Electric vehicles (aka EVs) are more popular than ever. And with gas prices as high as they have been, paired with a greater interest in protecting the environment, it’s no wonder drivers are looking for some relief … from the gas pump and emissions.
While internal combustion engines (ICEs for all of my motorheads out there) still make up most of the U.S. automotive market, many analysts believe those sales peaked in 2017 — and EV sales trends seem to support that. In the U.S. alone, the number of EVs sold more than doubled between 2020 and 2021. More than 70% of Americans are considering going electric for their next vehicle.
So what’s stopping the EV revolution? The biggest hurdle is cost. The prices of EVs have been high historically, but they’re currently reaching new heights. In May the average cost to purchase was up 22% year over year, coming in at $54,000. For comparison, the average cost of a gas-powered vehicle is up about 14% to $44,000.
Why it matters:
So, why the rising costs? That’s a complicated question, but the biggest contributors are batteries and the supply chain.
For the former, the raw material cost of batteries that power EVs (think lithium, nickel and cobalt) have increased substantially. Then there’s supply chain issues. You might recall the semiconductor/chip shortage that slowed the entire industry. EVs, most of which require significantly more semiconductor technology than ICE vehicles, were hit especially hard.
While the current environment has helped support the continued increase in costs for these vehicles, carmakers might have to find ways to adapt to make EVs accessible for the masses.
What it means for you:
Before you charge ahead with your EV purchase, consider the upsides and challenges that can come with owning an EV:
No more gas: It’s a win for your wallet and the climate.
Tax credits: Many EV purchases qualify for a $7,500 federal tax credit (but keep in mind it doesn’t always apply)
Cheaper to maintain: While some repairs can be costly, on average, maintaining an EV is about 40% less than your standard ICE.
A potential bump in your business mileage reimbursement: If your company covers some of the miles you drive for work with your personal vehicle, driving an EV (that costs significantly less per mile) could mean more money. In fact, the IRS just increased its rates to 62.5 cents per mile.
Sticker shock: EVs tend to be more expensive up front than ICEs.
Fluctuating electric costs: You may not be paying for gas, but electricity costs can vary depending on where you’re charging.
Access to charging stations: You can’t just plug in your EV to any old outlet. If you’re not able to install a charging station at home, finding one nearby might be challenging depending on where you live. It also takes longer to charge an EV than to fill your tank.
Higher insurance rates: Insurance companies often flag EVs as a higher liability and set premiums higher because of limited labor and parts.
Social and environmental impact of batteries: There’s no denying EVs put far less carbon into the environment than their ICE counterparts, but the process for extracting the materials needed to make that happen isn’t always environmentally clean.
EVs don’t fit into everyone’s lifestyle and budget, but if the benefits outweigh the costs for you: Happy Driving!
Lindsey Bell is an award-winning investment professional with a passion for personal finance and more than 17 years of Wall Street experience. Bell’s unique ability to connect the dots between data and real life and craft bite-sized money ideas that people can use and apply stems from her deep background as an analyst, researcher and portfolio manager at organizations including J.P. Morgan and Deutsche Bank. She is known for demonstrating why and how an understanding of all things money improves a person’s finances and overall well-being. An ongoing CNBC contributor, Bell empowers consumers and investors across all walks of life and frequently shares her insights with the Wall Street Journal, Barron’s, Kiplinger’s, Forbes and Business Insider. She also serves on the board of Better Investing, a non-profit focused on investment education.