What is a chip key and why do they cost so much?

More correctly, the “chip” is actually a transponder. Early versions had a small resistor in the blade and were called “VATS” by General Motors. VATS stands for “vehicle anti theft system”. The cars computer had to recognize the value of the resistor when the ignition was turned, in order for the car to run. If a key with the right mechanical cuts, but the wrong resistor value was used to try to start the car, it would go into a “timeout” mode where the engine could not be started for 10 minutes. Modern cars send a signal from the ignition cylinder that the transponder reflects back with an encrypted value. If the car doesn’t recognize the value, it will immobilize the vehicle for a set period of time. Almost all vehicles sold today have this method of “passive anti-theft” built into them. The reason why they are so expensive is two reasons actually. First, the transponder and second, there is typically some kind of programming that needs to be done. The programming usually requires the vehicle to be connected to a special tool for a period of time, and there is almost always a fee associated with that.