Why the electric vehicle ‘cost parity’ conversation doesn’t make any sense
GM CEO Mary Barra was recently asked about profitability targets for the company’s electric vehicle line and said that it’s on track for EV profitability in 2025.
But, frankly, the whole conversation about EV profitability and cost parity doesn’t make a lot of sense, and here’s why.
Barra is at the Aspen Ideas Festival this week, and conversations have predictably included lots of talk about electric vehicles. She sat down with Andrew Ross Sorkin from CNBC for an interview about the company’s EV transition, and the question of EV profitability came up, as it often does.
Barra gave the kind of answer we’ve heard before – EV profitability isn’t here but is coming soon, and affordable vehicles are going to be the hardest ones to make profitably.
Here’s the full exchange:
Sorkin: You’ve also talked about the challenges of producing cheaper vehicles, so $30,000 to $40,000 vehicles, and doing that profitably, that’s gonna take ’til when now?
Barra: Well a lot of the vehicles that we’re putting out now as we get to scale, because we’ve brought battery manufacturing inside, we have plans and we’ve said – I don’t talk about individual product line profitability – but we’re on track for 2025 to be in that low mid single digits, and that’s before IRA, and then we’ve said later in the decade we’re gonna be at parity with ICE. So a lot of it is going to rely on continuing to improve battery chemistry and getting cost of out of the battery, ’cause that’s where the cost opportunity is.
Sorkin: Is the idea that there will be vehicles that you will sell, effectively unprofitably, to “seed the market,” if you will?
Barra: I would say we’re going to where we know the consumer has to be to get to the volume, and we’re gonna drive to profitability as quickly as possible, and then when you put things like IRA on top of it, along with the software services, I think we’re gonna see profitability even in those affordable vehicles more quickly than anyone’s expecting.
The most crucial statement here is that Barra reiterated that the company’s EVs will be profitable in 2025, and she specified here that this is without accounting for Inflation Reduction Act tax credits. IRA includes significant credits both for consumers and manufacturers.
Barra’s comments didn’t split out individual product lines, so perhaps she was talking about overall profitability across all of GM’s EV projects. This is necessarily going to be low at the moment because GM is currently spending a lot of money building manufacturing for its Ultium platform, which hasn’t produced many EVs yet. Product lines usually don’t become profitable until they’ve been manufactured for a while, as companies recoup initial investments and get costs down over time.
But what about the Bolt EV? It’s been in production for a long time now – to the point that it’s about to be discontinued. Has GM really not made any money on any of the units it has sold? Could it have done so if it had produced the car in higher volume or hadn’t dealt with an extended recall (which LG ended up paying for anyway)?
But this whole conversation is strange and has been for a long time for several reasons.
A short history of “cost parity” in EVs
There is a long history of car companies saying they can’t produce EVs profitably. One of the earliest was Fiat’s late CEO Sergio Marchionne, who famously told customers not to buy his company’s Fiat 500e because Fiat supposedly lost $14k per unit (among a lot of other bonkers EV-related comments).
Currently, most manufacturers will tell you that they are not making a direct profit on their electric vehicle lines. The most notable exception is Tesla, a company that’s focused entirely on making electric cars and, at times, has had higher margins than anyone in the overall auto industry. Those margins have now dropped as Tesla has dropped prices, starting a price war that is threatening other automakers due to Tesla’s significant apparent cost advantage.
So it is definitely strange to have every company saying that EVs are less profitable, except for the one most profitable company. That company also happens to be the one that has taken EVs the most seriously and for the longest period of time.
And, importantly, Tesla is one of few companies that doesn’t have an interest in making the public think that EVs are inferior in some way or otherwise pushing back the timeline for EV adoption. Because Tesla’s current product mix isn’t heavily fossil-based like the rest of the industry is.
But lest we think Tesla is the only exception that proves the rule, it’s not the only company that has generated a profit on EVs. The unassuming Nissan Leaf, which is currently and has historically been one of the lowest-price EVs (and lowest-price vehicles period – after state & federal credits, many buyers can get one for under 20k), started making a profit in 2014. At the time, more Leafs had been sold than any other EV worldwide, which remained the case until the Model 3 eclipsed it in 2020.
So we know that EVs can produce profit – even a lot of profit – and we know that this has been the case for a long time, even for low-cost EVs.
What does this mean for consumers?
The question Barra answered assumed that cost parity would be hard to meet, particularly in “cheaper vehicles” in the $30-40k range.
But for consumers, the cheapest vehicles have already reached price parity in many cases.
Currently, and for the better part of a year, the Chevy Bolt has been a screaming deal with its $26k base price. Then you can apply the $7,500 federal tax credit and potentially state and regional credits or other various discounts, bringing it down to a price competitive with the cheapest new vehicles in America.
And that’s not just some bare-bones get-you-there car like the universally-panned Mitsubishi Mirage, but a vehicle good enough to earn Electrek’s Vehicle of the Year award despite being at the end of its lifecycle. So you’re not just getting a low-price car, but a good car – meaning the quality-for-price metric is through the roof.
While the Bolt is being discontinued, the Leaf is still around, is still cheap, and is also a good car. The package is a little worse on value than the current Bolt is, but there will still be a solid EV in the $20k range post-credit, which is about as low as you can expect new gas cars to go.
This holds true as you go up in price, with EVs standing out in terms of value against price competitors. The Tesla Model 3 is a phenomenal car and starts at around $30k after credits. Meanwhile, its cousin, the Tesla Model Y, is currently the best-selling vehicle on Earth because of its value proposition against the competition.
And throughout all of this, we’ve only talked about the purchase price. Running costs, both fuel and maintenance, tend to be cheaper on EVs and, as such, make the total cost parity calculation even more beneficial.
And this all has been the case for some time as well. There’s been no shortage of great EV lease deals in the past, with periods where EVs could be leased at $100-200 a month with little to nothing down (after taking into account state rebates). Admittedly, many of those have dried up recently due to excessively high EV demand.
So it doesn’t make a lot of sense to say that EVs can’t reach price parity for consumers until some time in the future because it’s clear that they’re already there, even in low-price segments.
How this conversation damages EV adoption
But really, is this even a productive conversation to be having?
The constant discussion of EV profitability and “cost parity” tends to migrate out of the purely financial press and make its way into consumer circles. And through the stock market, retirement plans, and so on, some consumers are concerned about a company’s ability to make a car profitably and don’t want that company to make cars with less profit, even if that could mean lower costs for them as a consumer.
So by stating that EVs are unprofitable, companies throw cold water on the idea of EVs and make everyone feel like the “proper time” to “switch” to EVs is some time in the future rather than now. These companies that are so heavily invested in the status quo want consumers to keep buying the models they offer – which are majority-ICE for nearly every automaker out there.
The conversation itself is harmful to EV adoption, at least in the way it is commonly presented – that this timeline is coming “in the future” rather than now (that said, Barra did say that this would come “sooner than anyone’s expecting,” which is a nice improvement in messaging).
The fact is: it doesn’t matter that much if an individual car, line, or effort is profitable, depending on how it fits into the company’s strategy. And companies know this because they keep making these EVs even though they claim they’re not profitable.
Why would companies do “unprofitable” things?
Companies exist to make a profit above all. But in the course of their existence, this doesn’t mean that every decision a company makes must drive a profit immediately.
Lower-cost vehicles, regardless of powertrain, tend to have lower profit margins. These are made up for by high volume and the expectation that the company may build brand loyalty amongst customers who, as they proceed in life, may end up in a position to purchase higher-priced, higher-margin vehicles.
And as mentioned in the Barra interview, everyone sees that the market is turning towards EVs, and companies are trying to establish a presence in the EV market, which is growing rapidly while gas car sales plateau. This means that companies may consider current EVs a “loss leader” to attempt to establish market share, especially if upfront investments in future capacity – growth of the company’s EV line – are accounted for as “losses” in the present due to the high upfront costs required.
Additionally, government requirements around the world are getting stricter in terms of required EV share. Companies simply have to sell a certain amount of EVs, so it doesn’t matter if they make a profit on any individual vehicle because if they don’t do it, they will be punished. The cost of that punishment (or the cost of credit-trading schemes) is greater than whatever they claim they’re losing on EVs.
This is why, for example, Fiat still sold the 500e in 2014 despite claiming it lost money – because selling the car meant it could continue selling in California, which made Fiat more profit than not doing so.
Companies and governments have different goals
One could call this “picking winners and losers,” but that is, again, a narrow view of the situation. Companies and governments (should) have different goals. Companies are in it for profit, but governments ought to be in it to enhance the public good. And these goals can be in opposition to one another.
To a company, the costs are whatever dollars it has to spend on materials, labor, distribution, etc. But other costs are ignored by a company, and instead absorbed by the rest of society. There is a long history of doing business by externalizing costs and privatizing profits – see the parable of the tragedy of the commons.
With cars, this means exhaust pollution, which is the largest contributor to smog that harms human health. The air is a common resource that all of us need, and the pollution put into that air by automotive and oil company products is responsible for enormous health and environmental costs (e.g., wildfires due to climate change, which are currently devastating much of North America, causing lung problems and property damage). Those costs are largely not borne by the polluters that are largely responsible for them, but instead borne by all of us on the back end.
It costs manufacturers more money to install pollution control equipment and engineer more efficient vehicles than it would if they didn’t have to do either of those things. Companies lobby fiercely against any requirement that might save you money – even if it costs them little to implement – because they only care about their own costs, not society’s.
But government at least should be different than that. Governments ought to account for these additional costs to society and tell polluters they need to pay those costs upfront.
Until they do, any discussion of “cost parity” is incomplete. If each EV saves $10,000 for society in health costs alone, then it is in the public interest to have more of them and fewer of the vehicles that are choking us. And if we spend all our time focusing on the cost of EV subsidies and not the much higher costs of fossil fuel subsidies, then we aren’t truly calculating which of these technologies has higher actual costs.
For these reasons, I believe we need to retire (or at least reframe) the whole conversation about “cost parity” for EVs. Consumers can already see parity in low-cost EVs and quality-for-price across various price ranges. Companies can already see it, assuming they’re taking their EV lines seriously and not just trying to throw cold water on the whole idea of EVs in the first place. And society can already see it, given that EVs are already making the air cleaner, resulting in lower societal costs that will compound in the future.
So why do we keep talking about some incredibly narrow definition of cost parity and perpetually say that it’s coming sometime in the future when, by so many meaningful metrics, we’re already here, and everybody in the industry already knows why they have to make EVs anyway? It just doesn’t make any sense.
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The International Maritime Organization, a UN agency which regulates maritime transport, has voted to implement a global cap on carbon emissions from ocean shipping and a penalty on entities that exceed that limit.
After a weeklong meeting of the Marine Environment Protection Committee of the IMO and decades of talks, countries have voted to implement binding carbon reduction targets including a gradually-reducing cap on emissions and associated penalties for exceeding that cap.
Previously, the IMO made another significant environmental move when it transitioned the entire shipping industry to lower-sulfur fuels in 2020, moving towards improving a longstanding issue with large ships outputting extremely high levels of sulfur dioxide emissions, which harm human health and cause acid rain.
Today’s agreement makes the shipping industry the first sector to agree on an internationally mandated target to reduce emissions along with a global carbon price.
The agreement includes standards for greenhouse gas intensity from maritime shipping fuels, with those standards starting in 2028 and reducing through 2035. The end goal is to reach net-zero emissions in shipping by 2050.
Companies that exceed the carbon limits set by the standard will have to pay either $100 or $380 per excess ton of emissions, depending on how much they exceed limits by. These numbers are roughly in line with the commonly-accepted social cost of carbon, which is an attempt to set the equivalent cost borne by society by every ton of carbon pollution.
Money from these penalties will be put into a fund that will reward lower-emissions ships, research into cleaner fuels, and support nations that are vulnerable to climate change.
That means that this agreement represents a global “carbon price” – an attempt to make polluters pay the costs that they shift onto everyone else by polluting.
Why carbon prices matter
The necessity of a carbon price has long been acknowledged by virtually every economist. In economic terms, pollution is called a “negative externality,” where a certain action imposes costs on a party that isn’t responsible for the action itself. That action can be thought of as a subsidy – it’s a cost imposed by the polluter that isn’t being paid by the polluter, but rather by everyone else.
Externalities distort a market because they allow certain companies to get away with cheaper costs than they should otherwise have. And a carbon price is an attempt to properly price that externality, to internalize it to the polluter in question, so that they are no longer being subsidized by everyone else’s lungs. This also incentivizes carbon reductions, because if you can make something more cleanly, you can make it more cheaply.
Many people have suggested implementing a carbon price, including former republican leadership (before the party forgot literally everything about how economics works), but political leadership has been hesitant to do what’s needed because it fears the inevitable political backlash driven by well-funded propaganda entities in the oil industry.
For that reason, most carbon pricing schemes have focused on industrial processes, rather than consumer goods. This is currently happening in Canada, which recently (unwisely) retreated from its consumer carbon price but still maintains a price on the largest polluters in the oil industry.
But until today’s agreement by the IMO, there had been no global agreement of the same in any industry. There are single-country carbon prices, and international agreements between certain countries or subnational entities, often in the form of “cap-and-trade” agreements which implement penalties, and where companies that reduce emissions earn credits that they can then sell to companies that exceed limits (California has a similar program in partnership with with Quebec), but no previous global carbon price in any industry.
Carbon prices opposed by enemies of life on Earth
Unsurprisingly, entities that favor destruction of life on Earth, such as the oil industry and those representing it (Saudi Arabia, Russia, and the bought-and-paid oil stooge who is illegally squatting in the US Oval Office), opposed these measures, claiming they would be “unworkable.”
Meanwhile, island nations whose entire existence is threatened by climate change (along with the ~2 billion people who will have to relocate by the end of the century due to rising seas) correctly said that the move isn’t strong enough, and that even stronger action is needed to avoid the worse effects of climate change.
The island nations’ position is backed by science, the oil companies’ position is not.
While these new standards are historic and need to be lauded as the first agreement of their kind, there is still more work to be done and incentives that need to be offered to ensure that greener technologies are available to help fulfill the targets. Jesse Fahnestock, Director of Decarbonisation at the Global Maritime Forum, said:
While the targets are a step forward, they will need to be improved if they are to drive the rapid fuel shift that will enable the maritime sector to reach net zero by 2050. While we applaud the progress made, meeting the targets will require immediate and decisive investments in green fuel technology and infrastructure. The IMO will have opportunities to make these regulations more impactful over time, and national and regional policies also need to prioritise scalable e-fuels and the infrastructure needed for long-term decarbonisation.
One potential solution could be IMO’s “green corridors,” attempts to establish net-zero-emission shipping routes well in advance of the IMO’s 2050 net-zero target.
And, of course, this is only one industry, and one with a relatively low contribution to global emissions. While the vast majority of global goods are shipped over the ocean, it’s still responsible for only around 3% of global emissions. To see the large emissions reductions we need to avoid the worst effects of climate change, other more-polluting sectors – like automotive, agriculture (specifically animal agriculture), construction and heating – all could use their own carbon price to help add a forcing factor to drive down their emissions.
Lets hope that the IMO’s move sets that example, and we see more of these industries doing the right thing going forward (and ignoring those enemies of life on Earth listed above).
The agreement still has to go through a final step of approval on October, but this looks likely to happen.
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In the Electrek Podcast, we discuss the most popular news in the world of sustainable transport and energy. In this week’s episode, we discuss the new Tesla Cybertruck RWD, more tariff mayhem, Lucid buying Nikola, and more.
The show is live every Friday at 4 p.m. ET on Electrek’s YouTube channel.
As a reminder, we’ll have an accompanying post, like this one, on the site with an embedded link to the live stream. Head to the YouTube channel to get your questions and comments in.
After the show ends at around 5 p.m. ET, the video will be archived on YouTube and the audio on all your favorite podcast apps:
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Here are a few of the articles that we will discuss during the podcast:
Here’s the live stream for today’s episode starting at 4:00 p.m. ET (or the video after 5 p.m. ET):
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It’s that time of year again, time for events across the country to show off electric vehicles at Drive Electric Earth Month.
Drive Electric Earth Month is an offshoot of Drive Electric Week, a long-running annual tradition hosting meetups mostly in the US, but also occasionally in other countries. It started as Drive Electric Earth Day, but since not every event can happen on the same day, they went ahead and extended it to encompass “Earth Month” events that happen across the month of April. It’s all organized by Plug In America, the Sierra Club, the Electric Vehicle Association, EV Hybrid Noire, and Drive Electric USA.
Events consist of general Earth Day-style community celebrations, EV Ride & Drives where you can test drive several EVs in one place, and opportunities to talk to EV owners and ask them questions about what it’s like to live with an EV, away from the pressure of a dealership.
This month, there are currently 152 events registered across the US and 1 in Mexico (including one online webinar about things to consider when purchasing an EV).
Events have already started, with a smattering happening over the last week. One really neat one was the Asheville event, which showcased the resiliency of EVs in an area devastated by Hurricane Helene, which was made more severe by climate change. That event was attended by the Rivian R1T which famously got dragged 100 feet submerged in mud and came out running fine.
But the bulk of the events are coming up on the weekends of April 19-20th, and even moreso, the weekend of the 26-27th.
There are plenty of events in the big cities where you’d expect, but Plug In America wanted to highlight a few of the events in smaller places around the country. Here’s a sampling of upcoming events:
- Space Coast Drive Electric Earth Month Event at the American Muscle Car Museum in Melbourne, FL on April 19, 10am-2pm – EVs are the new muscle car of the 21st century, and this event has been one of the biggest ones nationally in previous years (with 47 vehicles registered already). The event is free, but the museum has a required donation for entry.
- EV Mississippi Spring Drive Electric Earth Day Event in Hattiesburg, MS on April 19, 10am-2pm – This one is happening at a PetSmart near a Tesla Supercharger, and is a combined EV/pet adoption event with food, pets, raffle prizes, test drives, and activities for all ages.
- Big Island EV – Cruise and Picnic in Waimea, HI on April 26, 10am-1pm – EV drivers will congregate in various places around the Big Island (Kona, Waimea, Waikoloa and Hilo), then drive up Saddle Road to the Gil Kahele Recreation Area on Mauna Kea for a potluck and a chance to talk about the experience of owning EVs on the Big Island.
- Santa Barbara Earth Day 2025 and Green Car Show in Santa Barbara, CA on April 26-27, 11am-8pm – This is part of Santa Barbara’s Earth Day celebration, which routinely attracts 30,000 participants and is one of the longest-running Earth Day celebrations on the planet. The Green Car Show includes ride & drives and an “Owners Corner” where owners can showcase their EVs and attendees can check them out and ask questions.
- Earth Day’25 – EV’s role in a sustainable future in Queretaro City, Mexico on April 26, 9am-4pm – The sole Mexican event, this is a combined in-person/online seminar at the Querétaro Institute of Technology.
- Norman Earth Day Festival in Norman, OK on April 27, 12-5pm – Another municipal Earth Day festival, with hands-on activities for kids to learn about the environment. A portion of the parking lot reserved for an EV car show for EV owners who pre-register to show off their vehicles.
- Oregon Electric Vehicle Association Test Drive & Information Expo in Portland, OR on April 27, 10am-4pm – This one is at Daimler Truck’s North American HQ, and will have several EVs for test drives, owner displays (including DIY gas-to-EV conversions), and keynote presentations by EV experts. They’ll even have a 1914 Detroit Electric EV available for test rides!
- And, we at Electrek want to give a shoutout to Rove’s EV Drive Days in Santa Ana 10am-3pm April 28 – ROVE is the company behind the “full-service” EV charging concept that we’ve talked about several times here on Electrek, and we like what they’re doing for EV charging. They’ve hosted a few community events, and this is their contribution to Earth Month.
Each event has a different assortment of activities (e.g. test drives won’t be available at every event, generally just the larger ones attended by local dealerships), so be sure to check the events page to see what the plan is for your local event.
These events have offered a great way to connect with owners and see the newest electric vehicle tech, and even get a chance to do test rides and drives in person. Attendees got to hear unfiltered information from actual owners about the benefits and trials of owning EVs, allowing for longer and more genuine (and often more knowledgeable) conversations than one might normally encounter at a dealership.
And if you’re an owner – you can show off your car and answer those questions for interested onlookers.
If you can’t make it to any of the physical events, there are also a few virtual events (go here and click “online events” at the top) including a webinar about programs to help you charge your EV at work, a virtual show and tell about EVs in middle America and an information session about potential career pathways related to e-mobility in Virginia.
To view all the events and see what’s happening in your area, you can check out the list of events or the events map. You can also sign up to volunteer at your local events, and if you plan to show off your electric car, you can RSVP on each event page and list the vehicle that you plan to show (or see what other vehicles have already registered).
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