High Prices Block Electric Car Market Growth
While EV sales are starting to stagnate, there is no change in the industry’s attitude. Electronic vehicles are the future of transportation, but economic hardships are slowing down their adoption rates, and that is understandable.
In 2024, less than 3% of EVs on the market were priced below $37,000. And those are budget variants. On average, EVs cost $56,351 in comparison to ICE (Internal Combustion Engine) vehicles which average $48,397.
Vehicles are currently at the highest price they have ever been due to a variety of factors from high financing rates to manufacturing costs. While these prices will eventually return to normal, even in as inflation returns to normal, EVs are still more expensive.
Let’s take a look at what is slowing down EV adoption rates and when that will turn around.
Why Are EVs So Expensive to Produce?
There are several factors that go into determining the price of a vehicle. The price of an EV is no exception as it is a major concern for sales. Companies are trying to optimize the process to reduce costs, but there are a lot of moving parts.
Here are some of the reasons why EVs are still so expensive to produce:
Batteries
This probably won’t come as a surprise, but the batteries that power EVs are the most expensive part of the entire production process.
Batteries are composed of a variety of materials, but the two biggest are lithium and semiconductors. The world is rapidly expanding lithium mining operations to keep up with the unprecedented demand that EVs have caused.
However, currently, the world does not have enough supply. As a result, lithium prices are very high. Yet, the good news is that prices are rapidly falling. In 2022, the price for 1 tonne was $81,360, whereas in 2023 the price for 1 tonne was $41,166.
That’s nearly a 50% decrease in the price of lithium as more supply has been added. And 2024 is likely to see another big decrease.
The other major component for batteries is the semiconductors. These are what help the batteries deliver better performance and can help optimize the electricity distribution throughout the vehicle.
It’s no secret that in the wake of the pandemic, there was an incredible shortage of semiconductors that increased the price. Naturally, this ballooned the cost of EVs as not only do batteries require them, but nearly every component in an EV does as well.
Not Mass Produced
While there is a lot of buzz about EV sales making up a larger portion of total auto sales, the truth is they only accounted for about 8.9% of cars sold in Q3 of 2024. In most cases, automakers still mass-produce ICE vehicles.
As a result, the limited production of EVs keeps prices higher than if they were produced at the same scale as ICE vehicles.
You might think that this is an easy solution to fix, but that’s not really the case. Car manufacturing is an extremely complicated process and to build factories that can mass produces EVs is a very expensive process.
Combine that with the high production costs, and you will quickly realize it is a big financial risk to anyone that isn’t Tesla. And as we have just discussed, while EV demand will grow, it just isn’t high enough for companies to put this level of resources in yet.
R&D
Traditional ICE cars have been around since 1886, and while cars look different and perform better today, the truth is that combustion engines have not really changed that much, but instead, have optimized their performance.
The same cannot be said for EVs. The technology is still effectively in its infancy and creating major breakthroughs is expensive.
For example, Tesla, the most recognizable name in the EV market spent over $4 billion on R&D in 2023. Naturally, businesses need to recoup those costs, which lead to higher-priced cars to make up for what was spent.
And R&D is likely to continue increasing as more models are made available. Each one requires testing to ensure a high performance, and more importantly, to meet the safety standards that customers expect.
Import Tariffs & Labor Costs
Perhaps one of the more expensive issues that the US faces would be the amount of protection it provides to the US auto industry.
The United States imposes a 100% tariff on all EVs produced in China. This is to prevent China from over-flooding our car market with cheap EVs that home producers cannot compete with. And just to be clear, other nations do the same.
For reference, the average price of EVs in China is $34,400 and has budget models as low as $12,000.
If these were to be allowed into the country, it would completely overwhelm home producers. At the same time, it would force consumers to pay for more expensive models. One major reason why the EVs can be built so cheaply in China is the labor costs.
In the US the average auto worker’s hourly pay is $18.46, whereas in China, the ranges are from 14 yuan ($1.93) to 31 yuan ($4.27). While this is just one advantage China has, it can explain the substantially lower price tag.
Another major factor is that most car components are made in China. Thus, unlike US automakers that need to import the materials from abroad, China already has them being produced in their own country, further reducing the price.
Repairs
Not all of the price concerns are directly related to the initial purchase of an electric vehicle. EVs have become rather infamous for expensive repairs. On average, EVs are around 28% more expensive to repair than ICE vehicles.
For comparison, an EV would cost around $6,018 to repair as opposed to ICE vehicles at $4,696.
That said, repair fees are coming down on EVs, and actually increasing on ICE vehicles, so this may change in the future. However, there is one huge problem you could encounter with an EV, and that is the battery.
Depending on the make and model, if you find yourself in a position where you need to replace the battery pack, you could be looking somewhere between $5,000 and $20,000 to replace the battery.
It is worth pointing out that as long as you don’t get into any major accidents, this shouldn’t be a concern, but it’s best to be aware.
Don’t EVs Save Drivers Money on Gas?
Perhaps one of the most well-known aspects of EV ownership is that you save a lot of money by not having to buy gas. And this is completely true. In the US, EV drivers save about $2200 each year by driving a fully electric car.
In the case of hybrids, drivers save $1500 per year, so it is pretty significant.
However, the problem is that someone needs to buy that EV first before they can start saving, and unfortunately, most Americans live paycheck to paycheck, which means they have trouble making a downpayment and swinging those higher monthly payments.
As a result, for most Americans looking to buy a new car, the money you save after making the purchase is something that is generally ignored. And this is a common trend for more expensive purchases that could save people money.
A great example of this would be homeowners purchasing solar panels. In most cases, a solar panel will pay for itself in around 9 to 12 years. Solar panels typically last 25-30 years, so the ROI on solar panels is incredibly high, but installing them is too much for many.
As such, many Americans miss out on saving because of the higher initial price that most simply cannot afford.
On the other side of that coin, though, you would have to consider the increase in your electric bill for charging an EV. If you have solar panels, then this isn’t much of an issue. But the power for the vehicle has to come from somewhere, and that usually means increasing power demands of the household.
Luckily, these additional charging costs at home are still cheaper than a full tank of gas. An average full charge for an EV will cost around $6 while a full tank of gas could set you back $50 to $60, depending on the size of your tank.
This means that EV owners are still saving quite a bit of money from gasoline every year even after plugging an electric car into their power sockets.
Is Price the Only Thing Holding Back EV Sales?
While price may be the single most important factor for most shoppers, it is not the only factor to consider.
One of the main advantages of an EV is that it doesn’t need gas. Instead, users charge the batteries and can travel. However, there is a lot of misinformation when it comes to how often you need to charge your car and how long it takes.
While a lot of this depends on the car model you buy, on average, an EV will get 200-250 miles per charge. This average is quickly rising with some of the latest models able to travel 600 miles.
To put that into perspective, the average driver in the United States drives 39.7 miles per day.
This means that for the average driver, you can comfortably do an entire day of driving without even going below half of your charge. And you could charge your car at night while sleeping, thus you would never be waiting around.
However, if you are planning for a road trip, this is where things get a bit messy.
EV charge stations are not as plentiful as gas stations. As such, it requires more planning from drivers to find a charge station on their route. And then comes the charging itself, which varies greatly on what model you are driving and the charge station you use.
Charging is broken up into 3 levels. The first is Level 1, which is not quick and intended for home use overnight. Level 2 is what you will typically see at charge stations can take 1-2 hours to charge a battery to full.
And then there is Level 3, which is often dubbed “Fast Charging” that can see you with 80% charge in just 20 minutes.
Unfortunately, many people do not like to wait, and that presents a problem for EV adoption. But the perception is changing as fast charge stations become more popular across the country.
What Are the Most Affordable Models in the US?
EVs are a crucial part of the US as the world works to achieve climate goals. Purchasing an EV is a great choice and can save you money over the long term once gas is factored into the equation. For those struggling to find the right model, here are the 3 cheapest models to buy.
Note: Prices may vary depending on location and financial rates. There are also taxes and other fees to consider when purchasing a new car, but these are not exclusive to EVs.
These three models fall well below the national average for EVs and are competitive with traditional ICE vehicle prices. It is worth pointing out that these prices represent the cheapest models. Prices can vary wildly as you add different features to your order.
It’s also worth pointing out that shoppers can score some major discounts by aiming for sales during holiday weekends like Labor Day or July 4th. Many dealers offer lower rates, but it really comes down to location.
How Do EV Subsidies Impact Sales?
Another huge component of EV sales is that the government will subsidize your purchase. This comes in the form of a tax credit that typically changes yearly and is highly dependent on the current administration.
Currently purchasing a new EV will result in a $7,500 tax credit, while purchasing a used EV will result in a $4,000 tax credit.
The reason governments subsidize EVs is to help incentivize people to purchase them. EVs help reduce greenhouse gas emissions, and lower air pollution when compared to traditional vehicles, thus they benefit society.
However, since it is difficult to get consumers to purchase more expensive goods, the government offers a tax incentive to sweeten the deal. As EVs become more popular, subsidies will undoubtedly get smaller and eventually disappear as they are no longer needed.
That will take many years, however. Be sure to look into the current tax credit you may be eligible for in your area and if your car qualifies.
Where Do Hybrids Fit into This?
Hybrid vehicles are those that use both an internal combustion engine and an electric motor. The electric motor helps the vehicles move short distances by expending the energy that was charged, thus increasing fuel efficiency.
Price-wise, hybrids typically exist as more expensive than ICE vehicles but are cheaper than EVs.
They are also growing in popularity. They offer many benefits to drivers including better gas mileage, but also don’t have the charging station restrictions that intimidate buyers. And the price tag is more reasonable.
While ultimately hybrids will fall to the wayside like ICE vehicles, they have several advantages and offer a reasonable purchase for many Americans today.
If you cannot afford an EV, hybrids are the second-best solution.
EV Sales Are Imperative to Achieve Climate Goals
The transformation of the world’s car fleet from ICE to EV is going to be one of the most significant ways the world can lower greenhouse gas emissions.
In 2023, greenhouse gas emissions from vehicles made up 16% of the global total. By incentivizing EV sales, we can help bring that to zero, but as we have discussed, there are many hurdles.
Yet, the future is clear. EV sales will replace ICE vehicles around the world over the coming decades. But today, prices remain the biggest obstacle.
The good news is how that will change in just a few years as estimations point that EVs will be price-competitive by 2028.
And remember, it’s not just big purchases that matter when going green. Purchasing other green products and services like web hosting, solar panels, and more can help make a huge difference.
Do you plan on purchasing an EV or do you already own one? If not, why?
