As EVs become more affordable, the market has begun to reflect the convergence of several long-growing trends.
The electric car hasn’tquitearrived on the long road to widespread adoption. But it’s getting very close.
Historically, electric vehicles have been associated with luxury vehicles and wealthy customers. It’s a market defined primarily by Tesla (TSLA) -Get Report and its next-generation cars, which often cost between $45,000 and $70,000 each. This has let electric cars push technological boundaries and carve out a cultural niche. However, with price points at the top of the market, these vehicles have remained out of reach for most consumers.
Quite suddenly, auto makers have started promising that will soon change.
In recent months, many car companies have begun announcing changes to their lineups that emphasize electric cars as the way of the future. For some companies this means introducing electric versions of their most popular models, such Ford Motor's (F) -Get Report fully electric Ford F-150 Lightning scheduled for release in 2022. Other companies, such as Volvo, have taken the bolder step of committing to a majority or entirely electric fleet by the end of the decade.
Prices are central to this electric future. Car companies haven’t just announced fleets of new vehicles. They’re announcing cars at price points far closer to the middle of the market. Tesla has begun marketing its Model 3 for $38,000. Nissan has advertised its all-electric Leaf for $32,000 and Mini has promised the Cooper SE for $30,000. By contrast, according to Kelley Blue Book, the average price for a new car is typically almost $41,000.
It feels like a dam is breaking in the market for electric vehicles. But according to Anna Stefanopoulou, the William Clay Ford Professor of Technology at the University of Michigan, that’s not quite right. This isn’t about a sudden sea change in the market for electric vehicles. Instead, this represents a convergence of changes in technology, public policy and consumer preferences. The market has been slowly changing. Now it will start changing all at once.
“It’s a dynamical system,” Stefanopoulou said. “It’s a demand and market supply. You find the point where the actual pricing drives adoption, [and] the adoption increases the volumes and the incentives for streamlining the process more.”
“Of course,” she added, “you cannot go forever. You still have the cost of materials and the cost of manufacturing. You cannot go below that.”
Consumer demand has played a huge role in this process.
As the technology for electric vehicles has progressed, these cars have gotten increasingly less expensive to produce. More than anything else this has meant advances in battery design. The most expensive single part of an EV, Stefanopoulou said, is the battery. The rest of the car can be designed for the customer who will drive it (not every vehicle needs the bells and whistles of a Tesla), but the battery requires advanced technology and rare materials to build. Auto makers have gotten better at packing more power into simpler designs, and as a result can now build an electric car’s battery far more easily than they could even five years ago.
However, even an inexpensive battery can still cost a relative fortune if the company has to make each one from scratch.
While electric cars remained a niche market, the few automakers in this field had to rely on individual purchases to pay for each car they produced. This meant that they couldn’t take advantage of economies of scale to reduce the price of each part they manufacture.
The consumer market has caught up with this industry now. It has hit what Stefanopoulou calls a tipping point, where enough consumers now want electric vehicles that manufacturers can begin to streamline their production. Car companies can build their parts in advance, because the market has less uncertainty. They can order in bulk, produce parts in large assembly lines, and otherwise take advantage of the efficiencies that come from making thousands of vehicles at once. Instead of having to build and ship each battery for each car, they can now create the most cost-effective system possible, confident that the market will be there when the next shipment of batteries arrives.
And according to analysts, that market is more than ready to go.
“It’s consumer demand,” said Neil Patel, the co-founder of NP Digital, a firm which specializes in consumer data.
“We started seeing a high demand of people actually typing in brand name electric vehicles, and this was before some of these brands even had electric vehicles released that they were talking about… And if you get thousands and thousands of people looking for [your company’s electric car] every month and it doesn’t exist, you start looking at it.”