In a recent conversation with a car dealership in the Dallas area, I was asked who can afford all the electric vehicles that will hit the market in the coming years. Despite all the hype for EVs, the dealer told me, many of his customers live paycheck to paycheck, bargaining for every dollar of their monthly car payment. A $60,000 Tesla doesn’t happen.
He makes a great point. The electric vehicles on the market far exceed most consumers and are becoming more and more expensive. Tesla and Rivian both increased their prices this month. The cheapest Tesla, a Model 3, now costs $47,000 to start. Ford’s Mach-E has a similar base price when you factor in delivery charges and taxes. Cadillac’s Lyriq will start at about $60,000 when it goes into production next week.
Who can afford these cars? It’s a crucial question as automakers rush them to market in search of growth. It’s also vital for policymakers to understand the economics of the auto market as they trade off between expanding EV incentives and spending money on a network of chargers.
Let’s get into some numbers. The average monthly payment for a vehicle of any kind is $691 these days, according to researcher Cox Automotive. You read it right. And that’s not just electric vehicles or even luxury vehicles. It’s everything on the market.
NerdWallet.com, a website that helps consumers compare credit rates, says car buyers should spend 10% of their take-home pay each month on their vehicle. Taking that as a rule of thumb, car buyers today have to make about $7,000 per month just to afford the average new vehicle. That assumes gross income of about $110,000 per year. You don’t have to be super rich to buy a new car these days, but that’s more than the median household income of $65,000 in the US
However, to be able to afford an EV, consumers have to have it pretty good. According to IbisWorld, about a third of American households earn more than $100,000 a year and about 15% between that and $150,000. If they spent wisely, they would buy one EV and nothing else. Since most households own two or more vehicles, that reduces the number of families that can afford EVs at current prices to even less. Because for a household to buy two electric cars, you need two people who make more than $100,000. Most EVs are priced way above the average car, making dollar and penny assessments even more difficult for most Americans.
Put all those numbers together and that tells me that less than 15% of American drivers can afford a set of battery-powered wheels. If they have the money to buy one, they still need to be confident that the battery can go far enough, chargers abound and it’s worth spending the extra money to get one to buy.
As battery costs fall, EVs get cheaper. The models on offer, such as Ford’s F-150 Lightning and General Motors’ Cadillac Lyriq, have raised their hands with many consumers (Ford capped its Lightning reservations at 200,000 and stopped taking orders in December). Consumers with money are queuing up. To sell beyond the affluent car buyers, GM also has the Chevy Equinox and Blazer SUVs coming in 2024 and priced in the $30,000 range.
That kind of pricing will help push EVs to the masses. And with lease prices, more of these vehicles can also be within reach. But once automakers get past the early adopters, it can be difficult to get buyers in Central America to go green. That is why the automakers are pushing for tax credits as high as $12,500 per vehicle. Even at today’s average new car price, most Americans can’t make the dollars work.
This post Electric vehicles are out of reach for most US consumers was original published at “https://www.bloombergquint.com/business/electric-vehicles-are-out-of-reach-for-most-u-s-consumers”