: the Chevrolet Bolt, the Bolt EUV and the Nissan Leaf. But the average selling price of the first two models was still above $30,000 in March, and the average sales price of the Leaf was more than $34,000.
The low-priced EV is one of a slew of new electric models already hitting the market, with more than 60 new models expected to hit the market in the next few years. Volkswagen Group announced on March 15 the launch of the ID.2 model in the European market for less than 25,000 euros (about 27,465 U.S. dollars). Startup Fisker plans to launch its $29,900 crossover PEAR in the U.S. next year, and General Motors plans to launch its sub-$30,000 Chevrolet Equinox SUV in the fall.
Ives said most companies will compete fiercely in the compact sedan segment, with global sales of electric compact cars likely to reach 10 million in the next five years, even though automakers have originally placed less emphasis on small cars and focused on SUVs.
All of those prices were before last year’s extension of the tax credits of the Inflation Reduction Act, which allowed U.S. buyers up to $7,500 to buy most electric vehicles made in North America, but the credits have changed. The regulations are increasingly complex, including rules for eligibility for incentives based on the origin of batteries. There are also more financing options in the auto loan market designed for environmentally friendly vehicles.
The biggest problem facing cheap electric car makers
The rise of cheap electric vehicles raises a host of questions for automakers, but the biggest question right now is: What kind of electric car is likely to get consumers at such low prices? Will they buy it? “Think about Toyota’s gas-powered mainstay, the Corolla, and other entry-level vehicles. There’s nothing wrong with having a base car as your first car,” said Stephanie Brinley, associate director of global mobility research at S&P. It has fewer features as expected.”
Analysts believe a vehicle like Fisker’s PEAR, an acronym for Personal Electric Vehicle Revolution, won’t compete with larger SUVs like Ford’s gasoline-powered Explorer. Instead, PEAR looks more like a scaled-down version of a Honda CRV or Toyota RAV4. Both were the top-selling SUVs in the U.S. last year, according to Goodcarbadcar.net. Among them, the RAV4 is priced as low as $27,500 and is longer than the expected PEAR, while the larger CRV is priced at just under $30,000.
Ives said Tesla’s initial low-cost car, popularly known as the Model 2, is expected to be a hatchback that will likely be produced at the factory it is building in Monterrey, Mexico, and some production may also take place at Tesla’s Austin, Texas facility. factory.
Similar models to the next-generation Tesla and other cheap EVs could include the Honda Civic or Toyota Corolla, which have base retail prices of $25,050 and $21,550, respectively, Brinley said. The two cars rank ninth and 13th, respectively, among all U.S. model sales, and number one among compact cars, according to the data. Other similar models include the Hyundai Kona and Honda Fit.
CFRA Research analyst Garrett Nelson said the lowest-cost electric car would likely have a range of just 400 kilometers per charge, putting it on par with the current Nissan Leaf and Hyundai Kona, which cost around $30,000 Similar to our cars, consumers can save money by buying smaller, cheaper batteries.
Consumers are unlikely to accept lower prices, and may insist that lower-priced EVs also retain popular safety features like lane-departure warnings, Brinley said. Fisker CEO Henrik Fisker said on a Feb. 27 earnings call that consumers may accept shorter range in exchange for lower costs as they use PEAR as a Second car use, or use in the city as there is time to recharge during short trips.
Fiske added: “If people are just using electric vehicles as urban transportation, they may not need to carry huge and expensive batteries with them. So, we can provide different options in this area.”
For market leader Tesla, the key to bringing the cost down from the $41,990 Model 3 standard range will be building or redesigning factories, dramatically scaling up and advancing battery technology, Nelson and Ives said. After years of decline, battery costs still have room to fall by 30% to 50%, Ives said.
Ford, the second-largest electric vehicle maker in the U.S., expects simple economies of scale to boost EV operating margins by 20 percentage points by 2026. Ford Chief Financial Officer John Lawler said another 25 percentage points of profit margins would come from falling battery costs and redesigning vehicles to use smaller batteries. To save money, Fisker outsourced PEAR production to Foxconn.
How does Tesla plan to reduce costs?
Tesla spent a lot of time at its investor day on March 1 explaining its strategy going forward. The new strategy will reduce already low unit production costs by another 50%, the company said. While Musk has repeatedly reneged on promises, the company says it’s a trick that has worked once, when Tesla moved away from pricier Model S and Model X vehicles to a lineup now dominated by the Model 3 and Model Y.
The key lies in building new, bigger factories and designing the car so that the car’s large, flat battery doubles as the car’s chassis. Lars Moravy, Tesla’s vice president of automotive engineering, said at the investor day that the moves allow Tesla to assemble the cars in a different order, skipping steps such as painting and then removing the doors, allowing workers to Easier installation of seats and other interior components reduces downtime during production. The company’s new powertrain plants cost 65 percent less than the plants they replace, he added.
Tesla argues that its vertical integration will further reduce costs. In this integration, Tesla designed its own batteries and much of the manufacturing equipment and software. Tesla says its overall effort has brought the cost of the drive unit, including the motor, down to $1,000.
That view is backed by engineering firm Munro & Associates, whose vice president of drivetrain engineering, Colin Campbell, said: “We don’t think any other automaker can come close to that number at a price point.” Suppliers to automakers are asking $2,500 or more for similar systems. “It’s definitely big news,” said Cory Steuben, president of Munro & Associates.
While Tesla hopes the entry-level vehicle will solidify its position as an automaker that can serve all market segments, the automaker has been reducing its presence in the less-profitable lower end of the market for years. is more willing to focus on larger cars with higher margins. In fact, a spokesman for Hyundai’s U.S. operations said the company has no plans to launch low-end electric vehicles.
“Currently, it is difficult to introduce a $25,000 electric vehicle without compromising range,” Hyundai said in a statement. clear.
The companies hope the solution to low margins for low-end EVs is to offer them as many options as mid-priced cars and trucks, Nielsen said. In the case of Tesla, he added, that could mean battery upgrades and subscription services, or even autonomous carpooling for drivers at home in their cars. Or, automakers could simply try to sell leather seats, more powerful batteries and premium audio to buyers of smaller EVs. Relying on this strategy, Honda pushed many Civic buyers to spend upwards of $43,000 for the sporty Type R.
Automakers may just not want to make new cars as cheap as they are now promising, Brinley said. “Tesla hasn’t hit that price point yet,” she said.
The real answer depends on how much costs will fall, and how aggressively Tesla will cut prices, as a recovering supply chain and its own falling costs give Tesla the ability to offset some of the recent increases in vehicle prices. “All eyes are on Tesla’s direction, which will determine pricing and competition,” Ives said.
