EVs Shield Buyers from Gas Prices, But They Also Cost a Lot Up Front

Blame the Batteries

Car buyers face a bit of a double-edged sword these days. Gasoline prices are up near record highs, making traditional automobiles less attractive in comparison to electric vehicles. That said, the batteries used by EVs are getting more expensive for companies like Tesla (TSLA) and others.

Major players in the EV market have raised their prices on some models over the past several months. This includes industry-leader Tesla as well as Ford (F), General Motors (GM), Rivian Automotive, and Lucid Group. J.D. Power says the average price for an EV was up 22% year-over-year in May, coming in close to $54,000. During that same time frame the average price of a gasoline-powered car rose around 14%.

Costly Raw Materials

The most expensive component for EVs are the batteries, which power the car or truck in the same way internal-combustion of gasoline does for traditional automobiles. Due to a recent rise in the raw materials used to make those batteries, that cost is even more significant. For example, lithium, nickel, and cobalt have seen their price nearly double since the start of the COVID-19 pandemic.

Looking at how that rise in costs has impacted individual companies, Ford executives say the profit margin was wiped out on the Mach-E SUV. The carmaker has also raised its prices, citing inflation.

Industry Outlook

For now, analysts seem to think rising EV prices won’t do much to diminish consumer demand. There are EV models that have tens of thousands of reservations and years-long waiting lists. But some observers say the auto industry may cut back the amount of resources allocated toward EV development, as a result of higher raw materials costs.

Zooming out, in a recent survey from TrueCar, over 50% of respondents say higher gas prices have them considering an electric vehicle. There are also tax credits some may qualify for. The biggest obstacle to mass consumer adoption of EVs may well be the sticker price. For now, while the cost conscious are interested, it’s mostly just the affluent that can afford to look.

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