Due to their gas cost savings, lower carbon footprint, and potential to reduce dependency on fossil fuels, electric vehicles (EVs) are poised for breakthrough popularity, and will transform how many Americans drive. But, their higher upfront sticker prices compared to traditional internal combustion engine (ICE) vehicles remain an obstacle for many.
The average price of an EV is currently about $4,600 more than an ICE. Until recently, those prices were expected to remain steady for a few years. However, due to new government incentives, falling prices for battery materials, and increased competition among manufacturers, the days of more affordable EVs are closer than ever. Here, we’ll take a look at the current challenges around EV costs, and signs of hope for EV prospective buyers.
Several factors contribute to the higher cost of electric cars:
Though battery costs have been steadily decreasing over the years, they are still the most significant factor driving the total cost of EVs. Electric vehicle batteries require raw materials like lithium, nickel, and cobalt. Fluctuations in the availability, price, and sourcing of these materials can impact the cost of EV production. Advances in battery technology, economies of scale, and increased production capacity are expected to further drive down battery costs.
Currently, manufacturers are still producing fewer electric cars compared to traditional gasoline cars. Mass production allows manufacturers to take advantage of economies of scale, reducing production costs. Alongside rising consumer demand, prices are likely to drop as Tesla, Ford, General Motors, and their battery suppliers increase their construction of new factories, reaping the cost savings that come from mass production. Adding to the competitive pressure are new EVs from companies like Hyundai, Volkswagen, and Nissan.
Substantial research and development investments go into the development of EV technology. Car makers have to invest in designing new battery management systems, drivetrains, and other components specific to electric propulsion. EVs also require investments in electric charging infrastructure, including grid upgrades, charging stations, and other related facilities. These investments, while essential for promoting the adoption of electric vehicles, can add to the overall cost.
Manufacturers often design EVs to offer high performance and advanced features like regenerative braking, rapid acceleration, and cutting-edge technology that can drive up costs.
The answer appears to be yes and faster than expected. Here are the hopeful signs.
A large factor driving price cuts comes from the Inflation Reduction Act. This legislation, passed by Congress in 2022, offers tax credits of up to $7,500 for EV buyers. Qualifying battery-powered or plug-in hybrid sedans will need to sell for less than $55,000. SUVs and pickups will qualify only if the retail price is below $80,000.
Fortunately, car makers are cutting prices and increasing the number of models that could qualify for the tax credits. This year, Ford announced cuts from $600 to $5,900 on its Mustang Mach-E SUVs. Ford’s decision came only a few weeks after Tesla dropped some of its own prices, including a $13,000 cut on the base price of its Model Y SUV.
Continued advancements in battery technology and increased production scale are expected to significantly reduce battery costs. As one example, Toyota recently announced they’ve created a new battery model that will halve the cost, size, and weight of batteries, which could represent a major advance for EVs and help in making them more cost-competitive with ICEs.
EV sales currently make up only about 7% of the U.S. market. But sales in the second quarter of 2023 were up 48.4% over the same quarter last year. With EV adoption continuing to grow and manufacturing processes becoming more streamlined, economies of scale will come into play. Mass production will enable manufacturers like Tesla and Ford to reduce costs and pass those savings on to consumers.
While it’s challenging to pinpoint the exact tipping point when EV prices become comparable to ICEs, some experts now think that, due to these factors, that time could arrive by 2027. Others are even more optimistic, with one auto journalist predicting that for some more basic models, that time will be this year. As battery technology improves, production volumes increase, and manufacturing processes become more efficient, electric cars are likely to become more affordable. This change will make sustainable transportation options accessible to a larger segment of U.S. buyers.
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Published September 6, 2023 6:03PM
Eveelife is an eco-oriented lifestyle platform that helps consumers make more purposeful choices about how they live and what they consume. We do it by curating content and products that help them make more conscious, carbon-free choices while amplifying their EV ownership experience.
