Electric Car Prices vs. Gas Car Prices

Prices for all cars are finally starting to fall after record highs in recent years. The supply chain interruptions and shortages of the pandemic permanently changed the US market. Fortunately, there is a downward trend in prices, and dealers may be more willing to negotiate than they were only last year. The average price for a new electric car in December 2023 was $50,798, down 14%, or around $8,000, from December 2022. This compares to $48,759 for a new gas car, which is under $1000 less than last year’s average. price.

You read that right. As of December 31, 2023, the average price for a new EV was just $2000 more than the average price of a gas car.

When you look at tax credit eligible EVs, the average price after rebate is only $45,500 – $3000 less than a new gas car.

For instance, these new EV models are all less than than the average new gas car:

• Chrysler Pacifica PHEV - $46,120 after tax credit
• Volkswagen ID.4 - $31,495 - $40,295 after tax credit
• Chevrolet Bolt EV - $19,000 after tax credit

A lot of new EVs are now less expensive than the average new gas powered car!

I study the used car trends to produce Recurrent’s quarterly EV market report. In April 2024, the average price for a used EV was $34,700, compared to around $25,000 for a used gas car. However, there are a ton of gently used, or "new used" EVs from 2022, 2023 (and even 2024) in the mix, and that drives up the average price. 

Recurrent has its own used EV pricing bundle, much like the consumer price index, that tracks the same models and model years over time. In April 2024, it was $23,787 -- cheaper than the average used gas car! In fact, the Recurrent Price Index has been cheaper than the average gas car since summer 2023.  While this is not a strict apples-to-apples comparison, due to the fixed vehicle mix in the Recurrent Price Index, it does show that since June 2023, the average used gas car is more expensive before even considering the federal tax credit.

Not a bad deal, especially when you remember that the average used EV is less than 4 years old - much newer than the average used gas car, which is 6.47 years.

Thinking Long-term Pays Off

Even though the two most popular EVs in the world - the Tesla Model 3 and Model Y - are now priced lower than the average new car in the US, overall, the upfront cost of an EV is still higher than a gas car. But, projections are that electric vehicles will reach price parity with gas cars in one to three years. That’s before considering the many incentives now available for new and used EVs, driving the price down further. But the real savings rack up over the life of the car. Over the lifetime of a vehicle, drivers can save $6,000 - $10,000 by choosing electric.

Even over a few years, the total cost of EV ownership is extremely competitive with gas cars. The higher the price of gas goes, the faster EVs catch up, and gas prices have been climbing again. With high efficiency gas cars, the price over three years is similar, but in gas cars with lower efficiency, such as trucks, EVs are cheaper to buy and own much sooner. The fuel costs and incentives really drive the math over a three year ownership model. New, highly anticipated EV trucks are hitting the market, meaning buyers can get the truck of their dreams and jump right into savings.

Thinking longer term, the maintenance costs for EVs are much lower than for gas cars. When it comes to scheduled maintenance costs, EVs cost just $0.06 a mile, compared to $0.10 per mile for a gas car. And as cars get older, things like oil changes and transmission issues only add up. Considering the average American drives 13,500 miles in a year, you save over $500 each year you drive electric.

EV Battery Costs are Falling

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. And people want bigger EVs - trucks and SUVs - which need bigger, and therefore more expensive, batteries.

However, batteries are getting easier and cheaper to produce. In ten years, EV batteries could have nearly double the capacity for half the price. What’s more, battery companies are setting up shop in the US, bringing the cost of EV batteries down further. By 2027, U.S. facilities will be able to produce enough batteries to supply 12.2 million new passenger vehicles each year. That’s about 95% of new vehicles sold last year.

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. We've had the California gas ban, the Inflation Reduction Act, and a ton of infrastructure spending. Car companies really committed to electric in 2022. After the IRA, manufacturers made more than $92.4 billion of concrete investments in EV and EV battery factories in the US. Manufacturers have announced the creation of more than 179,000 American jobs directly related to EV production and the investments are expected to create more than 800,000 additional jobs.

EVs Will Only Get Cheaper - Gas Cars Won’t

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 due to a lack of semiconductors, so there is a supply crunch across the board. Electric cars require 10x more semiconductors than a gas car so they are naturally hit harder. 

There is also unprecedented buzz and excitement about certain EVs. We have new electric trucks and SUVs coming out, gaining the attention of a whole new demographic of buyers. But, since production for many models is still limited, sellers can mark up new cars because there is more demand than supply. 

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. 

Inflation is driving up costs, and gas prices are driving up inflation. Rising gas prices accounted for more than half of monthly inflation increases in August. EVs are cheaper to fuel in all 50 states. Federal gas taxes haven’t changed in 30 years, so they’re well overdue for a raise and many states are already raising their gas taxes. Driving gas cars will only get more expensive.

Not only that, switching to electric is key to meeting climate goals. So far, nine states have banned the sale of new gas cars.

Electric cars are getting cheaper. In a few years, American made EVs could be some of the most affordable EVs on the market. Meanwhile, gas powered cars are on their way out. Once you look past the upfront difference in cost, it’s clear EVs can save you money every year. Especially as electric car and gas car prices equalize, the choice is clear. If you’d like to spend less on fuel, less on maintenance, and help the environment in the process, electric is the way to go.