Tesla Inc. chief executive Elon Musk has promised to deliver a cheaper electric vehicle for the masses more than once.

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Why it is so hard to make an affordable EV in North America Back to video

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But for the moment, Tesla and North America’s automakers have prioritized making EVs for the luxury or premium market rather than a mainstream EV with a more affordable price tag.

This hole in the market is attracting more attention as federal policymakers contemplate what to do if Chinese automakers start bringing affordable EVs into Canada. No one knows exactly how much they would cost or how they would perform, but Chinese-made EVs are expected to be far cheaper than what’s currently available to consumers.

Deputy Prime Minister Chrystia Freeland earlier this month announced a consultation on whether to impose tariffs on Chinese-made EVs or take other measures and promised to protect Canada’s auto workers.

She said a lack of rigorous environmental and safety standards in China and a state-directed policy to create “a global oversupply” of EVs threaten Canada’s budding EV sector, and she promised to take protective steps.

But that still leaves the question of when an affordable EV may come to the market. Here’s why it hasn’t happened yet.

A few years versus a century

Greig Mordue, a professor of engineering at McMaster University who has studied and worked in the auto sector, said North American-made EVs carry higher price tags for a good reason.

“I’m not sure they quite know how to make an affordable EV yet,” he said.

Mordue said North American automakers only started the transition to EVs a few years ago, whereas internal combustion engine vehicles have been produced on the continent for more than a century. That means automakers are still figuring out how to source all the lithium, cobalt, graphite and other materials that will be needed to build EVs at scale.

China tied up the supply chain and we’re trying to catch up

Greig Mordue, a professor of engineering at McMaster University

“There’s a lot of criticism of China, but China has been at this for 15 years,” he said. “China tied up the supply chain and we’re trying to catch up.”

That’s putting pressure on automaker margins, so they are focused on EVs that can be sold at a premium, such as luxury EVs and larger vehicles, he said. The profit margins may still be too thin to manufacture mid-sized and economy vehicles.

Ford Motor Co. last week said it would invest US$2.3 billion to build its highly profitable Super Duty F-Series pickup truck at a plant in Oakville, Ont., after previously delaying plans to build an electric sport utility vehicle there.

Battery technology is still new

Whereas engines were the most expensive part of an internal combustion engine vehicle, batteries are the premium component in an electric vehicle.

“The assumption is they’re going to come down (in price) over time,” Mordue said. “The assumption was that batteries would be on par with internal combustion engines by now — they’re not.”

He said this is partially a case of misplaced expectations: the rule of thumb is that software technology generally drops in price much more quickly than hardware technology, and at the end of the day, batteries are hardware.

“There’s a perception that electric vehicles are improving at an accelerated pace, kind of like the pace at which information and telecommunications are improving and accelerating,” he said. “But it’s actually accelerating at a pace more akin to the traditional automotive industry.”

Even used EVs are not cheap

EV prices are rapidly dropping, but they remain comparatively expensive. The average used EV cost $47,840 in June, according to AutoTrader.ca, the classified ad auto marketplace. By comparison, all used vehicles, including conventional gas models, hybrids and EVs, cost an average of $36,342 during the second quarter.

The Chevrolet Bolt, a small electric hatchback, had been one of the few affordable options made by a North American automaker. But in early 2023, General Motors Co. stopped production after a series of battery fires and costly recalls, though there are reports of a next-generation model coming.

Used Bolts are still available and could be purchased on AutoTrader for $26,533 on average in June. Plus, the price is steadily dropping — down 21.5 per cent in the past year. The catch is that there are only 220 Chevy bolts listed on AutoTrader, which amounts to about three per cent of all EVs on the site.

Teslas account for 27 per cent of all used EVs on the site, but they cost $46,697 on average — down 26 per cent in the past year as of June.

Overall, used EV prices had fallen 13.7 per cent in the past year as of June, but the price tag still remains elevated relative to internal combustion engine vehicles. EVs were about 15 per cent more expensive, according to an AutoTrader analysis last year.

Trade and tax policy

Another view suggests that trade policies in the United States have encouraged automakers to make larger vehicles rather than affordable or economy vehicles.

Some point to the “Chicken Tax” in the U.S., so-called because it came as a response to European tariffs on U.S. poultry. In retaliation, the country introduced a 25 per cent tariff in 1964 on imported light-duty trucks.

They also point out that the corporate average fuel efficiency (CAFE) standards that govern fuel efficiency in the U.S. are less stringent for trucks, meaning manufacturers can make such vehicles without investing in higher fuel efficiency technology.

Some say the result is that North American automakers developed an unfair advantage in this vehicle segment and have slowly focused all their efforts there.

“They sort of retreated behind this tariff wall,” Nate Wallace, clean transportation manager for Environmental Defence in Ottawa, said.

He said there are far more affordable EVs in Europe than in North America because that advantage does not exist there.

Others counter that consumers in North America gravitate toward larger vehicles, such as SUVs and pickup trucks, and that automakers are simply following demand.

Regardless, it is clear that light trucks including SUVs dominate in Canada, where they accounted for 86.1 per cent of new sales in the first half of 2024, according to DesRosiers Automotive Consultants Inc.

Everything has a price

Another argument for high EV prices is that the transition to making EVs is simply expensive, so the vehicles are going to be pricey until manufacturing ramps up.

Companies have to develop new EV supply chains, which means finding new sources of materials and working with new parts manufacturers. It may also mean building new plants to produce EVs.

Even retrofitting an existing plant can carry costs because the plant may be shut down for a period, leading to lost production. Then, workers need to be recruited and retrained.

Natural Resources Canada earlier this month released a report that said the EV transition between 2025 and 2040 would cost more than $300 billion. That includes things such as building out the EV charging infrastructure, upgrading electrical grids and various miscellaneous costs.

Of course, automakers are only responsible for spending a fraction of that $300 billion, but the argument is that producing EVs at scale will gradually lead to cost efficiencies.

That may be why Tesla has teased the idea of releasing a cheaper model and repeatedly changed the release date and other details.

Wallace said there’s still “a question mark” about when an affordable Tesla, or any affordable EV for that matter, will come to North America.

• Email: gfriedman@postmedia.com

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