Electric cars have become incredibly popular over the past decade. Tesla’s popularity was instrumental in bringing electric cars to the fore, and the company still holds the lion’s share of the market.
Other brands, such as Rivian, followed suit and their stock prices skyrocketed after the release of their latest models in 2022. However, in line with inflation, the average price of an electric vehicle has risen significantly.
What is the average price of an electric car in 2022?
The average price of an electric vehicle in the United States for August 2022 was $66,000, according to Kelley Blue Bookthe country’s leading price advisor.
The average price of an electric vehicle has increased by 13% compared to 2021, indicating a strong upward trend. Electric cars are a major attraction for people who want to reduce their carbon footprint or avoid the running costs of a gas-powered car.
However, at such an exorbitant price, electric vehicles remain out of reach for the average American, where the average salary for the second quarter of 2022 was $54,000.
According to the same report, the average starting price for the top ten electric vehicles was $60,500, with all cars except Teslas seeing a price increase. This is a significant jump, especially considering that in January 2020 the average price of an electric car was $54,668.
Why have the prices of electric cars increased?
One of the most troubling trends in the auto industry is that electric car prices have gone in the wrong direction. With gas prices rising, many people wanted to switch to EVs, but cost remains the biggest barrier to mainstream adoption.
Despite promises from leading automakers that EV prices would eventually fall, nothing has happened and prices continue to rise. In fact, according to an analysis by iSeeCarsthe prices of used electric cars have increased by almost 54.3%, while the increase of gas vehicles is more modest: 10.1%.
So why have EV prices increased so drastically?
The global chip shortage
One of the biggest reasons electric vehicle prices have soared is the global chip shortage, which led to supply chain problems and impacted global vehicle sales.
Companies like Tesla have increased their prices several times in 2022 and even newer players like Lucid Motors and Rivian have increased their prices. The Rivian R1T comes with fantastic features, which are no doubt attributed to its rising cost. Even Ford, an established name in the industry, has raised its prices this year.
Increase in material costs
Several automakers have pointed to an increase in material costs as the main reason for the increase in electric vehicle prices. Material prices skyrocketed in early 2020 due to the global pandemic and supply chain crisis.
As a result, some companies have no choice but to raise prices or risk selling their EVs at a loss. In fact, as per CNBCFord Motor’s CFO stated at a conference in June that the Mustang Mach-E, one of their flagships, is no longer profitable.
Justify sunk costs
Sunk costs are defined as the costs that a company spends before starting a new project, mainly in research and development. Many automakers are still researching and developing different models, with R&D spending well into the billions.
Essentially, companies can’t recoup the sunk costs, but they generally offset the expenses by selling their flagship models at a higher price before eventually knocking them down when technology catches up.
This increase in research and development spending, undoubtedly fueled by inflation, is another reason why electric vehicle prices have soared.
What influences the price of electric cars?
Several factors influence the pricing of electric cars outside of mainstream market forces such as supply and demand:
- Functions: The more features an electric car has, the more it will cost.
- Range (battery): The cost of an EV battery also affects the price. Most companies offer several variants, of which the long-haul variants cost more.
- Material costs: Most companies usually source EV parts from other countries such as China and Vietnam, including chips and prefabricated components. Rising material costs have a direct impact on pricing.
- Grants: Many governments offer subsidies to EV car manufacturers, which help lower prices.
- Dealer markup: When dealers see a supply shortage, they often increase the markup, driving up prices.
Luxury EVs vs Standard Electric Cars – Price Comparison
There is a big difference in the prices of luxury EVs and standard electric cars. For example, the cheapest electric car in 2022 is the Nissan Leaf, which retails for $27,400. An ever-reliable EV, the Chevy Bolt costs $31,000.
Conversely, the cheapest Tesla model in 2022 will be the Tesla Model 3, which will sell for $46,990 after a price increase. The most expensive variant costs $69,000!
On the other hand, the demand for luxury EVs continued to rise. For example, the Porsche Taycan Turbo S Cross Turismo costs a whopping $187,700.
The Lucid Air Grand Touring Performance package retails for $179,000. Tesla’s most expensive offering in 2022 is the Model S Plaid, which costs $131,990, followed by the Model X Plaid, which retails for $131,990.
Because they target a different segment of the market, luxury EV manufacturers have more freedom to raise prices, with demand not as sensitive to an increase. However, due to supply chain and manufacturing issues, many of the luxury EV models are on back order.
EV prices are likely to continue to rise
Despite repeated claims by automakers to reassure the general public about rising costs, electric vehicle prices are expected to rise in the coming years before finally falling.
New EVs are expected in 2023, which will no doubt sell for much higher prices than originally expected. As the market slowly recovers, many will be considering different options, especially given the rising cost of owning an EV given the rise in energy prices worldwide.