While manufacturing efficiency, raw material costs, overhead, and favorable currency swings are all crucial factors in keeping products affordable, competition is perhaps one of the greatest drivers of affordability. Instead of competing in the “add more stuff to make it better” mentality, companies can wage price wars, by offering comparable products for less. As the cycle continues, the price point continues to lower relative to the economic climate, and the main beneficiary is almost always the consumer.
In the world of electric cars, the full cycle has not yet had the chance to run itself through. But it certainly seems to be going in that direction now. Given EV technology’s status as a peripheral market, the costs associated with producing electric cars are still higher than the tech for, say, the internal combustion engine, which has enjoyed decades of market dominance.
However, in the last couple weeks, manufacturers of electric cars are noticing that drops in price on their products will yield more sales — and subsequently, have been lowering the prices and lease costs to stimulate the demand.
Nissan dropped the price of its Leaf electric car considerably back in January by over $6,000, to make it the cheapest electric production car on American roads. More recently, it joined Honda (NYSE:HMC) in cutting its leasing costs down as well, to make the car as accessible as possible for the most people. Now, with $2,000 or so down, the Leaf can be leased for $199 per month. The Honda Fit EV is now $259 per month, down from the $389 that it was originally.
Now, Chevrolet (NYSE:GM) is pushing forward in its own incentive efforts with its Volt plug-in hybrid, and is offering up to $5,000 cash back on each Volt that it sells to lure in buyers. Buyers can receive $5,000 back on 2012 Volt models, and $4,000 back on the 2013 models. Once added to the federal tax credit, the price of the Volt could come from the lofty $39,995 to as low as $27,495.
Inventory for the Volt sits at about 140 days, about double the 60-65 days that dealers aim for. GM has big plans for Volt production, but its relative sales stagnancy and cheaper rivals have forced the company to roll the price back considerably.
Moreover, manufacturers are spending more to put the cars on the road than they are making back on the sale of each unit. However, it seems that as EVs pick up popularity, there are a small handful of companies — GM and Nissan, joined by Tesla (NASDAQ:TSLA) and other smaller players — vying to put as many on the road to get the strongest early-adoption advantage. This is the competition that consumers need to reign in EV prices and help the cars become more economically practical.