Thursday, June 11, 2020

Electric cars are currently luxury goods :-(

Unusual circumstances led me to buy three cars in the past 12 months. I've been interested in buying an electric vehicle (EV), so in each case, I figured it was my chance to take the plunge. Alas, I ended up with three ICE (internal combustion engine) vehicles. The types of cars I wanted either didn't exist as EVs or they cost so much more than their ICE equivalents, I couldn't justify the extra expense.
This was a great disappointment to me. I understood that EVs would involve some sacrifices in cost, range, and amenities, but EVs are an established and growing market with models from over a half dozen serious manufacturers. I expected the EV-ICE gap to be reasonably small. I found that it's not.

Let's run through the details.

Car 1: The Compact SUV

Last year, my wife and I decided to replace our 2010 Subaru Forester with a new compact SUV. Compact SUVs are part of the largest segment of the US automobile market, compact crossovers. In 2019, more than forty models competed for market share. If you wanted an EV, however, you had only one option: the Jaguar I-Pace.

There may have been hybrids to choose from. I don't know. I rule those out on principle. I think it's silly to build a car with two means of generating power. So much more to maintain. So much more to break down. A hybrid's not an EV. It's an ICE car with an electric subsystem desperately chanting, "I think I can!" I'm not on board.

So...the Jaguar I-Pace. MSRP starts at about $70,000. In my state, government incentives knock $10,000 off that, but even if you could knuckle a dealer down another 15%, you'd still be looking at an entry point of some $51,000. Perhaps that's not unreasonable for a luxury SUV, but we weren't looking for a luxury car. We were looking for a car.

We ultimately bought a Nissan Rogue. It satisfied our two primary requirements (all-wheel drive (AWD) and a moonroof), and during our search, it looked likely that we could get it within our informal budget of $30,000. In the end, we paid less than $28,000.

The Rogue runs on gas. Upgrading from gas to electrons would have cost at least $23,000.

EV fans point out that EVs have lower maintenance and fuel costs, but those factors don't come close to covering a $23,000 up-front difference. Some claim that EVs tend to hold their value better than ICEs, but (1) nobody knows what resale values for today's EVs will be in the future and (2) my wife and I tend to keep our cars at least a decade. Actual purchase price means much more to us than theoretical resale value.

Earlier this year, another EV entered the compact SUV arena: Tesla's Model Y. From a financial perspective, the Model Y is the I-Pace all over again. The AWD Model Y starts at about $52,000 after taxes, fees, and government incentives. That's $24,000 beyond what we paid for the Rogue. Had the Model Y been available when we were shopping, we'd still have ended up with the Rogue.

Whether I-Pace or Model Y, moving from a gas-based powertrain to a battery-based one would have cost tens of thousands of dollars--a price premium of over 80%.

I thought a lot about how much of a premium I was willing to pay to shift from gas to electricity. I finally decided it was about 25%. I want to buy an EV, but I don't want to go broke doing it. Given that the Rogue ran around $28,000, that means my budget for a comparable EV would have been about $35,000. Both the I-Pace and the Model Y (had it been available) would have been at least $17,000 over budget. That's a lot of money. And neither car offered a moonroof.

Car 2: The Little Convertible

After nearly 30 years of listening to me whine about having a convertible, my wife told me to shut up and buy one. Talk had always been of a Miata, but when opportunity knocked, I looked forward to investigating my electric options. There weren't any. Smart's Fortwo convertible had been discontinued in North America a few months before I went shopping, and its laughable 57 mile range ruled it out, anyway.

In desperation, I looked into used Tesla roadsters. That car is more targa than convertible, but I figured I might be able to live with that. In 2019, Tesla roadsters were at least seven years old and started around 50 grand. New Miatas were easily had for well under 30. 'Nuff said.

Car 3: The Used Subcompact Hatchback

My wife recently decided we needed a little hatchback runabout. The car would get only occasional use, and never for long trips. Its range when fully fueled needed to be only 130 miles. "A perfect case for a used subcompact EV like a Leaf!" I thought. With a ceiling of 50,000 miles on the car and a budget of $10,000, I figured we'd have lots of choices.

We had zero choices. There are plenty of Leafs available, but when you throw in the constraint that the rated range has to be at least 130 miles, everything goes away. Leafs up through 2017 are rated at only 107 miles, and newer used Leafs start north of $17,000. Looking beyond Leafs doesn't help. Fiat 500es can be found for under $10,000, but the range is only 84 miles. Used Chevy Bolts have more than enough range, but they start at $19,000. We found nothing that came close to the range and price we were looking for.

We ultimately ended up with a Chevy Spark. Four years old, 25,000 miles, under $9000. Runs on gas, but range is 315 miles. If there's an EV that approaches those stats, I'd love to know about it.

EVs are currently luxury goods

For people with a luxury brand budget, my 25% premium for an EV may put them in a place where there are choices. For people like me who generally shop mid-trim non-luxury brands and want a comparable EV for no more than about 25% more than an ICE vehicle, those choices are absent.

Even the off-menu $35,000 Tesla Model 3 fails the test. Stripped to its essence, the Model 3 is a compact sedan that happens to be electric. The Toyota Corolla is also a compact sedan, but it runs on gas. MSRP for the bottom-end Corolla is $19,600. At $35,000, the most affordable Model 3 demands a 79% premium over the Corolla. (It also requires that you live with half the range: 220 miles for the Tesla, 435 for the Toyota.) There's a reason why Consumer Reports categorizes the Model 3 as a luxury compact car, while the Corolla  is simply a compact car.

To my dismay, nothing I've read suggests that in the next couple of years, EVs will make the transition from luxury items to mainstream consumer goods.  It's a disheartening conclusion. I'd be delighted to be proven wrong.


Harish C. Manohar said...

You are missing out on a ton of stuff on the (Tesla) software side.
Buying an ICE car now is like buying Steam Cars in the 1910s ...

Irfan Surdar said...

Although I have yet to purchase my first vehicle, however, out of curiosity, I keep an eye on the car market. Whenever I read the statement that Elon Musk is on a mission to change the world with his EVs, I laugh a little. With those prices, I don’t know how many would be willing to undergo any sort of change. What I do agree with, though, is the fact that he is on a mission to make a lot of money.

On a side note, thanks for sharing your thoughts. I miss your posts.

Scott Meyers said...

Tesla has tons of nifty software, but getting access to it starts at around $20,000 above the cost of a comparable ICE vehicle. Whether the cost premium is worth it is subjective, but the existence of the premium is not. That's what makes electric vehicles luxury goods.

Scott Meyers said...

@Irfan: I actually think Musk has largely succeeded in his mission to get the world to move to EVs. The change has barely begun, but big automobile manufacturers are now committing large sums to manufacture electric vehicles, and governments are providing significant financial incentives for people to purchase them. Those things generate momentum, and I think it's unlikely to dissipate.

It's frustrating that EV prices are still at the luxury level, but if you look at the number of luxury car manufacturers (e.g., Mercedes, BMW, Audi, Lexus, Jaguar, etc.), it's clear that there are plenty of people prepared to pay that kind of money. Even if Tesla were to fail (which I don't believe will happen), I think it's started an inexorable shift away from ICE transportation. As time goes on, EV pricing will drop. I'm just surprised and frustrated that it's still as high as it is.

Rein Halbersma said...

McKinsey estimates that hardly any manufacturer is making a profit on EVs, and that it will not before 2025 before battery costs have gone down enough to make them comparable to ICEs.

Scott Meyers said...

@Andy Tsai: As I noted in my post, my problem with hybrids is that they're not EVs.

yukitoshi fujimura said...

Electric and hybrid vehicles are more than just tools for traveling. If a power outage occurs, they can act as an emergency battery to provide much needed power to our home. In fact, Japan is used in such situations because disasters are prone to occur. A few years ago there was a major blackout in Hokkaido. At that time, one was using Prius headlights for lighting. When the Prius ran out of battery, the gasoline engine automatically started charging the battery. He said he was able to spend the night in peace.

charlie69 said...

I've read that China is dominating the supply chain for Cobalt, Lithium and Platinum:

Probably no western car company will heavily invest in EV production until a new battery technology is invented.

René van Oostrum said...

Here's an interesting analysis of what it takes for EVs to become more economic than combustion engine vehicles, including an estimate of when that will happen:

Brian said...

Thanks Scott for sharing your thoughts on this. I'm considering a vehicle and it's helpful to see your considerations of the EV market and gives me the conceptual handle that these are indeed luxury goods. Whether I'll buy an EV or not remains to be seen, but I agree with you that the cost premium puts them in the luxury category and I should admit that to myself if I were to purchase one. Of course, I'm thankful for those who do buy them to continue pushing the technology forward and hopefully this price gap will change over the next few years.

Irfan Surdar said...

Hello Scott,

My apologies for responding to your comment so late. I don’t have notifications enabled, and even I had them enabled, I probably wouldn’t have noticed it as I rarely use Gmail, the system preferred by Google.

I don’t agree with your sentiment that Elon Musk has had a major role to play in this shift from ICE to EV technology. EV 1 ( which was launched by GM in 1996-97, enjoyed a very positive reception by ecologically conscious people in America, which proves that an appetite for green vehicles has always existed in America. If that reception based on the small number of people participating in the program was not convincing enough, then one could look at the adoption of relatively green cars in America. Outside of its home country Japan, Prius has been a runaway success in America ( which proves that appetite for green vehicles has been very healthy in America for sometime, and the latest adoption of EVs certainly did not need a charismatic figurehead. Sellers of Prius, a brand associated with extremely bland but reliable cars, certainly did not need a mercurial and charismatic individual to sell their green model. I firmly believe, a belief corroborated by the success of green cars in America, that Tesla certainly did not need Elon Musk to succeed in American market. Tesla cars, unlike previous green cars like Prius and the rest, are beautifully designed, which I believe has nothing to do with Elon, and would have enjoyed similar acceptance even without Elon. When it comes to the hesitance shown by Tesla’s competitors in rolling out their own models, I believe that they wanted Tesla to succeed, and they had little doubt that without a competitor, it would be easier for Tesla to succeed. Toyota invested $50 million in Tesla in 2010 ( I would like to believe that Toyota is run by shrewd businessmen who know what they are doing, and they invested such a large sum knowing full well that it would generate hefty returns. Similarly, Daimler acquired a 10 percent stake in Tesla in 2009 ( Both of these companies knew full well that their investments would generate hefty profits, meaning that they knew very early on that EVs had a great future in America, otherwise, they simply wouldn’t have invested in Tesla. Considering that they knew EVs had a great future, they could have launched their own products early on to compete with Tesla. Which begs the question, why didn’t they do it? I believe that at least certain automakers actually wanted Tesla to succeed, and investments from these automakers support my sentiment.