May 3, 2021 - Energy & Environment
Column / Harder Line

To combat climate change, electric cars have to be cheaper

Illustration of a lower prices icon comprised of a road circling a patch of grass that is in the shape of a dollar sign.

Illustration: Rae Cook/Axios

Most drivers of electric cars are wealthy, and most electric cars are luxury.

Why it matters: To effectively combat climate change, the opposite needs to happen: electric cars need to become affordable and broadly appealing so the masses can and want to buy them. Only with mass adoption will heat-trapping emissions steeply decline in America’s most polluting sector.

The big picture: The stereotype of rich Californians driving their Teslas isn’t a bad thing—at least not yet. It’s part of the cycle of new technology costs. Wealthy drivers are helping drive down the cost of new electric-car technologies by being able and willing (and subsidized by governments) to be early adopters of these vehicles.

  • "Now we’re at a point where the technology is there, we do need to start thinking about how we make sure this transition benefits everyone,” said Scott Hardman, a professional researcher at Institute of Transportation Studies at University of California, Davis.
  • “But I don’t think things are going in the right direction,” he added, before sharing the following statistical snapshots.

By the numbers: Of the 11 newest battery electric vehicles introduced in the U.S. between 2018 and 2020, eight are luxury vehicles.

  • The average starting price of an electric car has increased over the past eight years, despite battery costs plummeting. The average price in 2012 was about $39,000. Last year, it was $52,000. (The cost of gas-powered cars is generally trending up too.)
  • The average salary of an electric-car owner in California is $174,000, more than double the national average.
  • Teslas, which make up more than 70% of the electric-car market, have even wealthier drivers, with average incomes of more than $300,000, Hardman’s research has found. (Multiple requests for comment to Tesla were not returned.)

Driving the news: The Biden administration is proposing to invest $174 billion into electric vehicles and related charging equipment, including giving consumers point-of-sale rebates to buy American-made electric vehicles.

  • This is key to attract lower-income buyers. Although the lifetime cost of owning an electric car can be lower than its gasoline counterpart, the sticker price remains higher, dissuading lower-income drivers, Hardman says.
  • The existing federal tax credit for electric cars, which President Biden is also proposing to expand, has generally benefited wealthier people who have more tax liability and can afford to wait to get their money back.

What they’re saying: The White House appears to be aware of this dynamic. Biden is proposing investments in a “way that is user-friendly and boosts the accessibility of incentives for the broadest spectrum of Americans,” Ali Zaidi, deputy climate-change adviser at the White House, said in a recent interview.

Catch up fast: Last year, electric cars made up 2.2% of the U.S. auto market (compared to more than 4% globally), per BloombergNEF.

  • New laws, automaker competition and falling battery prices will drive those percentages up significantly in the coming years, according to BloombergNEF and most other models.
  • Automakers who make up nearly a third of the U.S. market have pledged to manufacture all-electric vehicles in the coming decades, consulting firm Rhodium Group found.

The intrigue: Cost is actually growing in importance as a reason people decide not to buy an electric car, says Felicity Latcham, associate partner at consulting firm OC&C, which conducts regular surveys on this topic.

  • Cheaper electric cars are coming as automakers compete to own this market.
  • Hyundai just launched new advertising campaigns touting new hybrid and fully electric SUVs and sedans. Offerings like this will eventually broaden the market for used electric cars, which is especially important for lower income drivers.

Yes, but: Roadblocks remain. Ask California, America’s leader in electric cars. Its goal is to get five million electric vehicles on the road by 2030 (today it has fewer than one million).

  • Its 11-year-old Clean Vehicle Rebate Project has been widely successful but ran out of money last month. More than 60% of all electric-vehicle owners in California have used this program.
  • In 2016, the legislature altered the program so lower-income people can receive more incentives and wealthier people are unable to participate in the program.
  • Several other states have since adopted programs like California’s, though most don’t have income limits, potentially exacerbating inequality.
  • The program just exhausted funding partly because of its popularity and because it didn’t receive any new funds last year.
  • At a recent public hearing on the program, backers bemoaned the money running out and the fact that its annual funding doesn’t allow for adequate planning. Whether it gets more money will be among the budget decisions made later this month and in June.

“When you take away the incentives, I just think you could really harm those that are on the fence,” said Eileen Tutt, executive director of the California Electric Transportation Coalition, a group of companies supporting electric cars. “If we eliminate this program now, that could ripple across the U.S. and really harm the market.”

The bottom line: “Let’s be real. We’re not even close to meeting our goals,” Tutt said of California’s aspirations. “We’ve got to get to a new set of consumers.”

Editor's note: Amy Harder is vice president of publishing at Breakthrough Energy, a network of investment vehicles, philanthropic programs, policy advocacy, and other activities committed to scaling the technologies needed to reach net-zero emissions by 2050. She is launching a new journalism initiative there. Previously full time at Axios, Amy is now writing her Harder Line column monthly as an outside contributor.

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