EVs Are Cheaper Than Ever, But Is That A Good Thing?

Until recently, the price point for electric vehicles (EVs) has been prohibitively expensive for most American buyers. However, data from Cox Automotive shows that EV prices are plummeting. A future where EVs achieve price parity with gas-powered cars is close. Does that mean more buyers will choose them? 

EV Prices Are Dropping

According to Cox Automotive data and Kelley Blue Book estimates, the average EV price slid from $54,863 in January to $52,314 in February, a $2,549 price difference. In terms of year-over-year percentages, that’s an 11.6 percent difference from January 2023 to 2024 and a 12.8 percent difference from February 2023 to 2024.

According to Stephanie Valdez Streaty, the Industry Insights director for Cox Automotive, “Our research continues to show that price remains a significant barrier for consumer adoption. While the higher inventory levels and increased competition continue to drive down the price premium of EVs, it’s important to acknowledge that EVs remain priced above mainstream non-luxury vehicles by nearly 19%.” 

While EVs may still have a higher price point than most gas-powered cars, it’s important to note that in 2022, a new EV was, on average, $17,000 more expensive than a gas-powered car; February’s drop in price saw that gap close by $12,000. According to Cox Automotive, the average price difference between a new EV and a gas-powered vehicle was only $5,000 in February 2024. That’s a remarkable difference in just two years.  

Tesla Started The Trend

At the forefront of the EV market’s price drop is Tesla. According to Cox Automotive, Tesla’s two best sellers in the United States, the Model Y and Model 3, saw their prices dip to their “lowest on record” and “near the lowest level on record,” respectively, in February. Cox Automotive notes that prime incentives and discounts on many EV models also lead to historically low prices. 

It’s important to note that even though Tesla’s Model Y made history as the world’s best-selling vehicle last year, Tesla’s fourth quarter numbers for 2023 and first quarter numbers for 2024 took a dip. The automaker falling short on the number of EVs they expected to deliver for two consecutive quarters puts them in a challenging position. 

According to a report from the Washington Post, Tesla once commanded almost 80 of the EV market in the US. According to a report from Yahoo Finance, that market share is now down to around 60 percent. Price cutting is a tactic businesses will use to boost sales during times of struggle. As Tesla continues to tumble, their prices will likely remain low.  

EV Prices Will Continue To Plummet

It’s worth noting that Tesla is also facing more competition than ever in the EV market. However, increasing competition from other automakers and stagnating sales only tell part of the story. According to a report from the U.S. Energy Department, battery prices are almost 90 percent cheaper now than they were 16 years ago. 

When speaking to the effect that declining battery prices will continue to have on the cost of producing EVs, Valdez Streaty said, “Batteries can make up as much as 40 percent of the cost of the vehicle. We’ll see battery prices continue to drop…so I think we’ll start to see this closing near price parity.” 

While lower production costs for EVs are good news in the long term, it’s hard to ignore that adoption rates in the US have been lackluster for quite a while now. Now that the initial rush from buyers eager to adopt an EV is over, it’s important to note that low demand for these vehicles, which are in high supply, will also keep their prices low for the foreseeable future. 

A Buyer’s Market Burdens Current EV Owners

Unfortunately for early EV adopters, declining prices are increasing the devaluation of their cars. Just think about it: If you bought a brand new EV last year, but that same car has lost more than 10 percent of its value, you’re probably not too happy about it. And Yes, cars tend to depreciate, but EV price drops are taking it to a new level. 

A report from Yahoo Finance states that EVs are “losing their value at record rates.” According to their report, some buyers are now choosing to lease electric cars to prevent themselves from “losing too much value” in the resale market as used EV prices keep declining. 

Leasing Is A Better Option  

According to data from Cox Automotive, the rate at which EV buyers choose to lease their car instead of purchasing it outright exceeds that of gas-powered car buyers. They cite that 54 percent of non-Tesla buyers are punching their EVs through leasing. Meanwhile, only around 20 percent of buyers in the overall auto market choose to purchase their new car through a lease.

There’s hope that EV prices consistently getting lower will lead to a spike in their adoption numbers. However, the prospect of buying a car with plummeting resale value is a hard sell for most American consumers. It’s essential to remember that even though EVs are becoming cheaper, that doesn’t necessarily mean they’re more affordable for consumers. 

As an executive analyst for Cox Automotive, Erin Keating explains, “While everyone may applaud that prices are coming down…affordability is still challenging the market. Most shoppers have not seen their incomes increase as quickly as vehicle prices, so affording a new vehicle remains difficult.”

Leasing a new EV is likely the way many consumers will be able to adopt one in the immediate future. Hopefully, more consumers will see these price drops and be willing to try one. However, in the long term, mass EV adoption by the American public will likely come down to if enough infrastructure supports most people freely driving an EV.