VW And GM Are Passing Tesla In The Race To Sell Affordable EVs

March 15, 2023

Elon Musk has teased the idea that Tesla would sell a widely affordable battery-powered model since 2006. He finally came close to announcing one this month, but still hasn’t shared details. Competitors, including Volkswagen and General Motors, aren’t waiting to see what the mercurial billionaire decides to do and are already laying down plans for EVs priced at $30,000 or less.

European auto giant Volkswagen on Wednesday said it’s readying the 25,000 euro ($26,400) ID. 2ALL, a compact hatchback, along with nine other new electric vehicles for sale by 2026. GM, which already has the Bolt, the top-selling EV in the U.S. priced below $30,000, is adding an electric version of the Chevrolet Equinox this year, starting at $30,000. Fisker Inc., which is preparing to start delivering electric Ocean SUVs in the coming weeks, plans to add the Pear, a small crossover with a $29,900 base price, in 2024.

By comparison, the cheapest Tesla, an entry-level Model 3 sedan, costs $43,000 before taxes—even after the carmaker recently slashed thousands of dollars off the sticker price to help it qualify for a new federal tax credit. The absence of a relatively inexpensive vehicle isn’t much of a problem for Tesla, though such models are vital to expanding the overall EV market in the years ahead, says Ed Kim, president of industry researcher AutoPacific.

“We're now at that tipping point where we've got EVs at about 6% market share, and more and more mainstream consumers are starting to think about an EV as their next purchase,” Kim told Forbes. “But the median transaction price of an EV is well over the $50,000 range. It’s out of reach for the mainstream consumer. … Automakers have to introduce more mainstream models that middle-class people can afford. Up to now, there hasn't been a whole lot of choice.”

Tesla has done more to popularize electric cars than any other global brand, delivering over 1.3 million worldwide in 2022, but with an average selling price of more than $65,000, it’s a price competitor to luxury brands like BMW and Mercedes, not mainstream brands like Honda or Ford. The Biden Administration wants EVs to top 50% of new vehicle sales by the end of the decade, while California and other states aim to phase out sales of new gasoline vehicles from 2035. Neither goal is attainable unless battery-powered cars and trucks get a lot cheaper in the next few years.

In its announcement, VW didn’t specify when or if the ID. 2ALL, with about 270 miles of range per charge, would come to the U.S. “The ID. 2all shows where we want to take the brand,” Thomas Schäfer, CEO of Volkswagen’s passenger car business, said at its debut. “We are implementing the transformation at pace to bring electric mobility to the masses.”

Making EVs more affordable is tough as the lithium-ion battery packs they need use pricey commodity materials, including nickel, cobalt and lithium, sourced from around the world. During its March 1 investor conference, Tesla sketched out plans to reduce production costs for its vehicles by as much as 50%, using more efficient manufacturing techniques, design tweaks and new materials that could help mitigate battery materials costs.

Musk hinted at a next-generation Tesla model in development that would likely benefit from these new methods but didn’t disclose its price, features or when such a vehicle would go into production. The company did say, however, that its next model would be produced at a new plant it’s building near Monterrey, Mexico.

Though Musk has yet to deliver the cheap EV he promised in his first “Master Plan” in August 2006 and scrapped Tesla’s $35,000 Model 3, that hasn’t yet hurt overall demand for the brand. Letting GM, Volkswagen and Fisker go into the lower-price segment first also isn’t a problem, said Kim.

“The Tesla brand remains so aspirational that I think when they do enter that space there are going to be a lot of entry-level customers who will say, ‘Oh my god, I’ve dreamed of owning a Tesla for years and now I can have one for 25-grand. Holy crap!’”

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