Why Are Electric Cars So Expensive?

Electric cars are expensive for two main reasons, a) the manufacturing costs (the motor alone can cost up to $20,000), and b) most EV manufacturers tend to match the Tesla price tag.

We’ll get into this in more detail shortly.

When this article was written, the price of a Tesla Model 3 started at nearly $44,500, with the Performance model coming in at nearly $62,000.

And similarly, the Tesla Model Y, the SUV, started at just over $67,000.

And just to put that into some sort of context, the price of a Toyota Camry, one of the cars you see on the road most often in the US, was between about $25,300 and $36,000.

So as you can see, the difference is quite considerable, and even the most expensive Toyota Camry doesn’t come close to the cost of a lower end Tesla Model 3.

But why is that exactly?

That is the focus of this article, and we’ll also endeavor to answer all of your most frequently asked questions on the subject along the way.

Please feel free to scroll ahead to any section that jumps out at you. Here goes.

What Is The Average Price Of An EV?

Ok, we’ll start off by leveling with you.

While the Tesla models mentioned earlier are typically the main electric cars you see on the roads (or at least they were when this article was written), that doesn’t go to say that all electric cars cost this much money.

However, the cost of a Tesla is a pretty good indicator of how much an EV costs these days, and when this article was written the average cost of an electric car came in at $62,876.

But it was also possible to pick up a brand-new electric car for as little as $27,400 if you decided to go for a Nissan Leaf.

So really, there is also an argument to be made about “How come electric cars can be made as affordable as regular cars?”.

But yes, on the whole, electric cars are considerably more expensive than regular cars.

And it’s Tesla’s market dominance that is driving up the average price (pun intended!).

A typical financial arrangement for a Tesla would require a down payment of about $5,000, followed by monthly payments of just over $500.

Something not all of us could easily afford. What’s more, Tesla prices are currently going up, not down.

Why Are Electric Cars So Expensive?

Manufacturing Costs

One of the reasons an electric car is so much more expensive than a conventional car, as you may well imagine, is the higher manufacturing costs.

When this article was written, the cost of building an electric car ranged between a whopping $17,000 and $25,000 to make.

This is in quite the contrast to regular cars, which average around $12,500 to make. That’s about half the manufacturing cost of a high-end EV.

The most expensive part of an electric car is the battery, and this part alone can sometimes cost up to $20,000, depending on different factors.

Matching Tesla Motors

When Tesla electric cars first came on the market back in 2008, they were still seen pretty much as a luxury item rather than an essential one, and something of a status symbol.

And for this reason, manufacturers like Tesla could get away with charging pretty much whatever they liked.

Despite electric cars having been invented prior to this, Tesla Motors was the first with a product offering that was a league above regular cars with their conventional internal combustion engine

And therefore, Tesla was able to set both the standard of electric cars and their price tag.

Of course, since then, the technology used is better understood, the knowledge is more widespread, and other manufacturers were also able to get into the market with their own take on the electric car.

And this is why you can now see so many EVs on the market that are significantly more affordable than Teslas.

However, with Tesla still holding the biggest market share of EVs on the road, at a whopping 75%, that really pushes up the average price of EVs as a whole.

What’s more, building adequate factories and employing and training qualified staff in order to switch from making conventional cars to electric ones would have been quite the overhaul for manufacturers who previously concentrated on conventional cars.

And they would have had to undergo a period of high investment for this, which would have cost a great deal of money.

And the way to make this money back is through high profit margins. Hence, why electric cars are typically more expensive than conventional ones.

Do Electric Cars Actually Save Money?

Do Electric Cars Actually Save Money?

So, as we have discussed above, the initial purchase cost of an electric car tends to be significantly higher than that of a conventional car.

But you may be wondering whether, in the long run, an electric car would save you money, since you no longer have to buy gas for your journeys.

Well, strangely enough, according to the Atlas Public Policy analysis, the total ownership cost for EVs can actually end up costing less than regular cars.

Taking into account all the other factors, of course, such as fuel, maintenance, taxes, and insurance.

However, sadly, the truth is that it would take about 10 years before you would break even in fuel savings.

Will Electric Car Prices Eventually Come Down?

Even though there’s a push being made to make electric cars cheaper for the mass market, when this article was written the cost of electric cars was on the increase.

In 2021 Tesla increased their prices nearly every single month. There are a number of reasons for this increase in EV costs.

There have been whole factory shutdowns during the pandemic, which have driven up prices to cover those costs. And there has been a shortage of semiconductors.

But most notably there are the changes in battery costs.

According to E Source, these battery costs are expected to continue to rise up to about 2026 before their next decline.

Despite this, however, some analysts predict that EV prices will come down, and be made more affordable.

Wrap Up

So, in summary, the reason electric cars are so expensive comes down to the high manufacturing costs combined with a strong market leader (Tesla) driving prices up.

But that doesn’t mean to say you’ll never be able to afford an electric car, and if you do invest in one, you’ll save money on fuel costs if the car lasts you 10 years or more.

Jonathan Rice