Study on Skyrocketing Prices: Maybe Don't Buy a Car Soon

Study on Skyrocketing Prices: Maybe Don't Buy a Car Soon

Study on Skyrocketing Prices: Maybe Don't Buy a Car Soon

The automotive industry is in a tight squeeze right now, wedged within the transition from internal-combustion engine (ICE) vehicles to battery-electric vehicles (BEVs) amid a global pandemic, a war in Europe, and supply constraints and rising material costs. Several BEV automakers including Tesla, Hummer, Lucid, and Rivian have raised their prices in recent weeks, and other automakers have delayed orders, limited buyer options, and in some cases, shipped vehicles without supply-limited components, with a promise to fulfill missing parts when supplies are available. And here is why it's not likely to change very soon.

That's the outlook through 2024, according to a report from industry analyst AlixPartners. In particular, the report says semiconductor shortages will continue to negatively impact new vehicle production through the next couple of years, caused in part by the rising market share of BEVs planned to go on sale as the majority of the industry shifts away from internal combustion.

BEVs will increase chip demand at a growth rate of 55 percent per year, according to the study, which will remain a key bottleneck in new vehicle production. That means that, as automakers introduce a lineup of new BEVs, the technical requirements of these new vehicles will increase the strain of supply because BEVs typically require more chips than ICE vehicles.

That will likely force automakers to continue to hold back on production levels, meaning the number of cars on sale will probably remain limited for a few more years. This gives automakers more pricing power if demand for new cars remains high, so cars likely won't get any cheaper anytime soon.

That doesn't necessarily mean automakers are making too much profit from higher pricing. As an example, via CNBC, Ford recently said the Mustang Mach-E has lost most of its profitability due to rising commodity costs.

Pricing will continue to be negatively impacted by rising material costs, for both new BEVs and ICE vehicles. AlixPartners puts the raw material costs for ICE vehicles at $3,662 per vehicle, and BEVs materials cost more than twice that at $8,255 per vehicle since the battery and motor requirements require more raw materials.

Those costs per vehicle are more than double what they were just two years ago, according to CNBC, reflecting the impact of the market constraints mentioned above.

AlixPartners predicts that BEVs will only overtake ICE vehicles in the majority of market share way out in 2035, as suppliers and automakers likely scale back or slow down the recently rapid introduction of the resource-heavy, higher priced BEV models planned to be introduced, and customer interest and EV infrastructure need time to grow.

AlixPartners says $48 billion in infrastructure investment is needed by 2030, but so far only $11 billion has been committed, so infrastructure support for BEVs will be catching up for years to come.

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