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the road ahead

In this May 13, 2020, file photo, Tesla cars are loaded onto carriers at the Tesla electric car plant in Fremont, Calif.Ben Margot/The Associated Press

For weeks, there was anticipation of what Tesla would be announcing this past Tuesday – a day the company called “Battery Day.”

In the three-hour presentation, Tesla CEO Elon Musk promised a bigger, cheaper battery and what might be the Holy Grail for electric car makers – a US$25,000 electric vehicle (EV).

“About three years from now, we’re confident we can make a compelling $25,000 electric vehicle that’s also totally autonomous,” Musk told shareholders sitting in Teslas in the company’s parking lot. “Although electric cars get a lot of press right now, here are very few – as a percentage of the global fleet, it’s practically nothing.”

For now, the hazy promise of a US$25,000 Tesla – around $32,000 before rebates here – in “about three years” is just talk, experts say.

But if it happens, it could get a lot more people into EVs.

“It’s a good advance, but the proof is in the pudding,” said Peter Hatges, national sector leader, automotive with KPMG. “But a $25,000 car would attract a lot more buyers – let’s face it, the biggest impediment to electric cars, outside of range anxiety, is that they are expensive.”

Right now, EVs cost at least $10,000 more than their gas-powered equivalents, and prices go up sharply as you add range and extras.

For instance, a Kia Soul starts at $21,195 while the Soul EV starts at $42,595 with 248 kilometres of range. To boost range to 383 km, it starts at $51,595.

Tesla’s Model 3, which starts at just over $53,000 in Canada, is less than half the price of the Model S, but it’s still more than what many buyers are paying now.

Because they’re so expensive, EVs are mostly attracting early adopters and luxury car buyers.

“EVs are 1.6 per cent of industry sales, but on the luxury side they’re about 10 per cent of sales,” said Tyson Jominy, vice president, data and analytics with J.D. Power.

While EV makers will keep targeting buyers who prefer luxury cars and big SUVs – for instance, GM hasn’t announced the price of its electric Hummer truck, but it’s expected to start at around US$70,000 ($92,000) – there’s an untapped market of buyers with more modest budgets.

In the U.S., the average transaction price in a new car sale is about $32,000, Jominy said.

That means a big potential market for an EV with a starting price below that average, he said.

“The under-$20,000 market has been virtually abandoned, so $20,000 to $25,000 is now the starting point,” Jominy said. “So [EV makers] want to get that toe in at $24,999.”

Battery cost is a big part of why EVs are so expensive. With its new battery plans, Tesla hopes to cut the battery cost per kWh in half over the next 2-3 years.

But developing EVs and building factories is also expensive. That cost gets passed onto the consumer, too, KPMG’s Hatges said.

That’s why we haven’t seen cheap EVs yet.

Range, body style still matter

A cheaper EV would be attractive to younger buyers, Hatges said.

“They’re more open-minded and they’re willing to take up the challenge,” Hatges said. “I think when you make that inexpensive car available, people will look at it.”

But even frugal buyers aren’t crazy about small sedans or hatchbacks, Jominy said.

“Americans and Canadians want SUVs and trucks right now, so a cheap hatchback is not what we’re looking for,” Jominy said. “You’ve got to get the body style right and you can’t skimp on the range.”

Even if auto makers can get battery and production costs down and deliver a cheaper starter EV with a range of at least 300 km, there are still barriers, Hatges said.

“You need to have a power source, but not everybody lives in a home with a driveway or a garage,” he said.

Hatges doesn’t think the promise of a cheaper Tesla means other car makers could be left behind.

While each company has a different strategy, they’re all slowly moving to EVs. For instance, Volkswagen has said it will launch 25 electric cars by 2022.

“I think all the car makers are focused on the gradual movement toward electrification – I don’t think anyone has missed the boat,” Hatges said. “It may have been delayed by COVID, but we’re still predicting that 20 to 25 per cent of production could be electrified by 2025.”

Still, a cheaper car that people want to drive could make that move happen faster, he said.

“I think the direction is a good one,” Hatges said. “I think affordable vehicles in the mainstream are going to help with the adoption of electrification.”

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