Affordability isn’t exactly a defining feature of the current U.S. car market. The average transaction price for all new vehicles is hovering around $50,000, but if you’re looking for an EV, brace for even more serious sticker shock, in the post-government-incentive era.
October gave the auto retail industry its first look at what the electric vehicle market looks like without the federal tax credits. One of the biggest trends: EVs were more expensive. The average EV transaction price grew to $65,021 in October, up over $3,000 from January and almost $5,000 from September, according to a report from Edmunds.
This is the highest average EV price that Edmunds has recorded for a single month this year. The cheapest was $57,690 in July – and that’s not really what anyone would call “cheap,” properly speaking, for a new car. At these price levels, it has been hard to buy an EV, and with the disappearance of federal tax credits, it has officially gotten quite a bit harder.
A major market reversal
The tax credit was often criticized for being a subsidy for affluent consumers: the U.S. taxpayer effectively paid for wealthy buyers who could take advantage of the credit to buy fairly expensive EVs. The counterargument was that those rich early adopters would help establish an EV market in the U.S., generate revenue for manufacturers, and ultimately enable cheaper EVs to enter the picture as we transitioned away from the combustion engine.
However, the incentive also functioned as just that: an encouragement to consider an EV in the first place, especially in the leasing market, where the savings could be passed on to customers whose tax profile wasn’t going to allow them to claim the credit. With rapid advancement in technology, leasing was also appealing to people who didn’t want to be stuck owning an outdated EV. But as Automotive News reported, leasing penetration was also down big time in October. So we’re kind of back to beginning now with EVs: the spike in prices means that affluent buyers could once again determine what the market looks like.
How high could prices go?
From the July low, prices have jumped about as much as the maximum $7,500 credit. So you might wonder if this is a top, or if they could climb even higher. It will be interesting to see what happens over the next six months. Automakers have been backing off from their EV plans and have been scrambling to revive combustion and hybrid programs. If there are fewer new EVs for sale long-term, that could push prices higher – or cause prices to stabilize at an elevated level. On the other hand, overall demand for EVs could decline, both a result of high prices and buyers deciding they aren’t interested anymore. That could drive prices down. In a very basic sense, incentives distorted the market, and we’ll now find out what it truly looks like when available products have to be matched up with customers motivated by factors other than their tax liabilities. If I were going to make a prediction, I’d say that by this time next year, that $65,000 average EV price is going to be closer to the norm, and that buyers hunting for affordable transportation in the U.S. will be shopping mainly for gas-powered vehicles. And we’ll have the government to thank for it.
