EV and ICE vehicle prices come together

When the first modern electric vehicles hit showrooms, they were small, had short ranges, and cost significantly more than similarly sized internal combustion engine (ICE) powered vehicles. That was more than a decade ago, and while EV options have grown significantly, price still remains a barrier to entry for most consumers. But that seems to be changing.

Several new electric vehicles have seen their prices drop recently — Tesla cut prices on the Model 3 and Model Y, while Ford did the same with the Mustang Mach-E. These are the most popular electric cars in America, and the trend is likely to spread as more models come out and competition increases overall. Not only has the EV market become more competitive, but automakers have moved beyond their initial research investments, which should ultimately make EVs more viable and allow for lower prices.

Electric Vehicle Tax CreditGetty Images/Kameleon007

But this step is not only driven by the intensified competition. The Inflation Reduction Act (IRA), passed last year, provides tax credits of up to $7,500 for electric vehicles, but they must meet certain requirements. To qualify for the credit, a car price must be under $55,000 and an SUV under $80,000 — these discounts allow customers to reap the additional credits, making the EV even more attractive.

While most electric vehicles are still priced higher than their gas-powered counterparts, daily running costs are having a significant impact on total cost of ownership as these prices get closer. Electric vehicles are much cheaper to run – fuel costs are significantly lower and maintenance for an electric powertrain is minimal. According to the US EPA, very efficient plug-in hybrid vehicles with internal combustion engines can have twice the fuel costs of the most efficient electric vehicles. For many EVs, this is enough to make them a better buying option.

In order to maintain these lower prices in the future, the most expensive component of the electric car has to come down – that would be the battery. “Battery cost is the largest contributor to the overall change in the cost of EVs and their premium relative to them [internal combustion engine] Vehicles,” Paul Augustine, director of sustainability at ride-sharing company Lyft, told The Wall Street Journal.

Much research has been done to find cheaper ways to make batteries. This work includes finding new sources of raw materials and introducing new battery technologies that do not rely on expensive, rare components. For example, iron-based battery technology is fast becoming an alternative for use in electric vehicles – these do not contain nickel or cobalt, which can be the most difficult and expensive materials to source.

In addition to giving tax credits to consumers, the IRA also gives automakers subsidies to lower production costs. Section 45X of the IRA mentions an advanced manufacturing production credit. This clause compensates companies that manufacture batteries and their components in America – not only does this create an incentive for auto companies to move battery production to America, but it will also significantly reduce the cost of manufacturing batteries and ultimately electric vehicles. These savings should result in lower prices overall.


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