Tesla, Rivian and rivals hike EV prices just as Americans warm to them

Tesla's original master plan was to use the proceeds from its pricier vehicles to create a $35,000 electric vehicle for the masses. And the EV leader did briefly sell a version of the groundbreaking Model 3 sedan at that price — via special order.

As of earlier this week, however, the most inexpensive Model 3 in the U.S. reached $48,440 with shipping, after a series of price hikes over the past year that added about $8,500 to the sticker. Tesla's most popular vehicle, the Model Y crossover, saw its base price increase to $64,440, with shipping, after two price increases this month alone.

But soaring EV prices are not limited to premium startups such as Tesla and Rivian, which increased prices for the launch editions of its R1T pickup and R1S SUV by $12,000 this month, citing higher material costs.

At a time when consumer interest in EVs has never been higher, automakers are pricing their fresh, new EVs at a premium, cutting off some mainstream buyers and temporarily setting back the EV revolution.

"Whether you're an automaker like Tesla and Rivian that sells product through company stores, or a legacy automaker using franchised dealers, either way there is a markup," said Ed Kim, president and chief analyst at AutoPacific.

California EV startup Lucid said it also is looking at future price hikes for its recently launched Air sedan, but would spare current reservation holders, Reuters reported.

Although rising manufacturing costs, supply constraints and consumer demand are driving up vehicle prices in general, the new generation of EVs were already expensive compared with their internal-combustion counterparts. They are also relatively rare and in high demand for a variety of reasons, including high gasoline prices.

The new Hyundai Ioniq 5 EV crossover in base SE trim is selling for as much as $55,000 on dealership lots after a $10,000 markup. The base Ford Mustang Mach-E Select also draws markups that can push prices near $60,000. Hyundai and Ford have asked dealers to show restraint, and there are retailers who still sell at sticker price.

The good news for EV proponents, including major automakers such as General Motors and Volkswagen, is that surveys show consumers are warming up to the new crop of vehicles. Unlike the small electric hatchbacks that marked the EV segment a decade ago, new-generation EVs are designed to directly replace gasoline-powered crossovers and pickups.

In a recent report, AutoPacific forecast U.S. EV sales at 670,000 this year in response to growing consumer demand. EV registrations rose last year by 91 percent, according to data firm Experian, to a record 481,677 vehicles.

As part of its EV forecast, AutoPacific released results of its latest consumer survey, which showed that 11 percent of car owners are interested in an EV for their next vehicle purchase. In early 2020, that number was just 3 percent.

The increase in interest is driven by a wave of new and exciting vehicles, rather than just higher gasoline prices, according to the survey. AutoPacific sees EV sales rising to 2.5 million in 2027.

"Our data really seems to suggest that it's more about the influx of new products coming into the market than fuel prices," said Kim. Although fueling cost was among the top three factors cited by consumers, so were "EVs are the way of the future," and "an EV is better for the environment," which bodes well for long-term interest.

In the short-term, however, prices for EVs are easily outstripping combustion-engine counterparts.

According to Edmunds data, the average transaction price for a new EV climbed to $60,054 in February. That compared with an average transaction price for all vehicles of $45,596. Furthermore, EV buyers were paying an average of $1,820 over sticker, compared with a $680 average markup for all vehicles.

Nonetheless, consumer interest in electrified vehicles — including hybrids and full-electrics — is rising, Edmunds said in a separate report this week. One-quarter of shoppers on its website were considering electrified options in mid-March, nearly doubling from February as gasoline prices soared.

"We seem to have finally arrived at the moment when consumers are actually educating themselves on electrified vehicles," said Jessica Caldwell, executive director of insights at Edmunds. "The irony is that although market forces are driving up consumer appetite for these vehicles, it's coming at a time where few are actually available to purchase."

Among the many reasons for EV price inflation is a radical change in market strategies adopted by legacy automakers after watching Tesla dominate the market over the past several years, Kim said.

Just more than a decade ago, early EVs such as the Nissan Leaf tried to appeal to the masses with relatively low prices. But limited range, small size and weird looks limited sales to early adopters who could afford a second or third car. The experience was mostly the same with the Chevrolet Bolt, which had better range but limited charging speed.

But Tesla took the opposite approach, Kim said.

The EV startup began with expensive vehicles for affluent buyers that showed off the advantages of electric vehicles — innovative styling, quick acceleration and decent range — rather than their shortcomings. Tesla later introduced the Model 3 and Model Y at price points similar to luxury counterparts as it expanded its Supercharger network.

EV startups such as Rivian and Lucid are now following the Tesla model of starting at the high end, but so are legacy automakers in more mainstream segments, Kim said.

Vehicles such as the Mustang Mach-E, Ioniq 5, Volkswagen ID4 and the coming Ford F-150 Lightning are meant to replace combustion-engine vehicles and highlight much-improved EV technology. But they are also significantly more expensive, before tax breaks or fueling costs are calculated.

Even Tesla put its planned $25,000 mass-market vehicle on the back burner as the automaker enjoys strong demand and unprecedented pricing power for its existing models.

CEO Elon Musk also has acknowledged the challenge of making an affordable version of the delayed Cybertruck pickup after initially promising a starting price of $40,000.

Morgan Stanley said this week that Tesla is staying out in front of rising material costs through price hikes on its four vehicles, including the Model X crossover that now starts at $116,440 with shipping.

Raw material costs "aren't keeping Tesla up at night right now," Morgan Stanley equity analyst Adam Jonas said in a research note. "Chips are actually a bigger concern in real time."

Although the industry's transition to EVs has been slowed by the coronavirus, chip shortages and higher material prices, the return of affordable EVs is not far off, Kim said.

GM has promised a $30,000 electric crossover, for example, and VW is tooling its Chattanooga plant to build a $35,000 version of its ID4 with a smaller battery pack. Hyundai plans to introduce a more inexpensive base version of its Ioniq 5 this year and Kia is doing the same with its EV6 crossover.

"Given all these EV targets that so many automakers have publicly made, plus the federal government's own goals for EV adoption," Kim said, "the only way you're going to get there is to do high-volume, mainstream-priced EVs that people can afford."