It's been a rough time for electric vehicle stocks; lately, investors have fled higher-risk investments in search of more stable places to put their money.
I think there are plenty of reasons to be bullish on EV stocks over the long haul, but there are some concerns that investors should know about, including rising electric vehicle material costs. Here's why.
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Lightning-fast price increases
Ford (F +3.54%) began selling its electric F-150 Lightning in 2021, with a starting price of just $39,974.
But since then, the EV pickup truck has undergone major price increases -- three of which have come since August -- that have sent the cost of the truck soaring nearly 40% to its current base price of $55,974. The latest increase came just last week with a price hike of about $4,000.
The company said in a statement to CNBC that price increases are a normal part of business due to "rising material costs, market factors, and ongoing supply chain constraints."
Back in August, Ford said rising battery costs were the reason for the increase, and it's likely part of the most recent increase as well.
Research from AlixPartners published over the summer showed that costs of critical EV battery materials have skyrocketed more than 144% over the past two years.
NYSE: F
Key Data Points
Of course, Ford isn't alone in raising prices for its EVs. Tesla (TSLA +2.96%) raised prices across its various models twice in 2022. Rivian (RIVN +2.01%) raised the price of the quad-motor version of its R1T pickup truck in March by $12,000 and also eliminated the entry-level versions of both its pickup truck and the R1S SUV in August.
And luxury electric vehicle maker Lucid Group (LCID 5.20%) raised prices by about 10% across three of its models earlier this year.
Even if automakers pass some rising costs on to customers, there will still be negative consequences for automakers. And some will feel the pinch more than others.
Don't give up on EVs, but keep an eye on rising prices
Ford already said in the second quarter that rising EV costs had erased the profit the company was making from its Mustang Mach-E. At an automotive conference in June, Ford's CFO John Lawler said, "We actually had a positive bottom-line profit when we launched the Mach-E, commodity costs have wiped that out." He added, "You're going to see pressure on the bottom line when we launch our EVs, they're not going to be positive."
Ford can, of course, afford to have one of its newest EVs be unprofitable for a short time. Similarly, rising costs for Tesla probably aren't as serious of a concern. The EV maker currently enjoys a gross profit margin of 26%, one of the highest in the automotive world.
NASDAQ: TSLA
Key Data Points
Tesla is also working on new ways to reduce the cost of its batteries. Additionally, battery start-ups are researching new ways to produce EV batteries with different materials -- including sodium ion and lithium-sulfur -- which could help lower battery costs in the coming years.
But smaller EV players -- including Rivian and Lucid -- don't have the same financial runway that Ford and Tesla have. Battery costs would likely affect their businesses more.
That's not to say investors should stay away. Rivian, for example, still has a healthy number of preorders for its vehicles -- 114,000 -- and the company has already said that it has enough cash on hand to keep its company running through 2025.
Additionally, Lucid just raised an additional $1.5 billion to help keep the company funded.
But these smaller EV players will have less wiggle room in their margins than the large automakers, and if prices continue to increase, then a short-term problem could spiral into a much larger issue.
If you're considering jumping into EV stocks, you need to know that this market is pretty volatile right now. Rising material costs are going to make things even more difficult for automakers, especially EV companies that aren't profitable yet.
