The electric vehicle story seems to have changed lately from an expectation of rapid adoption and frantic production to a reality of cooling interest and pullbacks in investments.
General Motors (GM) – Get Free Report pushed back its EV targets and postponed its coming EV lineup in what it called an effort to ensure profitability; Ford (F) – Get Free Report postponed $12 billion in EV investments; Hertz is slowing the electrification of its fleets, in part citing weak resale value; and Tesla (TSLA) – Get Free Report remains engaged in a price war meant to entice skeptical buyers.
Widespread adoption seems to have hit something of a snag.
Related: Tesla bulls say electric vehicle demand is soaring. Here’s what’s really happening
While some data shows that EV adoption is on the rise, with EV sales making up a record 7.9% of total industry sales in the third quarter, consumer interest is still flagging.
Polling from S&P Global Mobility found in May that only 67% of respondents are open to buying an EV, a significant reduction from the 86% of respondents that were open to such a purchase in 2021.
While EV adoption might be increasing, the growth in the sector is slowing as consumer concerns over both price and range cool interest.
It’s no coincidence that Tesla remains so committed to slashing its prices; the biggest pressure point in the transition to EVs, according to S&P, is price.
“Multiple hurdles need to be cleared to achieve widespread EV adoption,” S&P wrote. “Buyers may want to wait for the next technological advance, or have concerns about charging time and charger availability, but in the end, consumer finances – not engineering – lead the current buying resistance to EVs.”
Part of the gap in the adoption curve additionally involves differences between early adopters and the masses.
Jeremy Michalek, Carnegie Mellon professor of engineering and public policy, told TheStreet in August that the early adopters tend to have garages, meaning they can charge their EVs overnight and at home. For the second, larger wave of adopters who don’t have access to overnight charging, better charging infrastructure, more robust batteries and longer vehicle range is a key concern.
Related: Mustang Mach-E probe reveals electric vehicle adoption issues
EV ownership equates to $17 per gallon
An October report by the Texas Public Policy Foundation found that, after accounting for all of the hidden costs involved in owning an EV, that price becomes much more significant than an internal combustion engine (ICE) vehicle.
Adding in the costs of government subsidies, charging equipment and the added strain on the electric grid, the report says that the “true cost of fueling an EV would equate to an EV owner paying $17.33 per gallon of gasoline.”
When ICE owners pay for a gallon of gasoline, the report says, they are paying for the “entire infrastructure to refine, transport and market that gasoline.”
“When an EV owner connects to the electric grid, how much are they paying for the extra generation, transmission, and distribution costs that they are imposing on the grid, and will those embedded costs rise over time?”
The report identifies three different areas of hidden EV ownership costs: the first deals with direct subsidies, such as the $7,500 federal tax credit. The second deals with indirect subsidies, notably an avoidance of state and federal fuel taxes.
This, the report says, is problematic as such taxes are used to fund road construction and maintenance; since EVs are heavier than comparable ICE vehicles, EV owners ought to be paying more in fuel taxes, rather than less.
A component of this indirect subsidy deals with the extra costs imparted on the electric grid by EVs, a cost shared by everyone, not just EV owners.
“Generation, transmission, distribution and overhead costs for utilities are all affected by EVs, and it is crucial for the future of the electric grid that EVs charge at times that reduce demand volatility rather than increase it as is often the case today,” the report says.
Tesla sold 435,000 electric vehicles in the third-quarter, below Street expectations of 455,000.
The Washington Post/Getty Images
The final category involves regulatory electrification and emissions mandates.
Combined, the report found that these hidden costs add around $48,000 to the cost of an average model-year 2021 EV over 10 years.
The report estimated that the average EV accrues $48,000 in subsidies and nearly $5,000 in electricity costs over a 10-year period, equal roughly to $17 per equivalent gallon of gasoline. Even with recently slashed prices and tax incentives, the report said that EVs will remain more expensive than their ICE counterparts for years without “increased and sustained government favors.”
A key component of EV costs revolves around the battery components. Toyota, which remains committed to hybrids, said in May that the same raw material used for one long-range EV could instead be used to produce 90 hybrids. The overall carbon reduction of those hybrids, according to Toyota, would be 37 times higher than that of a single EV.
Fluctuations in the cost of these raw materials, the report says, could have an enormous impact on EV costs going forward.
“Markets, not government, drive innovation and efficiency,” the report says.
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