What’s behind the recent drop in EV prices?

One of the biggest deterrents for the EV-curious is that plug-in cars simply remain more expensive than their gas-powered cousins.

There are signs that this EV price gap is shrinking.

The average price for a new EV in January was $55,353—still more than the average new-vehicle transaction price of $47,401, but 10.8% lower than EV prices a year ago, according to a recent Kelley Blue Book analysis.

“EV prices have come down significantly in the US in the past year, led by price cuts at Tesla,” Mark Strand, senior director of Business Intelligence at Cox Automotive (which owns KBB), said in a statement.

EV incentives have been on the rise, KBB noted, increasing “more than three-fold in the past year,” as automakers try to juice sales amid a slowdown. In January 2023, for example, the VW ID.4’s average incentive package was equal to about 6% of ATP; a year later, that rate climbed to nearly 17%.

A big factor has been Tesla’s aggressive price cuts, which sparked a price war—leading to concerns about used-vehicle values plunging and making it even harder for competitors to reach profitability. KBB noted that prices for the Model Y, the sector’s best-selling model, fell more than 21% in the last year, dipping below $50,000 in January.

Last week, Ford cut prices on its Mustang Mach-E lineup by as much as $8,000. The reductions bring some versions of the EV under $40,000 for the first time, The Verge reported. And earlier this month, EV startup Lucid lowered the starting price on its Air model.

Another EV startup, Rivian, recently slashed prices across its lineup. Underscoring the sector’s challenges, Rivian said last week that it would lay off 10% of its salaried workforce in an attempt to bring down costs after it reported losing $5.4 billion in 2023.

Stephanie Valdez Streaty, director of industry insights for Cox, explained what’s going on.

“Fortunately for consumers, one important trend we’re continuing to see is the EV downward price movement,” she said during a presentation last month. “This has been due to price cuts, driven by Tesla; incentives; and more affordable vehicles for sale.”

A growing glut of EVs on dealer lots represents a “silver lining” for price-conscious consumers, she said. And expect the trend to continue throughout 2024: “With more competition and decline in battery prices, we should see continued movement to price parity between EVs and ICE vehicles.”