Affordability: The Twenty-Five Thousand Dollar Electric Vehicle

White Paper

A topic on the minds of consumers and automotive industry members alike relates to vehicle affordability. CAR explores this issue in detail in a series of round table discussions with experts and industry stakeholders with a focus on supply, demand, and policy dynamics at play to affect affordability.

In this whitepaper, CAR outlines the drivers of increasing production costs, determining how to reach economies of scale via supply, and analyzing whether a $25000 vehicle is, in fact, affordable for consumers to bolster demand. Finally, CAR examines how policies aimed at reducing greenhouse gas emissions impact vehicle manufacturing and sales. This article is a timely and useful primer on the evolving factors affecting the automotive industry.

In May of 2023, the Center for Automotive Research (CAR) produced an assessment of costs associated with the implementation of the Federal Trade Commission (FTC) notice of proposed rulemaking Motor Vehicle Dealers Trade Regulation Rule (16 C.F.R. § 463) (“Proposed Rule”), called the Assessment of Costs Associated with the Implementation of the Federal Trade Commission Notice of Proposed Rulemaking (RIN 2022-14214), CFR Part 463 (“CAR Report”). On January 4, 2024, the FTC issued the Combating Auto Retail Scams Trade Regulation Rule (“Final Rule”) and Statement of Basis and Purpose (“SBP”)1 . The Final Rule had several changes from the Proposed Rule on which the original CAR Report was based. In response to these differences, CAR, at the request of the National Automobile Dealers Association (NADA), has reassessed the costs associated with the Final Rule and reports its findings in this addendum to the original May 2023 CAR Report.

The Final Rule, while pared down from the Proposed Rule published in July 2022, is largely a subset of the notice of proposed rulemaking and would have unintended consequences for consumers and franchised lightduty vehicle dealerships across the country. According to CAR’s estimations, the Final Rule, which was published on January 4, 2024, would require an additional hour to complete the vehicle purchasing process, divided across the sales process and the review of financial disclosures and documentation required to comply with the rule.

CAR’s research continues to show that the impact on consumers goes beyond just additional time and includes financial implications. The extended purchasing process would likely result in costs passed on to consumers.

CAR also revisited the dealer compliance costs resulting from the Final Rule including updated and ongoing training, investments in IT systems, as well as planning, preparation, and compliance review. The recomputed study found that each dealership location would face median upfront compliance costs of USD 31,450 with the average recurring annual costs for dealers at approximately USD 39,862 per location, ranging from USD 14.39 to 17.24 million over a ten-year period for automobile dealers nationally.

Furthermore, CAR’s recompute of its original assessment estimates the Final Rule will generate a net cost of USD 24.1 billion over 10 years, reduced from the original CAR Report estimated net cost of USD 38.1 billion.

Estimated costs for dealer compliance and the impact on their transactions with consumers were derived from approximately 60 dealer surveys and 15 interviews, conducted from August 2022 through December 2022, with dealers, ESIGN contract technology providers, and IT developers,3 as well as regulatory training professionals. CAR’s survey focused on five key areas including: 1) prohibited misrepresentations, 2) new consumer disclosure requirements, 3) “Add-On” prohibitions and disclosures, 4) recordkeeping, and 5) consumer vehicle transactions. Importantly, dealers were asked for incremental costs, directly related to regulatory compliance only.

The Center for Automotive Research also included qualitative feedback from dealers within our study to support key survey findings, provide essential dealer feedback, and capture respondents’ viewpoints on key regulatory challenges for consideration. Additionally, CAR researchers elected to present our dealer survey findings using median values, to reduce the influence of outlier responses, and to provide the most conservative estimate of costs.

According to the analysis in this study, median upfront costs for compliance with the Federal Trade Commission Rule, if finalized as proposed, were estimated by dealers to be USD 46,950 per location. These upfront costs include updated training, IT system investment, as well as planning and preparation. This results in a total median upfront cost of USD 2,184,348,750 for automobile dealers nationally.

This research addresses the U.S. segment mix, the impact of CAV on personal vehicle ownership, the tension between consumer demand and regulatory mandates on EVs, and the implication for the nation’s engineering and skilled talent development institutions and the overall technological leadership of the United States.