The latest discussion paper from KAPSARC, titled Are Automakers Overcharging Consumers for Electric Vehicle Batteries?, raises critical questions about the pricing strategies of electric vehicle (EV) manufacturers. The study explores whether reductions in battery costs have translated into lower EV prices for consumers. Using a fixed effects regression analysis across six major markets—China, Germany, Japan, Norway, the UK, and the U.S.—the authors find that EV prices have increased disproportionately relative to battery capacity growth, suggesting that automakers may not be passing battery cost savings onto consumers.
The research highlights that while lithium-ion battery costs have significantly declined over the past decade, EV prices have not followed the same downward trajectory. Instead, manufacturers have continued to raise vehicle prices, potentially offsetting cost reductions by enhancing vehicle features and expanding battery capacity. For instance, the study estimates that a 1-kWh increase in battery capacity results in a price increase of approximately $747 for battery electric vehicles (BEVs), which is significantly higher than the actual battery cost per kWh. This raises concerns about whether automakers are using battery advancements as a justification for price hikes rather than as a means to lower vehicle costs.
These findings are particularly relevant given the recent slowdown in EV adoption across several key markets. While early adopters have shown a willingness to pay a premium for new technology, mainstream consumers tend to be more price-sensitive. If automakers are inflating EV prices despite declining battery costs, they may inadvertently be hindering the widespread adoption of EVs, which is crucial for achieving global sustainability and emissions reduction goals. Moreover, the study questions whether government incentives for EVs remain justified if manufacturers are not fully transferring battery cost savings to consumers.
The paper calls for greater scrutiny of pricing strategies in the EV industry and suggests that policymakers consider measures to ensure cost reductions are reflected in vehicle prices. Future research could explore whether market competition, supply chain constraints, or strategic pricing decisions are driving these trends. With EV adoption at a critical juncture, understanding the dynamics of pricing and affordability will be essential to shaping the future of sustainable transportation.