Will electric cars now become cheaper?

The start of the new financial year in Australia has not heralded a drop in the price of electric cars, despite the Albanese government’s new policy taking effect as of July 1, 2022.

The national policy sees import tariffs abolished on EVs priced under an increased luxury car tax (LCT) threshold for fuel-efficient vehicles of $84,916 (up from $79,659) for the 2022-23 financial year.

There’s also a new fringe benefits tax (FBT) exemption of 47 per cent for businesses which purchase an electric car.

The federal government’s policy will, however, only assist car-makers whose country of origin doesn’t already share a free-trade agreement with Australia.

This eliminates popular and incoming models from Tesla (made in China and the US), MG, BYD, Polestar (China), Kia and Hyundai (South Korea).

The MINI Cooper SE range, the Nissan LEAF (made in the UK) and the entry-level Mercedes-Benz EQA 250 (made in Germany) are the three models currently on sale that would benefit from the cut.

Given the tariff cut would be applied to the landed cost of the vehicle, not the recommended retail price, it would fall to the respective companies to pass on the savings to consumers.

As of July 1, none of the three had announced a price change on their respective vehicles; carsales has made enquiries with all three brands.

The impact of abolishing import tariffs on a $50,000 vehicle equates to an approximate saving to the car company of $2000, while the FBT advantage to a business can be as much as $9000 per annum.

However, pricing pressures on car-makers has never been more acute. Increases in the costs of everything from raw materials to labour and shipping to fluctuations in interest rates and exchange rates has seen most car-makers pass on price rises.

In many cases, carsales understands that car-makers are not passing on to consumers the entirety of wholesale price rises they are experiencing, in an effort to maintain a competitive price point.

As well, the profit margin on an electric vehicle is far thinner than on its petrol- or diesel-powered equivalent.

Fewer EVs are imported, which means less opportunity for a price break from suppliers.

Add to that the squeeze on raw material prices for large-ticket items like batteries and an increase in the cost of freight right across the supply chain, and it’s understandable that car-makers will be reluctant to pass on the benefit of a tariff cut.

In fact, Australian new-car buyers may be heading into an era of less affordable new cars that will take decades to correct.

Major industry players like Stellantis – which owns brands including Jeep, Fiat and Peugeot – actually foresee a collapse in the new-car market if EVs cannot be produced more affordably.

With more than 75 fully-electric models in the pipeline this decade, Stellantis is looking to cut the price of an EV by 40 per cent per unit by 2030.

Ford, meanwhile, has suggested that some of its battery-electric vehicles are currently “unprofitable”, due to the rise in raw material costs.

All this means that while state and federal governments are finally coming around to supporting the rollout of EVs, prevailing market conditions both here and overseas means it might not be enough.

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