Going electric means paying a higher MSRP for a cleaner, greener vehicle that pays you back over time with lower long-term costs — or at least it did.
At the start of the year, Consumer Reports wrote that electric cars are becoming less expensive. Chevy, Hyundai and Nissan had all lowered the asking prices for several of their EVs and Tesla joined the fray by slashing $3,000 to $19,000 off its MSRPs. It was the first of six price reductions that Elon Musk enacted by April with more to follow throughout the summer.
Several forces are converging to shrink price tags across the industry as 2023 shapes up to be the beginning of the era of affordable EVs.
Tesla Started a Price War — and Buyers Are Winning
According to TopSpeed, Tesla raised its prices in 2022 to compensate for supply-chain disruptions but then cut them by up to 20% in 2023 when supply bottlenecks eased. The Model 3 dropped from just under $63,000 to less than $40,000, giving it full eligibility for federal tax credits.
The move pulled buyers away from traditional automakers’ EVs and toward Tesla, whose sales soared and profits plummeted at the same time. TopSpeed sees the predictably diminished profits as a short-term hit that Musk is willing to take in exchange for cementing Tesla’s status as the industry leader in the years to come.
Legacy carmakers had no choice but to respond by lowering prices on their own EVs, and the price war began.
“Major car companies like Nissan, Hyundai and Chevrolet are cutting their EV prices in order to compete with EV leader Tesla, which has cut its prices several times over recent months,” said Darren Globe, CEO and chief blogger at EVehicle Pro.
Whether Musk’s strategy pays long-term dividends is yet to be seen, but one thing is certain — the cut-throat competition benefits buyers in 2023.
Batteries Are Cheap To Produce and Getting Cheaper
Another reason electric cars are less expensive is that it costs 10 cents on the dollar to produce the batteries that power them compared to the year that the first Tesla left the factory.
According to the Department of Energy’s Vehicle Technologies Office, the cost of an EV lithium-ion battery pack declined 89% between 2008 and 2022.
“Lower EV prices reflect the dropping cost of lithium and advancements in battery chemistry,” said Globe.
But that was just the start of the era of cheap batteries, which is beginning in earnest right now.
According to Car and Driver, the Inflation Reduction Act didn’t only offer incentives for buyers to purchase electric cars, but also made it much cheaper for manufacturers to produce batteries in the U.S. Section 45X cuts the total cost of EV batteries with both cells and packs built in the U.S. by one-third to one-half, allowing automakers to produce and sell EVs at a dramtically lower cost.
Supply Has Caught Up With Demand and Then Some
For years, scarcity defined the EV market, with buyers spending months on waiting lists for delivery. Automakers didn’t go all-in on production because of COVID-era supply-chain troubles, hesitancy to produce too much inventory or both.
According to Inside Climate News though, that dynamic is shifting in favor of buyers. In the first half of 2023, buyers purchased 556,707 electric vehicles — a 47% increase over the first two quarters of 2022.
With the country’s growing appetite for emissions-free vehicles no longer in question, manufacturers have ramped up production so rapidly that dealer lots are now full of EVs — many are even looking to offload burdensome inventory gluts.
“Increased demand has forced EV car makers to scale up production and reduce costs,” said Globe, citing new and planned Tesla facilities in Texas, Berlin, Mexico and Shanghai as examples.
Automakers (Mostly Tesla) Are Innovating Their Way to Lower Costs
Just as it pioneered the EV revolution, Tesla is leading the industry with innovative solutions for savings that it can pass on to customers. For example, the company is reducing costs by selling usable waste products.
“Tesla is investing in a lithium refinery to safely reuse lithium from disposed batteries, and will be able to boost their profits and keep costs lower by selling inert waste like limestone and sand,” said Globe.
The 1,200-acre site in Corpus Christi, Texas, represents a $1 billion investment.
Tesla also unveiled a new program specific to the era of rising interest rates. It doesn’t lower the cost of its cars, but does make them more accessible to buyers who wouldn’t otherwise be able to afford the payments.
“Tesla is reducing the monthly cost of ownership by offering an 84-month financing program to offset high interest rates and challenge competitors,” said Globe.
It’s Not Your Imagination — Affordable Models Are Plentiful
The result of federal incentives, industry innovation, increased supply and price wars is good news for anyone interested in buying an EV — and the low end of the EV price spectrum is getting crowded. There are at least seven 2023 and 2024 models with sub-$35,000 MSRPs:
- 2023 Chevy Bolt EV: $26,500
- 2024 Mini Hardtop 2 Door: $26,795
- 2023 Chevy Bolt EUV: $27,800
- 2023 Nissan Leaf: $28,140
- 2024 Nissan Leaf: $29,235
- 2023 Mini Cooper SE: $29,900
- 2023 Mazda MX-30: $34,110
The price of several of the EVs that qualify fall to less than $25,000 or even into the high teens when you subtract the $7,500 federal tax credit.
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