Beatrice Lang
Electric vehicles (EVs) are becoming increasingly popular, but the upfront cost of buying one can be a significant barrier for many consumers. The price of an EV is largely dependent on the cost of its parts, particularly the powertrain—the battery packs and electric motors—which accounts for up to 50% of the total cost. To reduce the cost of EVs, manufacturers can focus on strategic de-contenting, consolidating parts, and improving the efficiency of battery design and production. Additionally, consumers can take advantage of incentives and rebates offered by federal and state governments, as well as lower electricity prices for off-peak charging, making the switch to EVs more affordable.
How to reduce the cost of electric vehicles
| Characteristics | Values |
|---|---|
| Lower upfront cost of buying an electric car | Federal and state incentives can add up to close to $10,000 |
| Lower fuel costs | Electricity is less expensive than gasoline |
| Lower maintenance costs | Fewer fluids to change and fewer moving parts |
| Design | Use digital/virtual design, basic vehicle electronics, straightforward body styling, uncomplicated seat designs, and simplified interior trim |
| Manufacturing | Use strategic de-contenting, fewer parts, and smaller parts |
| Supply chain | Use a single fastener distributor, consolidate fastener types, and work with supply chain partners |
| Marketing | Tap into on-demand services firms instead of staffing firms |
| Sales | Consider a Direct-to-Consumer (D2C) model |
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What You'll Learn
Reduce development costs with bigger teams with flexible resources
Electric vehicles (EVs) are currently expensive to design, engineer, tool, and manufacture. To reduce costs, companies can build bigger teams with flexible resources, as opposed to fixed teams, which can increase or decrease their level of support as needed by the customer. This allows companies to increase their capabilities, accelerate project timelines, and drive innovation while making the most of their budget.
A bigger team does not necessarily mean a more effective team, however. It is important that bigger teams are given the resources they need to work effectively, such as the authority to make key decisions and the ability to quickly hire new talent or secure contractors without going through standard human resources or procurement processes.
Bigger teams can also benefit from being broken down into smaller, independent teams with the authority and resources to carry out projects without first seeking corporate approval. This allows for faster decision-making and more efficient project execution.
To further reduce costs, companies can tap into on-demand services firms to perform various operations instead of using staffing firms to find transient or full-time talent. This offers both higher-quality work and reduced staffing costs.
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Use a Direct-to-Consumer (D2C) model to remove 10% of costs
Electric vehicle (EV) manufacturers are increasingly adopting a direct-to-consumer (D2C) sales model, which offers several advantages over the traditional dealership network. By removing the dealer model, manufacturers can reduce their marketing and distribution costs by up to 10%. This is because dealerships often markup prices to meet their overhead costs, such as building maintenance and staffing. These additional costs are eliminated in the D2C model, allowing manufacturers to sell their inventory at a set, non-negotiable price.
The D2C model also enables manufacturers to save money by not having to build out a nationwide dealership network and produce enough inventory to stock these dealerships. Instead, they can sell and deliver vehicles as they are manufactured and reinvest any savings into scaling new technologies and manufacturing processes. This approach is particularly well-suited to the EV market, as it allows manufacturers to provide more specialized services and a more immersive buying experience for consumers. With the advancements in AR/VR technology, consumers can now have a more interactive and informative purchasing experience without having to visit a physical dealership.
Additionally, dealerships often prioritize the sale of internal combustion engine vehicles over EVs due to the revenue associated with future servicing needs for traditional gas-powered vehicles. This creates a conflict of interest and can result in poor buying experiences for consumers interested in EVs. By contrast, the D2C model allows manufacturers to become the primary point of contact for customers, providing specialized services and reducing the overall cost of ownership for EVs.
The success of the D2C model is evident in the case of Ford's Mustang Match-E, which became the second-best-selling electric SUV in the US despite limited advertising. This suggests that direct sales to consumers can be a powerful driver of EV adoption, as it allows manufacturers to respond more effectively to consumer demands and preferences. Lifting the prohibition on direct sales currently in place in many states could further accelerate the transition to EVs and bring about significant economic, health, and environmental benefits.
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Lower upfront costs with federal and state incentives
The upfront cost of buying an electric car has often been a significant hurdle for consumers. However, federal and state incentives are helping to reduce this burden. In the US, these incentives can amount to almost $10,000, making electric vehicles a more affordable option for many.
These incentives are designed to encourage the adoption of electric vehicles, which have lower fuel and maintenance costs than conventional cars. For example, electricity is cheaper than gasoline, and regenerative braking systems in electric vehicles can extend the life of brake components. As a result, drivers can save money on fuel and maintenance, with some estimates suggesting savings of over $1,000 per year.
To take advantage of these incentives, it is important to understand the specific offers available. The federal government provides tax credits for Plug-in Electric Vehicle (PEV) and Electric Vehicle (EV) purchases, which can be discussed with the Internal Revenue Service or a tax professional. Additionally, some states and cities offer financial incentives, such as vehicle or infrastructure rebates, vehicle registration fee reductions, and special parking privileges.
It is worth noting that the process of designing, engineering, tooling, and manufacturing electric vehicles is costly, and reducing these costs will be crucial for increasing the market share of electric vehicles. However, with the right incentives and an increasing number of electric vehicles on the market, consumers can benefit from lower prices and make a more sustainable choice.
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Reduce weight and number of parts to cut costs
The weight of an electric vehicle can be reduced by using lightweight materials in various body, chassis, interior, and powertrain applications. For example, using aluminium brake calipers instead of iron ones can reduce the weight of a vehicle by an average of 6 pounds. Additionally, using lightweight alloys can offer geometric complexity and improved material properties, allowing for thinner sheet materials, extrusions, and castings, resulting in further weight reductions.
Another way to reduce weight and the number of parts is to eliminate extra displays, buttons, switches, wiring, modules, and unnecessary structural components, as well as reducing the overall design complexity. This can deliver major savings and improve design flexibility, layout, and space.
Consolidating fasteners can also help to reduce weight and the number of parts. By using a single fastener distributor that can provide a wide range of fasteners at lower costs, development time, contract management, and quality issues can be reduced. Cost savings of up to 18% can be achieved through fastener type and supply consolidation.
Furthermore, using a Direct-to-Consumer (D2C) model can help to reduce the number of parts and overall cost. By eliminating the need for an extensive dealer network, electric vehicle manufacturers can strip 10% of the cost.
Finally, suppliers often lead innovation in weight reduction strategies and can help OEMs implement new processes and materials to reduce the weight of electric vehicles. By partnering with suppliers, OEMs can benefit from their lower labour rates for engineering and assembly, which can lead to significant cost savings.
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Simplify vehicle design to save on manufacturing costs
Decisions made during the design stage have a significant impact on the cost structure of electric vehicles. The design of the car, the choice of components and materials used, and the technological advancements all influence the overall cost of production.
To simplify vehicle design and save on manufacturing costs, one approach is to eliminate unnecessary components and reduce design complexity. This includes removing extra displays, buttons, switches, wiring, modules, and structural components that are not essential. This approach can result in significant cost savings without compromising the core features and value of the vehicle.
Another strategy is to focus on weight reduction. Using lightweight materials, such as carbon fiber, can improve the performance, safety, and efficiency of the vehicle. Lighter materials also increase the range of the electric car, providing assurance to consumers by reducing the fear of running out of power.
In addition, consolidating fasteners can lead to cost savings. Selecting a single fastener distributor that can provide a wide range of fasteners at lower costs due to bulk-buying can result in cost savings of up to 18%.
Furthermore, embracing low-volume production methods, such as manual assembly, can reduce tooling and equipment costs. Prototype tooling suppliers can also be utilized as production partners, as their business models are often better suited for controlling costs at low volumes.
Finally, utilizing a dedicated EV platform can enable better design flexibility, layout, and space utilization. This includes using more basic vehicle electronics, straightforward body styling, uncomplicated seat designs, and simplified interior trim. A purpose-built EV platform can also be simpler to assemble, resulting in additional cost savings.
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Frequently asked questions
The upfront cost of buying an electric vehicle can be a stumbling block for many consumers. However, federal and state incentives can add up to a significant amount. For example, in California, state and federal incentives, combined with high gas prices, can result in substantial savings. Some states and cities also offer tax credits, vehicle or infrastructure rebates, vehicle registration fee reductions, special parking, and high-occupancy vehicle lane exemptions.
Electric vehicles have substantially lower fuel costs than conventional vehicles because they are more efficient and electricity is less expensive than gasoline. Maintenance costs are also lower for electric vehicles because there are usually fewer fluids (like oil and transmission fluid) to change and fewer moving parts.
The powertrain — battery packs and electric motors — accounts for up to 50% of the cost of an electric vehicle. Therefore, cost reduction efforts should focus on these components. Additionally, OEMs can reduce costs by several thousand dollars per vehicle through strategic de-contenting, such as eliminating extra displays, buttons, switches, wiring, and unnecessary structural components, paired with a dedicated EV platform.
OEMs can reduce development costs by consolidating fasteners, resulting in less development time, contract management, and quality issues. They can also save money by using computer simulations, 3D printing, and launching straight to production to eliminate prototype tooling.
To reduce production costs, OEMs can work with supply chain partners to develop better custom components and use engineering support to routinely test and hone the technical performance of their components. They can also work with suppliers to communicate tailored supplier development programs that outline the value for suppliers and highlight that cost savings should be generated through eliminating waste, not profit reductions.
