Can Electrics Cars Bring Reduction in Prices
The press conference on 15 January by General Motors North America Head Mark Reuss about green technology, gave an idea to investors that electric cars competition is not dead. Recently, popular electric car Nissan Leaf won the highest scores in consumer satisfaction survey. According to this survey, the consumers were asked about their present car, keeping in view all the specifications. The highest score came for Nissan Leaf and consumers showed willingness to buy it in future as well.
However, there are number of challenges that companies do have to overcome to make the usage of electric cars common. The “initial price” and “distance limitations” are the two important factors on which the auto companies are focusing. Besides, vehicle shipping rates i.e. cost to ship electric cars influence somehow too. Presently, the electric vehicle is suitable for upper middle class people, who have their personal garage where they can charge their vehicles.
Here are some of the important factors that can tell us that where do companies have potential to reduce their overall price:
Economies of Scale
The modern economics tell us that increase in overall production will lead towards decrease in overall prices. However, the question arrives that whether we expect such behavior from electric cars production. The answer is yes and there is a potential that the prices will decline. Half of the price of electric cars comprise of battery. With the improvement in processing practices, the battery will become less expensive.
The Higher Demand of Inputs
Some critics do assume that increase in the demand of the raw products can lead towards increase in their cost. Therefore, there will not be any advantage of decrease in price due to mass production and the price effect will become nil. However, the companies are transforming from high value inputs to lower value inputs. Many companies are using iron instead of expensive nickel and cobalt. Iron metal is very cheaper as compared to any of these metals.
Cost Reduction Strategies
Many experts are working on decreasing their business costs. The greatest real example can be seen from Nissan Leaf that has decreased the price of its new model electric car 2013 by more than $6000. Many experts believe that this reduction in price is due to the shifting of plant from Japan to Tennessee. This US state has more easy accessibility to lithium ion batteries and it has resulted in decrease in overall cost for the company. This shift was made possible with the help of US government that started green initiative to prevent the environment.