Electric cars were supposed to be cheaper by now, but they aren't. Here are some reasons that explain EV pricing
Traditionally, technology costs a lot when it’s new and gets cheaper over time. That’s one of the reasons why it’s risky to be an early adopter of something exciting and novel — you know you’re paying more to be among the first to have the shiny new toy and that those who come along after you will likely get a better deal.
When they initially hit the market, electric cars were prime examples of new technology with a price premium. Early models cost a lot more than comparable gas-powered cars.
More recently, though, the outcomes have been more varied. Some electric cars have gotten more expensive while others have gotten cheaper.
Tesla, notably, raised prices seemingly at random through 2022 and early 2023. But the automaker followed this with steep price cuts on some models later in 2023 to stimulate flagging demand.
EV startup Rivian generated headlines in 2022 when the company announced a price hike across the board, including vehicles customers had already ordered. However, a few days later, the company reversed course and said agreed-upon pricing for existing orders would be honored.
Chevrolet, Hyundai and Nissan lowered prices on entry-level EV models over the last few years. For example, the base 2023 Chevy Bolt costs about $10,000 less than the 2017 Bolt did when it was new.
Meanwhile, the Hyundai Kona EV subcompact crossover saw a price cut of a few grand, namely to stay relevant as newer and fancier Hyundai EVs join the showroom.
It’s worth noting, too, that these price cuts to certain EV models happened during a summer of record-breaking low inventory for new cars, which not only reduced the availability of sales and incentives but inspired dealers across the country to add “market adjustment” surcharges to squeeze as much profit out of each vehicle as possible. That’s common practice with high-profile, limited edition cars, but not what most shoppers would expect with, say, a Subaru Outback.
So, we’ve seen a newcomer like Rivian attempt to raise prices before even being around long enough to cultivate loyal customers, while buyers of some tried-and-true models, like the Chevy Bolt, enjoy lower prices than ever. Again, the point is that the electric car market doesn’t follow the conventional rules.
So why are electric cars still so expensive?
Because Batteries Are Expensive
Batteries make electric vehicles possible. Batteries are the biggest and most significant component of an EV. Batteries are expensive. Thus, EVs are expensive. It’s hard to argue with this line of reasoning.
Well, except that battery technology is getting cheaper. Over the last decade, the average total cost of an EV battery has dropped by 80%.
Everyone knew that batteries would get cheaper over time — that’s typical of any new or emerging technology. At some point, the initial investments in research and design are recouped. Production will become profitable and get scaled up, and at some point in this process, prices usually drop so the companies can sell more.
Auto industry analysts, and pretty much everyone else, predicted back in the early days of mainstream electric cars that cars would also get cheaper as batteries get cheaper. That’s proven untrue, except for the examples mentioned earlier (Chevy, Hyunda and Nissan) and several other outliers. Overall, while the price of batteries plummeted, the price of a new electric car skyrocketed by 80%, to be exact. So again, we see that electric cars aren’t beholden to traditional wisdom.
That said, even when batteries get cheaper, they’re still expensive. The batteries that make an electric car possible are nothing like the AutoZone battery under the hood of an average gasoline-powered car. Automakers are also constantly trying to improve these batteries, requiring continuous investment. There are tons of ways to improve an EV battery. The hot-button issue for an electric car is range — how far the car can travel on a charge — but car buyers also want batteries that charge faster, can deliver more juice to improve the car’s acceleration, and are incorporated into the car in a way that doesn’t infringe on passenger space or cargo capacity. If the electric car market were still pushing the first-generation Nissan Leaf — widely recognized as the first affordable mass-market EV — it would probably be a lot cheaper than before.
Keep in mind, too, that batteries are particularly prone to setbacks like the pandemic-induced semiconductor chip shortage and rare mineral shortage, and the situation is so complex it’s worthy of an article all its own.
Everything has gotten more expensive in 2020 and the years following, batteries included.
Because Luxury and Performance Are Expensive
In the early days of the Nissan Leaf, it was hard to imagine we’d see an electric Ford F-150 pickup truck just as capable as a gas-powered model, but the F-150 Lightning is just that. On top of that, it’s practically a luxury truck, boasting a stunning design and a list of upscale technology and features a mile long. The 2023 Ford F-150 Lightning starts at about $56,000 for what amounts to a basic work truck spec (in comparison, an entry-level gas F-150 starts at about $34,000). However, Ford knows from decades of F-150 sales that most shoppers will shell out for at least a mid-range trim level, adding potentially tens of thousands of dollars to the sticker price. That’s just one example of how an electric vehicle can seem really expensive.
At this point, mainstream automakers like Ford, Hyundai, Toyota, Subaru and the like all have at least one fully electric model in the lineup, with more to come. Mostly, these mainstream EV models are competitively priced ... with each other.
Luxury automakers are also ramping up their EV offerings, which is an appealing prospect for these companies because they can charge even more. Whenever an automaker introduces new technology, it tends to start on the most expensive vehicles and then trickle down.
It’s a brilliant move for an electric car because automakers can market their superior performance along with upscale design and features.
Finally, all-electric automakers like Tesla and Rivian are, so far, able to charge pretty much whatever they want for their high-performance luxury EVs — again, note that Rivian shows signs of following in Tesla’s footsteps of price hikes outside of regular model year changes. That said, Tesla’s prices have fluctuated several times, up and down, since the beginning of 2023 to take advantage of demand for its higher-priced models and help its entry-level models qualify for tax incentives.
These automakers don’t have any gas models to provide a price point for direct comparison, and they’re different enough from legacy automakers that it’s hard to define the competition.
Because Cars Are Expensive
In mid-2023, the average price of an electric vehicle was about $12,000 more than the average price of a gas vehicle. That's not insignificant, but it's worth pointing out that gas cars are expensive, too. There are many reasons for this, but in 2023, the big one is supply and demand. However, experts predict that by the end of 2023, that disparity could diminish or disappear altogether.
Some auto manufacturers, like Tesla, are historically known for long delays from the time you order a new vehicle to the time you get to drive it. That's because demand in this segment historically outpaced supply; that fact also meant buyers who wanted one of these vehicles had to swallow seemingly random price increases. This isn't a problem exclusive to Tesla. Even Kia Tellurides and Hyundai Palisades were notoriously difficult to buy in 2022, and there are still shortages of some desirable models in 2023.
But until gas-powered cars get cheaper, don't expect overall EV prices to drop.
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