The search for budget-friendly cars in the U.S. is becoming increasingly disheartening for potential buyers.
A recent survey by Edmunds revealed that almost half of those in the market for a new car plan to spend no more than $35,000.
In stark contrast, the average price of new vehicles in 2024 has escalated to around $48,000—an increase of more than 50% since a decade ago, as noted by Kelley Blue Book.
Disappearing Affordable Options
Options for vehicles priced below $20,000 have virtually vanished.
Hopes for affordable electric vehicles (EVs) dimmed when Elon Musk dismissed the idea of a $25,000 EV, calling it absurd late last year.
The potential introduction of new tariffs—echoing policies from the Trump administration—could further complicate the search for economical vehicles.
While Musk initially expressed intentions to create a low-cost EV, his stance seems to have shifted.
He recently suggested the possibility of a $25,000 robotaxi by 2026, though skepticism about this timeline abounds.
Nevertheless, industry experts agree that the budget segment for EVs in the U.S. is not very appealing.
Peter Rawlinson, CEO of Lucid Motors, which specializes in luxury EVs, pointed out that high production volumes are crucial for even modest profit margins.
Unfortunately, the current market dynamics don’t support such conditions.
Impact of Tariffs on Vehicle Prices
Adding to the woes, the Biden administration is considering decreasing or entirely eliminating the $7,500 federal tax credit aimed at making EVs more financially accessible.
Should this happen, it would likely hinder the already sluggish sales of electric vehicles, particularly among consumers with tighter budgets.
While prospects within the U.S. appear grim, Chinese manufacturers are thriving in the budget EV market.
Companies like BYD sell affordable models, some priced around $12,000, capturing the demand for economical vehicles.
However, these competitively priced options remain largely missing from the U.S. landscape due to existing tariffs and regulatory hurdles.
President Biden has criticized Chinese EV manufacturers for supposed unfair practices, leaving the specifics of government support in China’s EV sector unclear.
Nonetheless, the global appetite for affordable cars is evident.
Shifting Focus of the U.S. Auto Industry
The U.S. auto industry has progressively shifted away from producing budget vehicles.
The percentage of new cars sold for $25,000 or less has plummeted from 40% a decade ago to roughly 10% today.
Current discussions surrounding a proposed 25% tariff on cars made in Mexico or Canada may further drive up prices for some models in the budget category.
With about a third of affordable vehicles for the U.S. market produced in Mexico, these potential tariffs could effectively price many consumers out of the market.
Take, for instance, the Honda Civic sedan, which retails just under $25,000 and is made in Canada, alongside Kia’s Forte and K4 models, sold at around $20,000 and $22,000, respectively, both manufactured in Mexico.
Additionally, many components imported from these countries are essential in assembling U.S. vehicles.
Consequently, this could lead to increased costs for consumers, with some estimates suggesting a jump of around $3,000 per vehicle.
This added financial burden would hit budget-conscious buyers particularly hard, especially now as they contend with rising prices during the aftermath of the pandemic.
Though tariffs aim to promote domestic manufacturing, achieving this goal would take significant time, if it materializes at all.
In the meantime, automakers—like many businesses across various sectors—might refocus their efforts on wealthier consumers to ensure profitability.
Source: Fastcompany