With steep costs to fill up at the pump and ever-present worries over climate issues, many drivers are itching for another solution. You might be asking, “Should I buy an electric car?” And you wouldn’t be alone.
Electric vehicle (EV) sales have jumped in the past few years. However, the expensive upfront cost of an electric vehicle might only be right for some drivers. From legacy automakers to electric vehicle upstarts, the slump in EV demand is a rusty nail in the rear quarter panel. Headwinds such as elevated prices compared to gas vehicles, higher financing costs, and lack of charging infrastructure, among other issues, have put a lid on EV growth in the US.
But on the flip side, it’s a highly advantageous time for consumers looking to buy or lease an EV. Just this week, Kelley Blue Book found that year over year, new EV prices slipped 10.8% in January, and in December, EV transaction prices fell to $53,611, the lowest in 12 months.
Online car shopping site CarGurus found that compared to last year, the number of days EVs are on the market increased while the number of days for ICE (internal combustion engine) autos decreased. The average list price on the platform for a new EV in January was down 9.1% year over year to around $60,000. The used car market is even more extreme. CarGurus found the average list price of a used EV in January was around $38.7K, down 20.6%.
The Current EV Market Landscape
Headlines lately have painted a picture of an electric vehicle industry facing a surplus of vehicles for sale. If you’ve been in the market for an electric vehicle (EV), this might be a great time to pull the trigger. Burgeoning inventories and dropping prices combined with discounts typically are virtual green lights for EV shoppers who’ve been waiting to buy.
There are compelling reasons to buy in 2024. Many EVs are eligible for federal EV tax credits of up to $7,500. Starting in 2024, buyers can get their tax credits upfront — at the time of purchase — rather than having to wait to do their taxes in the following year. Using that credit as a down payment could ease the sting of the generally higher prices that EVs continue to command.
Experts say it still pays to do your research and consider all options. First, decide if a new or used car better fits your needs and budget. While prices for both have dropped considerably, the New York Times reported in October 2023 that used EV prices have fallen by about 28% from a year ago.
Dealer Incentives and Market Dynamics
Not too long ago — when vehicle inventories were low due to pandemic-related supply chain challenges — dealer incentives were rare. They were nearly unheard of for EVs. Times have changed. According to Money magazine, the average discount on a new vehicle now exceeds $1,000 for the first time since April 2021. The average discount on battery-electric vehicles was about $2,600 in October 2023. That’s an about-face from the buying situation 12 months earlier when North American EV buyers were paying an average of more than $1,000 above the sticker price.
Dealers Have More Incentives to Lower Prices
Dealers are more willing to offer discounts these days simply because there’s more inventory. Gone is the time when eager EV buyers were willing to add their names to waiting lists for desired models. With lots of buzz about the EV market, many EV manufacturers rolled out new models and ramped up production in recent years — just in time to see demand cool off.
Since EV inventory spiked, it’s taking longer to sell these cars than their gas-powered counterparts. Ed Kim, president and chief analyst of automotive research firm AutoPacific, says inventories, in general, have been growing since the end of the pandemic, with supply chain challenges that depressed inventories largely resolved. A November 2023 report from Cox Automotive showed that new-vehicle inventory volume was 2.4 million at the start of that month, which is nearly 1 million more vehicles than a year earlier. Vehicles, in general are spending more time on dealer lots, too: 67 days on average, which is 41% higher than in November 2022. That alone could be an excellent opportunity for buyers to gain some leverage.
It’s still being determined how long these good times for buyers will last. Manufacturers that increased EV production, including General Motors and Ford, have begun to scale back. That could mean tighter inventory next year.
EV Prices Starting to Decrease
The cost has long been a significant obstacle for prospective EV buyers who were either unwilling or unable to pay more for an electric vehicle than they’d pay for a gas-fueled vehicle. That EV premium has shrunk dramatically. As of September 2023, EV prices had dropped more than 22% from a year earlier, closing the gap between EVs and all vehicles to an average of less than $3,000, according to Kelley Blue Book. That’s about a $15,000 drop in average EV transaction prices since September 2022.
Tesla slashed its prices multiple times in 2023. The brand has taken note of its market share drops as well as growing competition in the EV market. These price cuts were intended to drive demand. Tesla’s cuts sent ripples through the industry as other automakers scrambled to stay competitive. Manufacturers are keying into consumers’ price sensitivity and adjusting accordingly. Volvo made a splash in 2023 with the unveiling of its sub-$40,000 EX30 EV. Chevrolet changed its mind about discontinuing the popular and affordable Bolt EV and now plans to revive it.
Interest Rates, Lease Options, and New Tax Rebate Rules
One major challenge for buyers of any vehicle these days is that interest rates remain high. The Federal Reserve has indicated cuts could be coming this year, which may eventually affect auto loan rates as well. Consumer Reports says its main advice for buyers in the current market is to act quickly and stay informed when negotiating. If your credit is good, that’s also a big advantage in securing the best interest rate.
The federal government offers a $7,500 credit for battery-electric and plug-in hybrid models, including cars, pickup trucks, SUVs, and vans. It’s important to keep in mind that a stricter version of the Inflation Reduction Act is now in play. Not only must the vehicle qualify against stricter standards, but a prospective buyer’s income must be below certain caps to qualify.
An EV lease loophole, however, could make leasing more attractive. Under the Inflation Reduction Act, leased electric vehicles are classified as commercial vehicles, so many more EVs, regardless of country of origin, battery composition, or lessee income, qualify for the full clean-vehicle credit. The way the law works, however, gives automakers the option of passing that rebate on to buyers; they are not required to. Doing your homework to compare costs on whether to lease or buy and having some flexibility to narrow your choices to a few options will open up the range.
Whether you’re buying or leasing, research analyst Kim said, “Being smart about it and doing your research is the best way to get a good deal.”
The EV Purchase Decision
Is it a good time to buy an electric car? EVs made up 8.55 percent of new vehicle purchases in the fourth quarter of 2023, according to Experian. Many buyers — 44.8 percent — chose to finance with an auto loan. Just over 30 percent chose to lease. Consistently high gas prices may have helped to propel EV sales. A gallon averaged $3.35 on March 4, 2024, according to AAA.
This growing interest in electric vehicles has led to advancements in available financing, including green auto loans and tax credits. The choice to buy electric should be approached with the same care as determining the make and model of your next car. For some, the convenience of never gassing up paired with minimal maintenance makes the high price tag worthwhile.
Upsides of Driving an EV
Purchasing an electric vehicle has advantages beyond a positive environmental impact.
Enjoyable Driving Experience
EVs often have luxury features to match their higher price point. “The driving experience of electric cars is very rewarding,” says Brian Moody, executive editor at Autotrader. “Acceleration is more brisk, and electric cars have cool features like the ability to heat up or cool down your car’s interior before you hit the road.”
Available Incentives
Driving electric also carries federal and potential state benefits you would not traditionally have access to. One of these is the federal EV tax credit, an incentive worth $7,500 for qualifying new plug-in and fuel-cell electric vehicles. Your home state may also offer tax credits. New in 2023 was a federal tax credit for used EVs. The vehicle must be priced at $25,000. If it qualifies, you can claim a credit for up to 30 percent of the sale price, capped at $4,000. Both federal tax credits come with income limits and vehicle requirements, so make sure you and your potential future EV qualify before diving in.
Increasing Options
The electric car industry has seen great innovation over the past two years and will continue to expand. While upfront costs have historically been high, they’re dropping as legacy brands dive into the electric car market. EV sales in the fourth quarter of 2024 were up, according to Kelly Blue Book. A record 1.2 million U.S. drivers opted to buy an EV. And while Tesla still leads the charge, accounting for 55 percent of the market, that number is down from 65 percent in 2022.
“It used to be true that there were only a handful of very small or very expensive electric cars,” Moody shares. “While EVs are more expensive as a whole, some individual models are more reasonably priced.”
More affordable options include:
- Chevrolet Bolt.
- Kia EV6.
- Nissan Leaf.
Downsides of Driving an EV
Before climbing into the driver’s seat, consider possible drawbacks.
Potentially Expensive Repairs
A 2023 study from Solera, a vehicle lifecycle management company, found that EV repairs were dramatically costlier. The study considered 90,000 repairs. It found EV repair costs averaged 29 percent higher than internal combustion engine (ICE) vehicle costs. More than that, EV parts carry a larger price tag, 48 percent higher than their traditional counterparts.
Fewer Servicing Options
EV servicing infrastructure is expanding. However, there is still a long road ahead to reach parity with the ICE industry. A Cox Automotive service study found that 58 percent of dealers need more infrastructure for EV servicing. More than that, over half need more EV-trained staff.
Depreciation
Electric cars can depreciate faster than ICE vehicles because of the speed of tech advancements. However, the current demand for EVs is helping to stabilize prices.
Can EVs Carry a Lower Lifetime Cost?
Climate worries aren’t the only reason people are turning to EVs. There’s also the potential to save money. While it is true that gas isn’t the only cost of driving, in some cases, driving electric can be cheaper over time. And even if the average cost of EV repairs is higher, you may need them less often. Cox Automotive’s study found that 53% of dealers expect the average EV cost to be higher, but 72% believe the number of services to be the same or lower.
Final Thoughts
So, is now a good time to buy an EV? The answer is multifaceted. With dropping prices, increased dealer incentives, and significant federal and state tax credits, the financial landscape for purchasing an EV is more favorable than it has been in recent years. However, prospective buyers should still consider their individual needs, the potential for higher repair costs, and the current state of EV infrastructure before making a decision. Doing thorough research and weighing all factors will help ensure that your transition to an electric vehicle is smooth and financially sound.
