The Expert Podcast

Will electric vehicle car prices go down anytime soon? Well, they probably will, but it might not be soon. Here’s why. The CEO of Ford says electric vehicle prices are going to go down, but let's look at why they're going to go down and when they're going to go down.

First, the why. The why is because the cost of building these vehicles is going to drop to where there'll be a battle for vehicles under $25,000 for an EV. Right now, it's hard to find a gas car for under $25,000, much less an EV which costs more.

They're saying that materials to build a vehicle will come down to about $18,000. That would be great. This has to do with the materials that go into the battery and the materials that go into the rest of the car. Look, there are fewer moving parts in an electric vehicle—you don't have an internal combustion engine, a transmission, a drive line. Even the brakes are easier because it's regenerative on most EVs. It says big cost reductions are coming with new battery chemistries that use fewer expensive and scarce materials such as nickel and cobalt.

EVs take less time and labor to build—that's true, that's already happening now. An electric vehicle assembly line is not what you see in YouTube videos where they watch a car go down the assembly line putting on all these parts. There are fewer parts: you have a battery, a chassis, you have an interior—that's it. There's no mechanical parts to the extent that a gasoline car has.

Plus, they're looking to cut distribution costs that save $2,000 per vehicle. How they do that might not be that appealing to you. Let's take a look: they're going to cut the expense of keeping large supply on dealer lots. What that means is, instead of going to a big, huge five-acre lot at a dealership and looking at hundreds of cars and picking out the exact color, equipment, trim you want, you're going to go and they might have a handful of cars on the lot representative of the different models. You order what you want and wait however much time it takes to build them.

Right now, delivery time for some vehicles is three or four months. It may come down a little less than that, but you're still probably going to have to wait, certainly a month if not two, to get the exact vehicle you want.

They're also going to cut back on advertising. Think about it: when's the last time you saw an ad for Tesla? They don't do advertising, but you see truck ads all the time every time you watch your local news or any other show. Most of the advertisements you see are either for cars, insurance, or drugs—one of the three. Car advertising costs five or six hundred dollars per vehicle, and this is probably going to be reduced quite a bit.

The car itself is simpler: it has half the fixtures, half the workstations, half the welds, 20% fewer fasteners, and it's a simpler product to build. They're also going to make the cars more aerodynamic so that you can get more range from the same battery. So they're going to cut another $3,000 from the battery cost because it's more aerodynamic.

Remember, electric vehicles are a relatively new product. They have not been in the market that long and evolved to maturity like gasoline cars have. So there's still a lot of engineering efficiency that can be put into the process, but also efficiency in the sales process.

You're going to find dealerships, instead of having a big cavernous showroom three stories tall with balconies and five acres worth of cars, smaller boutique-type locations. Maybe more of them, maybe closer together, like Tesla showrooms in a mall where you can look at a few vehicles, maybe have the opportunity to drive some.

But more importantly, you will not be able to pick one from inventory. You're going to order it and it'll be delivered—maybe right to your door. You may not have to go back to that dealership again, and that might make things simpler.

There's going to be a lot of changes that need to be made to dealer franchise laws in different states. Every state in the country— all 50 states—have statutory restrictions on new car dealerships for franchise laws, meaning that they have to abide by the franchise protection for that dealership. You can't put other dealerships within a certain radius, and you can't sell cars outside of the dealer network. So that franchise dealer is the only one allowed to sell that brand of car in their market area.

They're going to have to do some work on that if they want to change this business model because if you have larger mega dealers that have 400 or 500 cars on a lot, they cover a larger area. If you're only going to have a handful of cars and not have as big of a footprint, you need more dealers—kind of like how many Subway sandwich shops are there? How many Starbucks are there? There's one on every corner.

There's going to be more volume of dealerships that each sell less volume of cars, and it'll be less expensive for the manufacturer, less expensive for the dealer, less employees, less floor plan on the inventory, less advertising, less footprint of rent. Look, even if you added up 10 small showroom locations for dealers in the town, that's still going to be less rent overhead than one big large mega dealer.

Is that better or worse for the consumer? That remains to be seen, but that's where the manufacturers are going. It may take longer than predicted. It's going to be tough to unwind this dealer network system.

Let us know what you think about that system. Have you had experience with it? Are you in the car business? Do you see that system as being a dinosaur? Do you see that system as fighting back against this change? If you're in the car business, do you want it to change?

One of the things is, if you have a small location, do you need 15 salespeople in your dealership or do you just need a couple greeters? Either way, this is going to happen.

There are still other problems to be solved with EVs—range, charging network—but the retailing network for electric vehicles is going to be one of the biggest evolutions of large-scale retailing in the country in the last probably century. It's one of the holdouts of consumer retailing that still has that old-school negotiation face-to-face. There's still some of that in the furniture industry, but other than that, there's no other major industry that has the same type of retail model as automotive.

And this is going to change.

Now, there would be another factor: where do you put all the used cars? Where are those sold if you don't have a big location? Well, used cars may also be less of a factor in the future. Cars may be more like cell phones where they're more disposable—keep one for a few years, get rid of it, it's not much value, and then you move on to the next one.

Tell us your thoughts. Tell us your opinion about the electric vehicle retailing future and what it means for the economy.