In mid-July, Audi announced its intention to sell its state-of-the-art electric vehicle (EV) manufacturing facility in Brussels as it struggles with slow EV sales. Unfortunately, despite the plant’s advanced capabilities, Audi has not found a buyer since the announcement and has rejected all offers, citing that none have met its expectations.
While Audi’s premium status undoubtedly exacerbates the issue of slow sales, its difficulties reflect a broader challenge across the entire automotive industry: consumers are increasingly unable to afford the high upfront costs of vehicles at large, let alone premium electric vehicles – each adjectives commanding a premium on their own. Simply put, this is not a challenge exclusive to luxury brands—automakers at every level are grappling with a market that isn’t ready to embrace EVs at current price points.
Wider Industry Concerns?
Audi’s difficulty selling its Brussels facility is emblematic of a more significant issue the entire EV market faces. While the plant boasts advanced technology, several factors might be discouraging potential buyers, including:
- Technology transfer: Adapting Audi’s proprietary technology and production processes could be complex and costly for other manufacturers.
- Labor costs: Operating in Brussels, a city with high living and labor costs, may not appeal to automakers looking for more economical production facilities.
- Market positioning: The plant may be structured to produce premium EVs, which limits its appeal to automakers focused on mass-market models.
Each of these hurdles is a financial burden that surfaces in the final sale of new vehicles, raising consumer pricing and causing slowing sales. While Audi’s premium status makes its case more extreme, these hurdles highlight broader issues facing all automakers in the EV space, where high production costs and the affordability gap create significant roadblocks.
A Growing Affordability Gap
Notably, Audi is just the latest auto manufacturer to see its struggles make the news, underscoring a stark reality: electric vehicles remain largely out of reach for the average consumer. In fact, this is an issue that has been ongoing for decades now and is only made worse with the rise in EVs. For example,
In the U.S., the cost of a new vehicle has risen from 70.8% of the average annual wage in 1999 to 73.9% in 2023, with the average vehicle price now sitting at $48,389 USD and the average annual income at $65,470 USD
In Canada, the situation is even more dire, with new vehicle prices accounting for 103.2% of the average annual wage by 2023. The average vehicle now costs $67,259 CAD, while average annual income is only $65,180 CAD
The gap between wages and vehicle prices has widened drastically over the past two decades, and electric vehicles, priced higher than their gasoline-powered counterparts, have felt the most impact.
These numbers show that new vehicles—especially premium-priced EVs—are becoming increasingly unaffordable for the average consumer at a time when purchasing power is quickly eroding across the board.
Production Cuts and Delayed Launches
While this is a problem that auto manufacturers got themselves into, the affordability issue is now forcing many to reassess their EV strategies. Even less premium brands are dialing back production as demand for EVs falls short of expectations:
Ford (F +0.36%) scaled back production of its electric F-150 Lightning due to lower-than-expected demand, despite the vehicle’s innovative features and strong market presence
Tesla, (TSLA -0.2%) often seen as the leader in the EV revolution, has cut production forecasts and adjusted pricing amid growing concerns over affordability and a cooling EV market.
General Motors (GM +0.76%) delayed the launch of its more affordable Chevy Equinox EV, which was intended to compete in a lower-price segment.
These setbacks show that even manufacturers with extensive resources and market experience are grappling with the same challenge: a market that is not yet financially ready to embrace electric vehicles on a mass scale.
Affordable EVs: A Glimmer of Hope
Notably, some manufacturers are working to offer more budget-friendly electric vehicles, albeit ones with limited functionality beyond acting as commuting vehicles in an urban environment:
- Chevrolet Bolt 1LT BEV – Priced at $26,595 USD, the Chevy Bolt is one of the most affordable EVs on the market, though it has faced sales challenges due to its limited size and range
- Nissan Leaf S—Available for around $29,280 USD, the Nissan Leaf is another budget-friendly EV with a range of 149 miles. However, its shorter range limits its appeal for consumers needing more versatility.
- Fiat 500e – Priced at $34,095 USD, this compact EV is ideal for city driving but, like the Nissan Leaf, has a limited range of 149 miles, making it less practical for longer commutes.
As mentioned, while these models offer a more affordable entry point into the EV market, they often come with range, size, and features trade-offs, making them less appealing to a broader audience.
General Motors (GM) Spotlight
Although Chevrolet, which is a division of General Motors, was forced to delay its Equinox EV, the company currently boasts one of the most economical EV lineups on offer today.
General Motors Company (GM +0.76%)
General Motors presents an intriguing option for investors due to its leadership in affordable EV offerings. While GM’s stock performance has seen some volatility, driven by global supply chain disruptions and the high costs of EV development, the company’s focus on EVs through its core brands like Chevrolet should position it well for future growth. While true for all auto manufacturers, GM’s ability to balance its ongoing internal combustion engine business while expanding its EV lineup will be key in offering long-term growth potential in an evolving market.
Bridging the Gap
While it may seem entirely ‘doom and gloom’ when assessing the state of EVs, it is important to remember that at this point, the transition to some form of EV (e.g., fuel cell, battery pack, etc.) is all but inevitable. First, however, the affordability challenge must be addressed through a multi-faceted approach to make EVs accessible to a broader range of consumers:
- Technological advancements: Continued investment in battery technology, such as solid-state batteries, can drive down costs and improve performance, making EVs more appealing and affordable.
- Economies of scale: As production volumes increase, manufacturing costs will naturally decrease, leading to lower consumer prices.
- Government support: Expanded incentives and subsidies are crucial for lowering the upfront cost of EV ownership, particularly for lower-income households. Governments must also invest heavily in charging infrastructure to alleviate range anxiety and encourage EV adoption.
- Innovative business models: Options such as battery leasing or EV subscription services could help lower the upfront costs of EVs and make them more financially accessible to consumers.
Conclusion
Audi’s ongoing struggle to sell its state-of-the-art EV manufacturing facility in Brussels underscores a critical issue in the automotive industry. Despite electric vehicles’ benefits and long-term potential, affordability remains a significant barrier to widespread adoption. This is not just a challenge for premium brands like Audi but for the entire industry, as evidenced by Ford, Tesla, and GM scaling back EV initiatives.
The path forward involves strategic collaboration, government support to make electric vehicles accessible to all consumers, and, possibly most importantly, continued technological innovation, such as developing new battery topologies.
