One of the main sticking points to the wider adoption of electric vehicles in the United States and beyond is the high cost of a new EV. According to Kelley Blue Book, the average transaction price of a new combustion car in the U.S. in June was $48,644, while new EVs had an average MSRP of $56,371.
That’s an almost $8,000 difference, enough to get you a used gas-powered daily commuter. In other words, there’s still a considerable gap, but that difference will soon disappear in favor of EVs thanks to the rapid decrease in the cost of lithium batteries.
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2025 is bound to be a break-even year
After endless "EV slowdown" headlines published this year (which don't tell the whole story), 2025 is bound to turn things around, at least when it comes to the estimated total cost of ownership. According to several industry estimates, EVs will become cheaper to own than gas cars sometime between 2025 and 2026.
Between 2008 and 2023, the estimated cost of a light-duty electric vehicle’s lithium-ion battery pack plummeted by 90%, going from a whopping $1,415/kilowatt-hour (adjusted for inflation) 16 years ago to a much more palatable $139/kWh last year. These estimates come from the Department of Energy’s (DOE’s) Vehicle Technologies Office, which added that the figures are valid for a battery pack’s usable capacity, not the rated capacity, at a production scale of at least 100,000 units per year.
According to Goldman Sachs (via Yahoo Finance), the estimated battery cost for last year is a bit higher at $151/kWh, but what’s important here is that the same estimates show a further 40% decline in battery prices between 2023 and 2025, opening the door for much more affordable EVs that will finally undercut their gasoline counterparts and, at the same time, turn a profit for their makers. A study from the International Council On Clean Transportation previously showed that EVs will cost the same as ICE vehicles by 2029 thanks to an oversupply of lithium.
However enthusiastic these numbers are, it’s worth noting that Goldman Sachs is referring to the total cost of ownership, which includes the price of the vehicle and fuel or charging costs, as well as repairs and maintenance over the lifetime of a car. What they don’t include, however, are government subsidies such as the $7,500 federal tax credit.
Battery costs amount to roughly one-third to one-fourth of a complete car, so it’s not the only factor at play, but it’s one of the biggest. China already figured out how to make electric cars cheaper than gas cars, albeit with heavy state incentives, but the U.S. is bound to catch up and finally offer people what they want: more affordable EVs.
Tesla is bound to launch a sub-Model 3 EV sometime next year and Ford is actively working on an affordable EV platform that will offer both a lower purchase price compared to the company’s current portfolio and a healthy profit for the company.
Until that happens, some automakers rely on attractive financing and leasing deals to entice wannabe shoppers. Low interest rates and affordable monthly payments, combined with the federal tax credit that can be applied even to cars that are not assembled in North America when leasing, sometimes mean that an EV is cheaper to own than its gas-powered alternative despite it having a higher MSRP.
