All New Cars More Costly; EV Prices Drop Slightly
It’s no secret that new car prices shot up to record highs in 2022. New vehicle supply was restricted due to component shortages and supply chain issues, meaning that dealers across the country were mostly able to eliminate discounting. By the end of December, the average transaction price of a new vehicle in the U.S. hit $49,507 – the highest number ever recorded by industry watcher Kelley Blue Book, and almost 5% over the 2021 average.
Interestingly, Kelley Blue Book’s tracking showed that electric vehicle prices decreased noticeably at the end of the 2022, and were down compared to a year ago, even as battery components get more expensive. That’s because Tesla, which has 65% share of the electric car market, rolled out significant price cuts in the last quarter to try and boost its sales volumes. (Earlier in the year, Tesla was actually increasing prices.) Between November and December 2022, EV prices dropped by 5.5%, or $3,594 – showing the huge impact Tesla’s price cuts had on national numbers.
Electric Cars Still Cost 25 Percent More
Still, even though the average price of a new EV did drop – by just 0.6% - electric cars in general remain significantly more expensive than the American average. Indeed, the average new electric vehicle sold for $61,448 in the U.S. in 2022 – well above the industry average. That’s partly because Tesla, which focuses on higher-end models, controls so much of the market, and also a reflection of the EV offerings currently available, many of which come from luxury brands, or are high-end models from mainstream brands.
With average transaction prices 25 percent above those for the market as a whole, electric cars are still costly, despite their potentially lower running costs and the benefits that come with zero-emissions driving. Concerns about purchase price remain top of mind for potential EV buyers in many surveys, including Deloitte’s Global Automotive Consumer Study, released in January. While lower fueling costs remain the highest motivator for people to switch to electric, the price premium for the electric vehicle itself was ranked as the top barrier to purchase. Over half of survey respondents in the U.S. said EVs were still cost-prohibitive.
Outlook for 2023
What does all of this mean as we enter 2023? The landscape for electric vehicles – and how much you might pay for one – is changing rapidly. More manufacturers than ever will release new electric vehicles this year, offering more options, and many at lower price points. However, the majority of new EV introductions are premium-priced, and will remain so until battery components and technology become cheaper.
As 2023 began, some manufacturers were able to start delivering new vehicles in larger quantities, clearing the order backlog and inventory shortages some dealers were seeing throughout 2022. More availability should have the effect of reducing average transaction prices over time – although electric models still mostly remain in high demand and short supply.
The incentive landscape is also somewhat unclear. After announcing in late 2022 that EVs would not only have to be manufactured in the North American region, but would also require battery components to be sourced in North America, the federal government backtracked slightly, and is waiting until at least March 2023 to impose the second restriction. Until then, some EVs may have become temporarily more affordable, thanks to up to $7,500 in incentives.
The greatest opportunity may be for shoppers looking for an inexpensive used electric car. A new federal incentive of up to $4,000 is available on used EVs – if their price is under $25,000. The new incentive should make a large number of used electric cars much more affordable – bringing the cost, as well as environmental, benefits of electric driving to many more Americans.