If you live outside the U.S., electric vehicles remain relatively exotic and expensive. But not for much longer. Once again, Beijing and Washington are locking horns, and the SUV is a symbol of conflict. China wants to bring EVs to the masses and the U.S. thinks they’re too expensive. But if the U.S. succeeds in winning a subsidy war — and even if it takes time to do so — electric vehicles are going to be around for a long time. Fortunately, the arguments over EV pricing are pretty much beside the point.
Although it’s easy to poke fun at Obama-era, trickle-down economics for not even bothering to design an EV price index (they included Tesla in their calculations, but not Honda and Nissan), EVs actually have declining prices. What’s more, automakers actually have come up with relatively exact algorithms for determining the right price for their EVs. The obvious reason for this is that battery technology has improved. Instead of using a nickel nickel battery, for example, battery makers are using a zinc battery. But that’s no reason why EVs can’t be made cheaper than conventional ones. At the moment, most U.S. cars run on gasoline, and they’re relatively cheap to make. But the risks of driving down oil prices by encouraging fuel efficiency are obvious. If oil prices rise, drivers will be more comfortable with a big range of electrified options.
As two recent paper by a U.S. auto-industry trade group and the Brookings Institution demonstrate, there’s a big potential for a boom in battery and engine technology, both of which would dramatically reduce the cost of EVs. It’s also more likely that these technologies could penetrate the market before cars cost a third or fourths of what they do today. This means that, regardless of subsidies, EV prices are bound to come down pretty rapidly in both price and range. Moreover, the most valuable EV value right now is the range; people who want the most miles are going to buy a small car. The $40,000-$50,000 range is the top end, and I can tell you that a new Nissan Leaf will most certainly have a range of over 200 miles. The new Audi e-tron is available with about the same range, and I’ve seen Chevy’s Bolt drive about 200 miles on a single charge.
If you can get 200 miles, the key is to know where you’re going and when you’re going to use it. Most Americans don’t want to drive all that far, so 200 miles is likely to be well within the reach of even the most optimistic consumer. The shift away from a dependence on foreign oil is going to happen regardless of whether Beijing or Washington builds the infrastructure for electric vehicles.
The question is who has the best insights into this: the automakers or the Chinese authorities. If, as seems likely, GM and Toyota produce competing EVs, then one or the other will be making money off of them. Nobody is going to be making billions of dollars on EVs. But the sooner that happens, the faster the switch will come. Nothing about the economics of electric vehicles contradicts my traditional political views. You don’t want to make it easy for people to pollute, so while I’m pleased by China’s new tariffs, I remain skeptical of President Trump’s hope that progress can be achieved by opening up China’s economy.
What I am is excited about is the knowledge that things will get cheaper and that U.S. tech companies, rather than Chinese ones, will be in the lead in pushing down prices. In a digital economy, all investment makes money. If drivers want the current top end of EV range and a range of around 200 miles, they’re not going to be getting much help from subsidies; they’re going to have to make the trip themselves. This process should be accelerated if Trump succeeds in pushing for subsidies. A healthier U.S. economy benefits us all.