The Mercury News Weekend
Falling EV prices don't help low-income Americans
Grab the popcorn and settle in: The great electric vehicle price war is here. Weeks after Tesla slashed prices across its U.S. lineup, Ford is set to follow suit.
Monday, the Michigan-based automaker announced price cuts on its electric Mustang Mach-E. The move could see consumers save nearly $6,000 on cars that compete directly with Tesla's Model Y. In announcing the move, Marin Gjaja, Ford's chief customer officer for its electric vehicle business, declared, “We are not going to cede ground to anyone.”
Purportedly motivating these price cuts is corporate goodwill.
“Price really matters,” Tesla CEO Elon Musk said during a recent earnings call, reasoning that “there's just a vast number of people that wanted to buy a Tesla car but can't afford it.”
Musk — being the generous soul that he is — wants to fix that. After years of selling cars whose list prices far exceed household earnings, Musk has had a change of heart. So have other automakers that are keen to keep, or grow, market share.
You'll pardon me for being skeptical. While price cuts can boost profits, there's little evidence that — where EVs are concerned at least — they do. If slashing prices was profitable, electric vehicle manufacturers would have done so long ago. Instead, over the past decade, EV pricing has steadily increased, according to an article in the MIT Science Policy Review. In 2012, the average starting price of an EV was about $40,000. Fast-forward a decade, and the average price now tops $60,000.
So what's behind the price cuts? I'm betting on the Inflation Reduction Act — a recently passed law that invests heavily in clean energy. Hailed by progressives and touted by President Joe Biden as crucial to combating climate change, the law offers, among other goodies, a $7,500 tax credit for drivers willing to go electric.
There is a caveat, however. An electric vehicle must cost less than $55,000 to qualify for the credit. Any higher and you're out of luck. Which explains why the starting price for Tesla's Model Y — following the price cut — conveniently dropped to $53,490 from $65,990. And why the Ford MachE Premium Electric AllWheel-Drive Standard Range — which used to cost $57,675 — now retails for $53,995.
Inflation Reduction Act backers will hail falling prices as a victory. The goal of Biden's signature climate achievement, they will argue, is to make cheaper, greener technology a reality. If electric vehicle prices are dropping, that's a good thing.
Perhaps. But falling prices alone aren't a panacea. What also matters is how much prices fall by. Knocking $10,000 off a $60,000 car matters little to members of a rich household: They're going to buy the car anyway. It matters even less to a low-income household because $50,000 is far more than these households ever could — or would — spend on a car.
And that's a problem as some of the most polluting vehicles are owned by poor households. Put another way, if EVs are to deliver on their climate benefits, we first and foremost need poor — not rich — households to go electric.
Therein lies the rub. For all the talk about how the Inflation Reduction Act promotes climate equity, the legislation seems, at least where EVs are concerned, to perpetuate considerable inequity. Instead of meaningfully helping low-income Americans go electric, the legislation pays lip service to notions of equality, equity and justice, all while helping those who need help least.
Predictably, this reality has been glossed over. Instead, the prevailing sentiment can best be summed up as “price wars are good for consumers.” Perhaps, but which consumers? From where I'm standing, falling electric vehicle prices put more cash in the pockets of rich households, not poor ones. So much for equity.