Electric Vehicle Makers Are Taking Losses Due to Sky-High Manufacturing Costs

A Rivian R1T electric truck outside Munro and Associates headquarters in Auburn Hills, Mich., on June 3, 2022. Rebecca Cook/Reuters

Electric vehicle (EV) makers are burning through cash, as they are slammed with sky-high operational costs worldwide due to inflation.

The EV automakers are failing to hit their delivery targets and are taking a financial loss due to higher prices, according to quarterly reports published over the past two weeks, reported Reuters.

Meanwhile, the rising cost of living due to inflation is deterring many drivers from making the switch to EVs, which were already expensive prior to the latest wave of inflation.

Surging energy bills, a lack of charging infrastructure, and rising car loan repayment costs due to a rise in interest rates are further factors in putting the brakes on EV sales for consumers at this moment.

Many vehicle owners are also reluctant to give up their combustion-powered vehicles, which are viewed as more mechanically reliable and cheaper to replace.

EV prices have also been hit by negative market conditions and rising commodity costs.

Both the global chip shortage, which caused major production problems in EV manufacturing, and the rush by consumers to buy EVs due to high gas costs have led to a massive drop in inventory and a spike in prices.

The price of raw materials needed for EV batteries are also expected to rise, after manufacturing costs declined for years, due to the Ukraine war and recent production problems in China.

EV battery material prices over the next few years may surge as high as 20 percent, reported CNBC.

The average price for a battery-powered car reached an all-time summer high of $66,000, making them far too expensive for the majority of buyers, The Verge reported.

The EV industry and government policymakers have long claimed that prices would come down as EV battery packs became more efficient to manufacture.

EV Manufacturers Take a Third-Quarter Loss

Several EV startups recorded massive losses in the last quarter, and have admitted that high costs were becoming a permanent fixture in the EV sector, due to rising inflation and a continuous supply-chain crisis.

EV manufacturers have lost hundreds of thousands of dollars per car sold, due to the rise in material and production costs, according to their latest earnings statements.

Many of these new EV companies, barely a year ago, saw their stocks making strong headwinds, encouraged by the success of Tesla, the world’s largest EV maker.

While still dominating the EV market, Tesla is also beginning to face serious competition from legacy carmakers, such as Ford, General Motors, and Volkswagen, which are now entering the market.

Lucid Group, which went public about over a year ago and is backed by Saudi Arabia’s Public Investment Fund, saw its market value drop by two-thirds, to about $20 billion this year, after hitting a peak of $95 billion in November 2021, reported Reuters.

Since the company launched, operational costs having risen to $492.5 million in the third quarter from $3.3 million in 2021.

Order cancellations have risen 3,000 from the previous quarter, as customers got fed up with wait times and delays.

Lucid said it had enough reserves to sustain operations into the fourth quarter of 2023, but that it needed to raise about $1.5 billion through a stock sale, after its stock value dropped 17 percent after the release of its earnings report early last week.

Even Tesla has been facing production issues, as it attempts to trudge through supply bottlenecks with key battery suppliers, as it boosts production for its best selling Model 3, earning $3.3 billion in the last quarter.

Tesla vehicles have gone up on average 19.2 percent, according to The Verge.

Rivian, which is backed by Amazon.com and Ford Motor, said it still had $13.8 billion cash on hand at the end last quarter, reported Reuters.

The EV company has an exclusive contract to supply 100,000 electric delivery vans to Amazon, but the average selling price of $81,000 per vehicle has been costly, as each delivery van earns $220,000 in sales, according to CFRA estimates, reported Reuters.

Rivian said it would shift more of its EV deliveries across the United States via freight, while Lucid would consider it as an option, in order to save money during this downturn, according to Reuters.

Gas-Powered Vehicles Still Remain Cheaper Than EVs

Meanwhile, electric vehicle price increases have outweighed the rise compare to their more established gas-powered equivalents.

Battery-powered vehicles saw a year-over-year price increase of 54.3 percent, while gas-powered vehicles saw a rise only 10.1 percent, according to a recent analysis by car sales database iSeeCars.

iSeeCars analyzed the prices of both types of cars sold between January and July of 2021, as well as those cars sold over the same period in 2022, to determine price growth.

The Biden administration and the Democrats have tried to address the EV price issue with the Inflation Reduction Act, which was passed this summer. The bill contains a $7,500 tax credit for new EVs and a $4,000 credit for used ones, as long as they are produced in North America with key components, such as batteries, that are made in the United States.

There may be a few more other developments in the future that could lead to the stabilization and lowering of EV prices, according to Karl Brauer, an iSeeCars executive analyst.

“More and more affordable new electric vehicles are entering the market, which means that used EVs won’t be as much of a novelty, especially once supply-chain issues begin to improve,” said Brauer in a statement.

There is also an expected new wave of more affordable EVs coming onto the market, such as the Chevy Equinox EV, which GM will sell at at a starting price of $30,000, and other less-expensive models from new a partnership between GM and Honda that will produce millions of new units by 2027, The Verge reported.

“While prospective used car buyers will see steep price increases for EVs in the short term, it’s important to be patient, because used EV prices are expected to decline in the coming months,” Brauer added.

Reuters contributed to this report.