"The dream of a $25,000 electric vehicle for U.S. drivers is in trouble.
Elon Musk abandoned it. President-elect Donald Trump is unlikely to help. And the current economics of the U.S. auto industry don't support it.
The key problem: America doesn't really sell cheap new cars anymore.
Why would any automaker offer an EV -- with all of that costly technology -- at a price point that's half of what the average new vehicle goes for these days?
"I think having a regular $25,000 model is pointless," Musk said a few weeks ago. "It would be silly."
Yes, the chief executive says Tesla is working on a $25,000 robotaxi to arrive in 2026. But for those who don't think his driverless cars are going to happen by then or for Luddites who just want to buy a new $25,000 EV with a steering wheel and pedals -- no luck.
Musk isn't alone in taking a sour view of making a cheap EV for the U.S.
"That market sucks," Peter Rawlinson, chief executive of Lucid Motors, told me and my colleague Christopher Mims for our new podcast, "Bold Names."
Lucid which has begun taking orders for its coming $90,000 version of the new electric SUV called the Gravity, aims to bring out a more affordable midsize vehicle to compete against the Tesla Model Y in late 2026. That vehicle is said to cost less than $50,000, but a cheap EV is something Rawlinson said he would only support by licensing his technology.
"That market is notorious because you get into mass manufacture -- terrible, low margins," he said of the low-price EVs. "To install the manufacturing base for millions of these units makes little sense to me."
Abandoning the idea of a $25,000 car comes as a blow to those who were betting that the electrification of the automobile was on track to happen seemingly overnight -- with EVs for every pocketbook replacing the tens of millions of vehicles on the roadways.
Instead, we've swung back to a belief that the transition, at least in the U.S., is going to be slower.
Musk upended the car industry almost two years ago with his claims about Tesla's ability to slash costs as it sought to develop a lower-priced EV while at the same time starting a price war by cutting the prices of the Model 3 sedan and Model Y sport-utility vehicle.
Rivals, lest they be left behind Tesla and its now-discarded claims, aimed for cheap EVs. But their efforts to electrify ran into trouble. Ford Motor last month said it was pausing production of its electric F-150 Lightning, which starts at about $63,000, amid slumping demand.
A slowdown in the rate of EV-sales growth complicates the picture. So has the anticipation that the new Trump administration will eliminate federal tax credits that made EVs more affordable for buyers.
The cheapest car Tesla sells in the U.S. starts at about $43,000 -- or $35,500 with a federal tax credit of $7,500.
Building and selling a cheap car for the U.S. -- EV or not -- was already difficult.
To start, profits can be thin. And that's before adding expensive batteries to the equation, before inflation jacked prices up for everything, and before Chinese rivals got really, really good at making really, really inexpensive EVs of their own.
A lot of attention has focused on the fact that new cars, like everything these days, just cost way more than they used to.
The average transaction price for a new vehicle sold in the U.S. last month was $48,623, according to Kelley Blue Book, roughly $10,000 higher than in 2019, before the pandemic.
A decade ago, about 40% of the new-vehicle transactions in the U.S. were less than $25,000, including incentives and discounts, according to the researcher J.D. Power. This year, that figure is 9%.
In 2020, when Musk fanned the flames of excitement for a $25,000 car that he said was in the offing, the new-vehicle market in the U.S. was a much different thing. Even then, roughly a quarter of the new-vehicle transactions were for less than $25,000.
A year later, according to J.D. Power, it was 15%. It then fell to 6% before slightly rebounding this year as car companies offered deals to help move vehicles as higher interest rates made buying a car harder for some.
What happened? The pandemic. Prices shot up -- first in the midst of supply shortages, and then they stayed high as automakers adjusted their lineup to cut out low-profit vehicles.
"As automakers were profit maximizing during the supply chain crisis era, you are going to prioritize the bigger vehicles, the more expensive vehicles with their higher margins," Tyson Jominy, vice president of data and analytics at J.D. Power, told me. "Now we just don't have" these cheaper models.
Today, just four models account for more than two-thirds of all vehicles with suggested retail prices of less than $25,000 in the U.S. -- Toyota's Corolla, Kia's Forte, Nissan's Sentra and Chevrolet's Trax. It isn't as though people don't want cheap cars. Now, many are left buying used cars.
What has Western auto executives' stomachs churning is that they might have inadvertently left a huge opening for Chinese rivals who have shown an ability to build inexpensive EVs that consumers outside the U.S. are gobbling up.
While Trump promised even heftier tariffs to effectively keep Chinese imports out, the president-elect suggested he might be open to Chinese automakers' setting up factories in the U.S. -- though such a move would mean their labor costs would surely increase compared with what they're accustomed to back home.
Even for Musk, though, the world seems to be shifting quickly. He has said Tesla sales could rise as much as 30% next year by offering cheaper versions of existing models.
"The amount of work required to make a lower-cost car is insanely high," Musk told analysts in October. "It is harder to get like 20% of the cost out of a car than it is to design the car and build the entire factory in the first place -- it's like excruciating."
He added: "There's not a lot of movies made about the heroes who got 20% of the cost out of a car, but let me tell you, there should be."" [1]
If stuff, that your competitors produce, is gobbled up by most of the world consumers, you are in deep trouble, dead in the water. Greed is killing the West.
1. Dream of Cheap U.S. Electric Car Fades. Higgins, Tim. Wall Street Journal, Eastern edition; New York, N.Y.. 18 Nov 2024: B.4.
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