An interesting thing is happening. Just months after every company that sells electric vehicles raised the prices of these vehicles – a lot – now they’re lowering them all of a sudden, also by a lot.
This sort of thing normally never happens.
If a car is a really hot-seller, the prices often go up – due to demand. This is basic economics. You can charge more for that which people want more. You rarely see a hot-seller selling for less. And never when it was selling for a lot more just weeks before.
A game’s afoot.
Back in December – all of four weeks ago – Ford and Tesla both increased the prices of their electric models, the F-150 Lightning and Mach e Mustang (as regards Ford) and the Model 3 (as regards Tesla), making them even less affordable than they had been, before. The main reason for this probably had to do with the increased cost of not just necessary but critically necessary raw materials, especially Lithium and Cobalt – without which it is not possible to make the lithium-ion batteries that store the power in all current-in-production electric vehicles.
Each of these batteries requires a large quantity of these materials – about 25 pounds of lithium, for instance. And that’s a lot – given how much in the way of raw materials must be sifted through, refined and processed (leached out, using oceans of water that is contaminated in the process) to get the lithium. Which is also not renewable – which oil may be (a subject for another column).
Once used up, it’s gone.
At any rate, the EV push – italicized to reflect the fact that it’s not natural market forces – created artificial demand for lithium and cobalt that may not have been . . . what’s the word? Sustainable. Lots of EVs being made for which there wasn’t enough demand to cover the increased costs of not enough lithium and cobalt. It’s one thing to build EVs. It is another to sell them.
At a profit, that is.
And that problem, no doubt, explains why Ford and Tesla (and GM, too) “adjusted” the price of their EVs upward back in December, all of four weeks ago. They probably had to – as it is hard to remain in business by losing money on each “sale.”
Once upon a time – and not so long ago – such cars were called loss leaders within the business.
But – here comes the rub – the adjusted prices were probably unpalatable to many buyers. For we are not talking about the usual year-to-year increase of a few hundred bucks but rather as much as $8,000 bucks (in the case of F-150 Lightning with the longer-range battery) and at least $3,500 for the Mach e. Bear in mind as well that neither of these EVs are “new” for the 2023 model year. Both are essentially the same as they were for the 2022 model year. Same as regards the Tesla 3 – which sticker’d up to around $50,000 to start, making Elon Musk’s promises of a $35,000 starting price as pie-in-the-sky as his promises of tourist space flights to Mars by sometime around now.
Anyhow, it probably became evident – to the people keeping track of what was selling – that the asking prices had risen above what people were willing (and able) to pay. Adding $3,500 to the cost of any new car is no small thing and adding $8,000 is probably an . . . unsustainable thing. Financing only goes so far.
Seven years is probably as far as it can go – due to the effect of depreciation. By the time you’re seven years out – or even five – you’re making payments on something that may no longer be worth making payments on. When people realize this, they tend to stop paying. Cue the repo tsunami – which has the side effect of further depreciating the value of whatever hasn’t (yet) been repo’d, creating a vicious feedback loop that worsens the situation for everyone who bought in (and loaned-in).
So, the prices probably had to come down – in order to keep sales going. But the cost of those expensive raw materials hasn’t gone down and isn’t likely to because – unlike oil, of which there’s so much they had to do something about it – there’s not much lithium or cobalt; certainly not enough to keep pace with the artificially-induced mass manufacture of EVs, to satisfy the requirements.
So, lower the prices – in order to fluff (or at least, maintain) demand. It may have happened as the result of a conference call of the involved kahunas. You can imagine the conversation:
Kahuna B: Well, we did that but our people are reporting declining sales; especially after the cold snap, when people found out how not-far these EVs go when it gets cold.
Kahuna A: Ok then, let’s drop the prices so that people think they’re getting a really good deal. We can tell them they’re saving thousands vs. last year!
Kahuna B: But then we’ll be losing millions this year!
Rubber meet road.
It may just be that what many have suspected – and which the evidence suggests – is true. That being EVs can’t be sold at a price that reflects what they cost to make – plus a profit – without which it’s not worth making them.
They can be sold at a loss, of course – for awhile.
But probably not for very much longer.
. . .
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