Electric cars are surging in popularity due to extended battery range and diverse models. Higher gas prices have also boosted their appeal. While past myths related to EV concerns certainly hold some truth, most have been debunked. Still, EV adoption faces challenges like high costs, range anxiety, and battery concerns.
EVs are the undisputed future of transportation, even in the U.S. The market offers a record 43 EV brands in 2023, reflecting the accelerating shift.
EVs were scarce last year as demand soared due to factors such as high gasoline costs. Accordingly, with this situation largely still the case, many believe now is an excellent time for drivers to transition to EVs. Let’s dive into why that may not be the case.
The U.S Auto Market
Soaring gas prices drove EV sales to new heights. Experian data reveals that EVs accounted for 5.7% of new vehicle registrations in Q2 2022, a substantial increase from the 1.5% share in Q2 2018. This rising EV interest has spurred improved financing options and tax credits.
A more diverse market is generally good for consumers – there’s more out there than just Teslas (NASDAQ:TSLA) to buy. As more auto companies transition to an EV production model, it’s expected that supply should come in line with demand, bringing prices down over the longer term and making EVs a more affordable option for car buyers. Continued government incentives in this regard are bullish for the sector.
That said, most electric vehicles remain at the upper end of what most car buyers can afford. Rising interest rates have led to surging auto loan payments for the average car buyer. Thus, prices may have to drop substantially from here for demand to remain constant, all things being held equal.
I think the price cuts we’ve seen from the likes of Tesla and others will likely continue. Thus, buying a car at elevated levels may not make sense for those looking to maximize the value they receive (and minimize their payments).
Why EV Prices are Falling
In the second quarter of this year, a record 300,000 electric vehicles were sold, driven by new models with broader price ranges. Tesla, in particular, has reduced its prices to compete, bringing the average cost down to $53,438 in June.
Several factors contributed to declining electric vehicle prices, including affordable options like General Motors’ (NYSE:GM) Chevrolet Bolt EV, priced at around $30,000. Incentives such as tax credits and manufacturer discounts played a role, with Ford Motor lowering the price of its F-150 Lightning EV pickup by $10,000. While EVs offer more incentives than gas cars, they may still be costly for some consumers, according to analysts.
Purchasing an EV now only to see its price drop by thousands in a few months, as recently happened with the Tesla Model Y, might leave you regretful. New federal EV subsidies have been introduced under the Inflation Reduction Act, but they apply to used electric cars for the first time. However, the subsidy eligibility rules based on income are still complex.
There are More Negatives Than Positives Right Now
Electric cars have come a long way in terms of range, but they haven’t yet matched the range of conventional cars. While some, like the Lucid Air (516 miles) and Tesla Model S Dual Motor (405 miles), offer impressive range, these are exceptions. Most electric cars average below 300 miles per charge.
Additionally, electric vehicle batteries generally last around 10-20 years or up to 150,000 miles. Driving carefully and charging sensibly can extend their lifespan. New cars are typically covered by an 8-year/100,000-mile battery warranty, a generous deal compared to combustion engine warranties. If the battery drops below 70% capacity, it’s usually replaced or repaired. This means getting money out of your pocket–again.
Lastly, it may not be as eco-friendly as it is being advertised to be. Electric cars produce no emissions, but the source of their electricity affects their environmental impact. Manufacturing lithium-ion batteries is more environmentally harmful than an average gasoline car. Ethical concerns exist about raw materials like cobalt and lithium used in EVs. The oil industry isn’t without its issues either, and many have driven gasoline and diesel cars despite their imperfections.
Let’s Face It: It’s Expensive
As vehicle costs, from purchasing to fueling, hit record highs in the past year, many drivers are looking for alternatives. While gas prices have decreased slightly, financing rates are on the rise. With average monthly new vehicle financing at $700 and used at $525 in Q3 2022, it’s a hefty expense.
Electric vehicle (EV) sales have surged, and the EV market share is expected to reach 40 percent by 2031. However, the upfront cost of EVs may not suit every driver.
While prices for both new and used electric vehicles have decreased significantly over the past year, it’s still a relatively expensive market for consumers. Used EV prices dropped by nearly 30% from June 2022 to June 2023, and new EV prices have fallen almost 20% year over year from their peak of $66,390 in June 2022, largely due to increased inventory.
Final Thoughts
Are electric cars worth it? You can decide based on your budget, needs, and lifestyle. But one thing is certain: EVs are here to stay and will continue evolving rapidly as technology advances. The industry is already seeing improvements in battery life, charging infrastructure, and affordable options.
Personally, I’m on the fence concerning buying an EV in the next few years. If the numbers make sense, I’d prefer to own an EV. However, given the fact that prices are likely to continue to decline and the auto market appears to be on shaky footing, I’m going to be patient and wait for some deals. I think 2024 and 2025 could provide some real deals for car buyers relative to the inflated prices folks are paying today.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
