Tesla Model 3 at the Tesla store in Washington, DC.
Salvan George | Washington Post | Getty Images
Automakers from Tesla to Rivian to Cadillac are raising the price of their electric vehicles amid changing market conditions and rising commodity prices, especially key materials needed for electric vehicle batteries.
Battery prices have been on the decline for years, but that could change soon. One firm is predicting a surge in demand for battery minerals over the next four years, which could push prices of electric vehicle battery cells up to more than 20%. This is on top of already rising raw material prices for batteries as a result of supply chain disruptions linked to Covid and Russia’s invasion of Ukraine.
Higher costs are forcing some EV manufacturers to raise prices, making already expensive cars even less affordable for the average American, and the question is, will rising raw material prices slow down the EV revolution?
Passing costs for
Industry leader Tesla has been working on reducing the cost of its vehicles for years, which is part of the “secret master plan” promote the global transition to zero-emission transport. But even it has had to raise prices several times over the past year, including twice in March after CEO Elon Musk warned that both Tesla and SpaceX were “seeing significant recent inflationary pressure” in commodity prices and transportation costs.
Most Teslas are significantly more expensive now than they were at the start of 2021. The cheapest version of the Model 3, Tesla’s most affordable car, the “standard range”, now starts at $46,990 in the US, up 23% from $38,190 in February 2021.
Rivian was another pioneer in raising prices, but his move was not without controversy. On March 1, the company said that both of its consumer models, the R1T pickup truck and the R1S SUV, will receive significant price increases effective immediately. R1T will jump 18% to $79,500 while R1S will jump 21% to $84,500, he said.
At the same time, Rivian announced new cheaper versions of both models with fewer standard features and two electric motors instead of four, priced at $67,500 and $72,500 respectively, close to the original prices of their more luxurious four-motor siblings.
The adjustments caused bewilderment: At first, Rivian said the price increase would apply to orders placed before March 1 as well as new orders, essentially doubling the money for existing reservation holders. But two days later, CEO R.J. Scaringe apologized and said Rivian would honor the old prices for orders already placed.
“Having spoken to many of you over the past two days, I fully understand and acknowledge how upset many of you have been,” Scaringe wrote in a letter to Rivian’s stakeholders. “Since we originally set our pricing structure, and especially in recent months, a lot has changed. Everything from semiconductors to sheet metal to seats has become more expensive.”
The Lucid Group also passes on some of those higher costs to wealthy buyers of its expensive luxury sedans.
On May 5, the company said it would raise prices on all but one version of its Air luxury sedan by around 10-12% for U.S. customers who book on or after June 1. Lucid CEO Peter Rawlinson has assured customers that Lucid will honor current pricing for any bookings made before the end of May.
Customers booking Lucid Air on or after June 1st will pay $154,000 for the Grand Touring version, compared to $139,000; $107,400 for the Air in Touring trim, up from $95,000; or $87,400 for the cheapest version called Air Pure, up from $77,400.
The price of the new top-of-the-line trim announced in April, the Air Grand Touring Performance, is unchanged at $179,000, but despite similar performance, it’s $10,000 more than the limited-edition Air Dream Edition it replaced.
“The world has changed dramatically since we first announced Lucid Air in September 2020,” Rawlinson told investors during the company’s earnings call.
Well-known global automakers have greater economies of scale than companies like Lucid or Rivian and have not been hit as hard by rising battery-related costs. They also experience some price pressure, although they pass the costs on to buyers to a lesser extent.
Cadillac president Rory Harvey, explaining the raise, noted that the company is now offering owners $1,500 worth of home chargers (although buyers of the cheaper debut version will also be offered a deal). He also cited external market conditions and competitive pricing as drivers of price increases.
GM warned during its first-quarter earnings report last month that it expects total commodity spending in 2022 to be $5 billion, double what the automaker previously forecast.
“I don’t think it was something isolated,” Harvey said during a media briefing on Monday announcing the price change, adding that the company had always planned to adjust the price after debut. “I think it was a number of factors taken into account.”
According to him, the performance and specifications of the new 2023 Lyriq have not changed compared to the debut model. But the price hike brings it closer to the Tesla Model Y price that GM is positioning the Lyriq to compete with.
Rival Ford Motor has made pricing a key part of its offering for the new F-150 Lightning electric pickup truck. Many analysts were surprised last year when Ford said the F-150 Lightning, which recently began shipping to dealers, would cost just $39,974.
Darren Palmer, Ford’s vice president of global electric vehicle programs, said the company plans to keep prices as they have been until now, but that, like everyone else, comes with “crazy” product prices.
Ford said last month that it expects $4 billion in headwinds this year, up from a previous forecast of $1.5 billion to $2 billion.
“We’re still going to leave it for everyone, but I’m sure we’ll have to respond to the goods,” Palmer said in an interview with CNBC earlier this month.
If Lightning does see a price increase, the 200,000 existing reservation holders will likely be spared. Palmer said Ford took note of the backlash against Rivian.
Well-established supply chains
The Lyriq and F-150 Lightning are new products with new supply chains that are – for now – exposing automakers to rising commodity price risks. But on some older electric vehicles such as the Chevrolet Bolt and Nissan Leaf, automakers have managed to maintain modest price increases despite higher costs.
The 2022 GM Bolt EV starts at $31,500, up $500 from the start of the model year but about $5,000 less than the previous model year and about $6,000 less than when the car was first introduced for 2017 models. GM has yet to announce pricing for the 2023 Bolt EV.
Nissan said last month that an updated version of its electric Leaf, which has been on sale in the US since 2010, will keep the same starting prices for future 2023 models of the car. Current models start at $27,400 and $35,400.
Nissan Americas Chairman Jeremy Papen said the company’s pricing priority is to absorb external price increases as much as possible, including on future vehicles such as the upcoming Ariya EV. The 2023 Ariya will cost $45,950 when it arrives in the US later this year.
“It’s always a top priority,” Papen told CNBC. “That’s what we’re focusing on… that’s true for both ICE and electric vehicles. We just want to sell cars at a competitive price and at their full value.”