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Why Are Electric Cars So Expensive?

Ben Parker

Article Highlights

Until basically a year ago I never thought realistically about being able to buy an electric car. Between the fact that there isn’t a lot to choose from, and all of the options that I’d actually consider are way too expensive. I think a lot of other people feel the same way.

So, why are electric cars so expensive?


Components of electric cars, especially what makes their batteries have been historically expensive but those prices are seeing significant reductions. 


New technologies, in their initial phases, are always more expensive than their older counterparts. The demand for electric cars although rising is still relatively small, so manufacturing costs are high. The economy of scale is always an issue with new technology but especially true with big-ticket. items like cars. When internal combustion vehicles were first becoming popular, many companies faced these same challenges. What Henry Ford became famous for was creating a production cycle that reduced costs and streamlined manufacturing and assembly. A similar thing is happening today with manufacturers like Tesla, General Motors, and a few others. But, right now we are going through the first phases of electric vehicle adoption.


Although much of this technology has been around for a while, the adoption of it has been slow and is only now beginning to pick up.


The cheapest electric vehicle available in the United States right now is the smart ForTwo electric, battery-powered electric vehicle. It starts at $23,900,  a similar compact car that is gas-powered is significantly cheaper. The average electric car price is $52,735 which in 2020 is pretty expensive. About a year ago Bloomberg Conducted a study and found out by the year 2040 electric vehicles will take up 57% of the global passenger car sales. For this to happen the price of these cars has to go down drastically. So what really makes these cars so expensive? 


For years now, lithium batteries have been the biggest cost for electric vehicle makers. For instance, in the Tesla Model S, $30,000 of the cost of the production of the car just goes to the lithium-ion battery. Lithium-ion batteries are in everything these days, your phone, your iPad, and your electric car. To make these batteries requires the mining and sourcing of precious metals. Cobalt is one of the metals required to make these batteries and it can only be mined in a few places in Africa. The conditions of the mines in the Congo are not great and have been a point of controversy for many technology manufacturers including Apple, 


“Apple, Google, Dell, Microsoft, and Tesla have been named as defendants in a lawsuit filed in Washington DC by human rights firm International Rights Advocates on behalf of 14 parents and children from the Democratic Republic of the Congo (DRC).”


Annie Kelley, The Guardian


The controversy surrounding the mining and extraction of Cobalt has led many companies and researchers to look for ways to recycle and extend the life of lithium-ion batteries. Recent success in these efforts has garnered new resolve for larger automotive manufacturers to enter the electric vehicle space. 


More manufacturers entering the space can only help the overall cost of these vehicles reduce. 



Looking Forward


This Bloomberg report also showed that since 2010 the average cost of Lithium-ion batteries per kilowatt has fallen by 85%. So we’re seeing a huge reduction in cost of the battery. That paired with an ever-increasing demand for electric vehicles can push the costs even lower. 


More recently Bloomberg has reported the effects of COVID-19 on the sales of electric vehicles worldwide. This year (2020) there has been an 18% reduction in global electric vehicle sales. However, it seems that this won’t greatly affect future years’ sales as combustion vehicle sales have fallen even more harshly at a 23% decrease. The same Bloomberg report states that 2017 was the peak of combustion vehicle sales, and it predicts a steady decline in those sales going forward. 



Conclusion


Electric vehicles are expensive, but won’t be for long. As technology continues to improve, and demand increases more manufacturers will enter the space and reduce costs.


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