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FINANCIAL CHRONICLE™ » CORPORATE CHRONICLE™ » 10 Reasons Why Electric Vehicles are (Still) So Expensive

10 Reasons Why Electric Vehicles are (Still) So Expensive

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ResearchMan

ResearchMan
Manager - Equity Analytics
Manager - Equity Analytics

https://financebuzz.com/why-electric-vehicles-are-expensive
You’ll save a lot of money on gas by driving an EV, but only if you can afford the EV in the first place.
Last updated Aug. 25, 2022 | By Elizabeth Rollins | Edited By Ellen Cannon
parking electric cars
FinanceBuzz is reader-supported. We may receive compensation from the products and services mentioned in this story, but the opinions are the author's own. Compensation may impact where offers appear. We have not included all available products or offers. Learn more about how we make money and our editorial policies.

These days, it’s expensive just to go where you need to go every day. The cost of gas has skyrocketed 43.7% over the last 12 months, so more and more consumers are looking into purchasing an electric vehicle (EV). If you're feeling the pinch form higher gas prices, now might be the time to start thinking ways to make extra money to help cover the costs.

EVs are well known for being less expensive to operate than regular vehicles that run on gasoline are, even with increases in electricity prices across the country. Consumers are experiencing sticker shock when they look into EVs, though, as the average cost of an EV is $56,437, compared with the $33,390 average cost of a hybrid vehicle, and the $42,804 average cost of a regular full-size car.

But why are EVs so expensive? It’s a legitimate question, with a whole interlocking set of answers.

6 Genius Hacks All Costco Shoppers Should Know

1. Cost of research
Because EVs have different systems — of almost every type — from regular gasoline-fueled vehicles and hybrid vehicles, developing EVs is almost like starting from scratch (especially for companies that only make EVs, such as Tesla and Rivian).

That means higher costs for research and development for EVs than for regular vehicles, which are updated every year but are rarely completely revisioned.

The cost of R&D; is built into the prices of the vehicles, and since each company makes fewer EVs than regular vehicles, those larger R&D; costs are divided over fewer vehicles.

It’s reasonable to think that as more and more EVs are designed and manufactured, R&D; costs will decrease to be closer to the R&D; costs for regular vehicles.

2. Lack of competition
This is the classic supply-demand chart from your college Microeconomics 101 class: Fewer competitors in the market means higher prices for cars. As more manufacturers enter the market and begin making EVs, the prices should come down.

As cool as it is to discover that something you took a test on decades ago still applies to items in daily life, it’s frustrating that part of the price of an EV is a market force and not an actual cost.

3. Production economies of scale
“Economies of scale” means that the more of something you make, the cheaper it is to make each item. There are many inputs into economies of scale, from materials costs (that tend to decrease as you buy in bulk) to faster processes caused by repetition and inertia, to higher utilization of equipment, to decreased labor costs for differentiated jobs in larger production runs.

Manufacturers make more regular vehicles than they do EVs, so regular vehicles are cheaper for them to make than EVs are. The higher manufacturing costs of EVs get passed on in higher prices.

Pro tip: If you're set on getting an EV, despite the higher costs, consider ways to boost your wealth.

4. Inertia
This one’s a little frustrating: Consumers are used to paying more for EVs, so they’re willing to pay more for EVs, so manufacturers charge more for EVs.

This inertia could be broken if a competitor entered the EV market with a significantly lower-priced vehicle.

5. They’re seen as a luxury item
Some people who buy EVs see them as a luxury item or status symbol, and want to pay more for them than they would for a regular vehicle. Exhibit A: Tesla. Is a Tesla worth it, though? That’s up to you.

6. Expensive lithium batteries
EVs run on lithium-ion batteries, which cost way more in materials and to manufacture than do batteries for regular cars and hybrid vehicles.

The costs of lithium batteries have dropped precipitously over the last 12 years since the Nissan Leaf and Chevrolet Volt were introduced, but they are still expensive relative to other batteries.

7. Insurance costs are higher
This isn’t a vehicle cost, but it adds to the entry cost of buying an EV: Insuring an EV is more expensive all across the country than insuring a regular vehicle is. The reason for that is that repairs and parts for EVs cost more than repairs and parts for regular vehicles.

Replacing a battery alone for an EV can cost $15,000. It’s important to shop around for the best car insurance for any vehicle you drive, but shopping around and getting quotes from multiple companies is even more crucial for insuring an EV since the prices vary more and are higher all across the board.

Pro tip: Answering this short questionnaire can help you find a cheaper auto insurance policy within minutes.

8. More energy and time managing charging the vehicle
The actual costs to run an EV are lower than to run a regular vehicle because electricity is so much cheaper than gas. But the time and energy involved in keeping an EV charged and ready to drive can be significant, and those are largely hidden costs. Most people don’t work time and energy and logistics into their budgeting.

It can take 40 hours to charge an EV at a Level 1 home charging station (the default charging cord shipped with the vehicle). And charging a car in half an hour at a public charging station may require some planning, if a consumer is even close enough to a public charging station to make it worth it to use one.

There are currently three times as many regular gas stations as EV public charging stations in the U.S., which means it’s not always a simple or easy option. This makes EVs out of reach for people who don’t live near these charging stations or have the time flexibility to charge their vehicle.

9. Installation costs of Level 2 chargers
The happy medium between a Level 1 charge at home that can take 40 hours and a Level 3 charge at a public charging station is having a Level 2 charger installed at your house. That costs around $2,000, however, which adds to the entry costs to start using an EV.

10. Tax credits aren’t for everyone
There’s a lot of talk about the tax credits available for buyers of EVs and how that can bring the entry cost down. However, those tax credits are only for the first 200,000 vehicles sold from each manufacturer.

General Motors and Tesla have already sold more than 200,000 vehicles, so there’s no tax credit available for buying an EV from either of them. In addition, these credits are only for new sales of EVs, not for used-car purchases, which limits the benefits even more.

Bottom line
As consumer demand for EVs increases, driven by increasing gas prices, it’s realistic to wonder if prices will come down, either now or in a few years. It’s reasonable to expect EV prices to migrate closer to regular vehicle prices eventually as more EVs are manufactured and design costs decrease.

However, the largest input is the lithium-ion battery, so until these special battery costs come down, EVs will continue to cost more to purchase than regular vehicles do. If you're shopping around for a new EV, or gas vehicle, you can always look into reducing your expenses by finding a more affordable car insurance policy.

In the meantime, hybrids remain a good alternative to both EVs and regular vehicles. They have lower purchase prices than EVs, and also have lower costs to run and maintain than regular vehicles do.

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