Electric Car Prices vs. Gas Car Prices
Prices for all cars are at record highs this year. The average price for a new electric car in October 2022 was $64,249, which is actually down over $2000 from August. This compares to $48,281 for a new gas car, the price of which is only down $20 from the August high. This is a $16,000 difference, which is a lot, but it also reflects the market reality that most of the available EV models are still higher end cars. By mid 2023, we will be seeing a lot more economy and mid-priced EV models.
I study the used car trends to produce Recurrent’s quarterly EV market report. In October 2022, the average price for a used EV was $42,700, compared to $27,500 for a used gas car. However, there are a ton of gently used, or "new used" EVs from 2022 and 2021 in the mix, and that drives up the average price. In fact, many of the "new used" EVs in the used market are being sold above the MSRP, because they are hard to find. For instance, we see this a lot with the hot new models, such as Ford F-150 Lightning, and the new Rivian trucks.
Recurrent has its own used EV pricing bundle, much like the consumer price index, that tracks the same models and model years over time. This price bundle is not sensitive to the influx of "new used" EVs and more accurately reflects a true used EV price. That average, as of October 2022, was $37,597.77, which is only $10,000 above the used gas car price.You still have to remember that the average used EV is much just four years - much newer than the average used gas car, which is 6.47 years.
The Underlying Costs of Electric Cars
First off, everything costs a lot right now. If you've been to a grocery store lately, you know that. In the auto industry, there are still supply chain issues that are keeping inventory low and prices elevated. Estimates show that worldwide, the auto industry has cut almost 4 million cars from production this year due to a lack of semiconductors, so there is a supply crunch across the board. However, electric cars require 10x more semiconductors than a gas car so they are naturally hit harder.
Next, there is unprecedented buzz and excitement about EVs. We've had the California gas ban, the Inflation Reduction Act, and a ton of infrastructure spending. We have new electric trucks and SUVs coming out, gaining the attention of a whole new demographic of buyer.
EV Batteries Are Expensive
An outsized portion of an electric car’s cost and value is in its battery. A quick look at our analysis on battery replacements shows that. But there are other reasons that EV prices are high right now.
Today we have higher than ever demand for EVs, but limited production. Of course, for EVs, the big driver of cost is still the battery. And people want bigger EVs - trucks and SUVs - and these need bigger, and therefore more expensive, batteries. A lot of battery companies are setting up shop in the US to help bring down the cost of EV batteries, but it takes time to get them up and running.
The same is true for the plants that build the electric cars, themselves. There is a lot of investment worldwide to ramp up EV production, but existing manufacturing plants are not caught up, yet. 2022 was the year that most car companies really committed to electric - now they have to get ready for it. Even Tesla, which is ahead of the game, is still expanding their manufacturing and getting it ramped up.
The effect of limited production is two fold: one, is that sellers can mark up new cars because there is more demand than supply. Then, people are flipping these cars - buying them near MSRP and reselling them with only a few hundred miles at a big markup.
Narrowing the Gap Between Gas and Electric Cars
If you look at the total cost of ownership, even over a few years, EVs are very competitive with gas cars. And, the higher the price of gas goes, the quicker EVs catch up. What we see is that in gas cars with lower efficiency, such as trucks, EVs are cheaper to buy and own over three years. With high efficiency gas cars, the price over three years is similar. The fuel costs and incentives really drive the math over a three year ownership model.
If you look a bit longer term, the maintenance costs for EVs are much lower than for gas cars. Just looking at first year maintenance costs, EVs cost under 8 cents a mile, compared to 9.68 center per mile for a gas car. That saves you a few hundred dollars on maintenance each year, and as cars get older, things like oil changes and transmission issues only add up.
Car makers are projecting that in the next few years, the purchase price of an EV will be around the purchase price of a gas car. And, there is talk of loosening the restrictions on the EV tax credits for a year or two, so that will be a huge discount for new EVs. In terms of the used EV market, price trends there are largely driven by what happens in the new car market. When you have limited supply or very high prices in the new car market, everyone starts to look at used cars. If you have a lot of reasonably priced options for new cars, then demand for the used car market comes down, too.