Automakers hope to raise EV prices in 2024
KPMG survey shows auto execs are confident about price rises, but the competitive landscape may beg to differ
A 5-10pc rise in EV prices could be on the cards in 2024, according to many global automotive executives. But financial services firm KPMG, which collated the information for its 2024 automotive survey, is more sceptical of the room to ramp pricing.
Its findings show that in 64pc of surveyed execs say they feel "confident that they can raise prices in 2024" by 5-10pc (see main image). A further 13pc believe that an even bigger price increase is feasible, and 18pc predict pricing in 2024 to remain similar to today. Only 5pc predict any kind of price reductions, however.
“Despite economic uncertainty, many executives still expect car prices to continue to rise. Two-thirds of automakers anticipate price increases of 5 to 10 percent in 2024,” the report finds.
Throughout 2023, many OEMs competed to capture and maintain BEV market share through a series of price cuts . The price war saw automakers such as US firms Tesla and Lucid slashing price. When legacy Detroit manufacturer Ford shelved $12bn in BEV investment, it gave the justification that it could not go any lower on price.
Ford CEO Jim Farley at the time lamented “incredible downward pressure on pricing” and “overcapacity in the middle of the market”, as OEMs sacrificed margin points in favour of sales volumes.
In the case of Ford, though, these pressures seem to be easing, as last week the company announced a hike in the price of its F-150 Lightning EV. This decision may, though, have been influenced by its truck being eligible for an IRA subsidy that can now be deducted straight off the purchase price, while some of its competitor vehicles lost their IRA subsidy eligibility entirely.
Are OEMs right?
However, KPMG notes that new market entrants and ongoing inflation may limit OEMs' ability to raise prices in a commercially viable way, arguing that “automakers should consider carefully whether these expectations are realistic".
"With rising competition and declining inflationary pressure, their ability to charge more for their cars in 2024 may be limited,” it warns.
Factors that could adversely affect EV pricing include higher energy prices, high interest rates, and inflation. However, automotive executives are significantly less concerned about these forces putting pressure on their company’s pricing strategies compared to a year ago.
Executives surveyed in North America, Europe, Japan, South Korea, and the India and ASEAN region are all between 62pc and 73pc less concerned about these factors in comparison to the 2022 survey.
While there is also lingering concern about supply chains, KPMG finds that only 45pc of respondents outside China were "very or extremely concerned" about access to lithium, cobalt and other battery components, down from 78pc in 2022.
Indeed, battery metal prices are on a downward trajectory, with The price of lithium-ion battery packs has dropped by 14pc to a record low of $139/kWh, "driven by raw material and component prices falling as production capacity increased across all parts of the battery value chain", according to consultancy Bloomberg NEF.
Reducing concerns over interest rates and inflation damaging customer payability, could justify expectations of an ability to lift prices. On the other hand, if high energy and battery prices pushing up input costs are also expected to be less feared, putting up prices as production costs fall could be a greedy and dangerous game.
That is particularly true if established players ignore the competitive threat from new entrants. After establishing initial footholds in markets like Europe and to a lesser extent North America, Chinese automakers like BYD, GWM Ora, and MG, could well look to consolidate their position and offer competitively priced EVs.
There is also the growing popularity of the halfway house of hybrids to factor into customer willingness to buy, and especially pay more for, BEVs. Consultancy Canalys predicts that "PHEVs will continue gaining market share in the next two to three years due to their cost-effectiveness and stronger adaptability".
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And legacy OEMs will also shift the BEV market's pricing dynamics by offering customers more options at the cheaper end of the market. Canalys principal analyst Jason Low shares some of KPMG's scepticism on OEM ability to raise BEV prices, given that "carmakers in Europe are set to make the EV market more affordable by releasing new models such as the Kia Niro EV, BMW IX2, Renault 5, Citroen e-C3 and others".
It remains to be seen how 2024 plays out, and clearly there could be regional difference not able to be best reflected in a global survey. But, by year-end, BEV price rise predictions may end up having fallen into a category of what execs wanted to see, rather than what was realistic given market dynamics.