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EVs Aren’t That Cheap Afterall; Here’s Why

Story Highlights

As high gas prices fuel interest in electric cars, Tesla, General Motors, Ford, Lucid, and Rivian have lifted the prices of their electric vehicles. However, elevated EV prices may work against the industry by slowing mass adoption.

Tesla (TSLA), General Motors (GM), and Ford (F) have been raising the prices of their electric vehicles (EVs). It turns out there is more than one reason for the hikes, and the outcome may not be all that desirable. 

A series of price hikes has driven the cost of Tesla’s high-end variant of its top-selling Model Y SUV car up by 9% in 2022, according to a Wall Street Journal report.

Meanwhile, GM recently raised the price of its GM Hummer electric pickup by $6,250, putting the cost of the truck in the range of $85,000 to $105,000.

According to the report, in 2022, the average price of an EV has jumped 22%. Apart from Tesla, GM, and Ford, the other automakers that have hiked their EV prices are Rivian (RIVN) and Lucid (LCID).

High Material Cost and Demand Fueling the EV Price Hikes

The automakers have cited the rising cost of materials, especially for batteries, as the major reason for hiking the prices of their products. They are making the hikes to offset the soaring production costs. The high demand for electric cars amid tight supply has also contributed to the price increases. More drivers are showing interest in EVs amid high gas prices, resulting in strong demand for the models. 

However, Tesla is shrinking its workforce even as it hikes the prices of its cars amid high demand. The Elon Musk-led EV pioneer plans to lay off 10% of its salaried workers over the next three months, in an adjustment that would reduce its overall headcount by about 3.5%. TSLA CEO Elon Musk explained that the cut is in response to the salaried workforce increasing too fast.

Wall Street’s Take

On June 24, Mizuho Securities analyst Vijay Rakesh reiterated a Buy rating on Tesla but cut the price target from $1,300 to $1,150, which implies 56% upside potential.

The Street is cautiously optimistic about Tesla stock with a Moderate Buy consensus rating, based on 16 Buys, eight Holds, and six Sells. The average Tesla price forecast of $904.17 implies 22.7% upside potential to current levels. Shares have increased 46.1% over the past six months.

Stock Investors

TipRanks’ Stock Investors tool shows that investor sentiment is currently Positive on Tesla, with 1.5% of portfolios tracked by TipRanks increasing their exposure to TSLA stock over the past 30 days.

Key Takeaway for Investors 

While high EV prices may boost or at least protect profit margins for automakers, they will eventually need to make the vehicles more affordable to drive for mass adoption. At the moment, electric cars sales are mostly driven by affluent consumers. Tesla understands that and its CEO Elon Musk has said that future price cuts are a possibility. 

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