The “lumpy” road to affordable EVs just got a little longer

The effort to electrify American vehicles has a “two steps forward, one step back” thing going on. This week has been a one-step-back period. GM announced it’s delaying production of three EV models, and the automaker scrapped a deal with Honda to develop affordable EVs together.  

“Affordable” being a keyword there. Because even though prices have come down — and the federal government is helping with rebates and the like — the road to affordable EVs for the mass market is a long one.

Internal combustion engines have been making cars go since the late 19th century. What that means in economist-speak:

“We’ve got tremendous economies of scale,” said Michael Robinet with S&P Global Mobility. When you make a lot of something, you can make it cheaper.

And for electric vehicle manufacturing, Robinet said, there’s enormous effort and capital involved to get those “economies of scale,” which is why the news about GM didn’t take him by surprise.

“It was always what was going to be called lumpy. It is going to have spurts and stops,” Robinet said.

It’s hard to build up new supply chains of EV parts like batteries and electric-motor systems, and forget about turning profits right away. With new car technology, it can take a while, said Gil Tal with the University of California, Davis.

“There is no moneymaking if you count the EVs they were selling this year,” Tal said. “You need to think about it as an investment that will be paid back in 10 years or even more.”

This is how the business works. Consider the Toyota Prius, a groundbreaking hybrid that lost money for years, said Yale University’s Kenneth Gillingham.

“And then it turned out to be a very, very profitable vehicle,” Gillingham said.

He said EV prices today are set with initial losses in mind. “They’re trading off how much money are we willing to lose in order to really gain some market share and gain some brand credibility in the EV space.”

That doesn’t mean new EVs are affordable — prices average well above $50,000. Though Jessica Caldwell with auto research firm Edmunds said new gas vehicles aren’t very affordable either these days.

“The percent of new vehicles sold under $20,000 is practically zero,” Caldwell said.

And pricing aside, she said consumers are also facing high interest rates, and a lot of the folks who were enthusiastic about EVs have already bought them.

“And we’re kind of hitting folks that have to be sold on EVs,” Caldwell said.

Thea means charging infrastructure has to be in place before the average person starts driving one off the lot.