Electric cars have become incredibly popular over the last decade. The popularity of Tesla was instrumental in bringing electric cars into the spotlight, and the company still commands the lion's share of the market.

Other brands like Rivian have followed suit, with their stock prices soaring after the release of their latest models in 2022. However, keeping with inflation, the average price of an electric vehicle has increased considerably.

What's the Average Price of an EV in 2022?

The average price of an electric vehicle in the United States for August 2022 was $66,000, according to Kelley Blue Book, the leading price advisor in the country.

The average price of an electric vehicle increased by 13% compared with 2021, which indicates a sharp upward trend. Electric cars are a major attraction for people who want to reduce their carbon footprint or wish to avoid the running costs of a gas-powered vehicle.

However, with such an exorbitant price, electric vehicles remain out of reach for the average American, where the median salary for the second quarter of 2022 was $54,000.

According to the same report, the average starting price for the top ten electric vehicles was $60,500, with all cars except Teslas seeing a jump in prices. This is a sharp jump, especially considering that in January 2020, the average price of an electric car was $54,668.

Why Have Electric Car Prices Increased?

Black car charging in a parking lot

One of the most disturbing trends in the automotive sector is how EV prices have begun moving in the wrong direction. With rising gas prices, many people wanted to switch to EVs, but cost remains the biggest barrier to mainstream adoption.

Despite promises by leading automakers that EV prices would eventually reduce, nothing has happened, with prices continuing to increase. In fact, according to an analysis by iSeeCars, used electric car prices have increased by almost 54.3%, while the increase in gas-powered vehicles is more modest—10.1%.

So why have EV prices increased so drastically?

The Global Chip Shortage

One of the biggest reasons EV prices have jumped is the global chip shortage, which led to supply chain problems and affected vehicle sales worldwide.

Companies like Tesla have increased their prices several times in 2022, and even newer players like Lucid Motors and Rivian have increased their prices. The Rivian R1T comes with fantastic features, which has no doubt attributed to the rising costs. Even Ford, an industry stalwart, has increased its prices this year.

Rise in Material Costs

Several automakers have stated an increase in material costs as the prime reason for the increase in EV prices. Material prices skyrocketed at the start of 2020 due to the global pandemic and the supply chain crisis.

As a result, some companies have been left with no choice but to increase prices or risk selling their EVs at a loss. In fact, as per CNBC, the CFO of Ford Motor stated at a conference in June that the Mustang Mach-E, one of their flagships, is no longer profitable.

Accounting for Sunk Costs

Sunk costs are defined as the costs that a business spends before launching a new project, primarily in research and development. Many automakers are still researching and developing different models, with R&D expenditure going well into the billions.

In essence, companies can't recover sunk costs, but they generally offset the expenditure by selling their flagship models at a higher price before eventually bringing them down as the technology catches up.

This rise in research and development expenditure, fueled no doubt by inflation, is another reason why EV prices have increased sharply.

What Affects Electric Car Pricing?

Several factors affect the pricing of electric cars outside regular market forces like demand and supply:

  • Features: The more features an electric car has, the more it will cost.
  • Range (battery): The cost of an EV battery also influences its price. Most companies offer several variants, with long-range ones costing more.
  • Material costs: Most companies usually source EV parts from other countries like China and Vietnam, including chips and pre-fabricated components. The rising costs of materials directly impact pricing.
  • Subsidies: Many governments offer subsidies to EV automakers, which help reduce the prices.
  • Dealer markup: When dealers see a supply shortage, they often increase the markup, causing prices to surge.

Luxury EVs vs. Standard Electric Cars—Pricing Comparison

There's a stark difference in the prices of luxury EVs and standard electric cars. For instance, the cheapest electric car in 2022 is the Nissan Leaf, which retails for $27,400. The Chevy Bolt, an ever-reliable EV, costs $31,000.

Conversely, the cheapest Tesla model in 2022 is the Tesla Model 3, which after a price increase, sells for $46,990. The most expensive variant will set you back $69,000!

On the other hand, the luxury EV market has continued to see an uptick in demand. The Porsche Taycan Turbo S Cross Turismo, for instance, retails for a whopping $187,700.

The Lucid Air Grand Touring Performance package sells for $179,000. Tesla's most expensive offering in 2022 is the Model S Plaid, which costs $131,990, followed by the Model X Plaid, which retails for $131,990.

Since they target a different segment of the market, luxury EV manufacturers have more freedom to increase prices, with demand not being as sensitive to an increase. However, owing to supply chain and production issues, many of the luxury EV models are on backorder.

EV Prices Are Likely to Continue Increasing

Despite repeated claims by automakers to assuage the general public about the rising costs, it's expected that EV prices are likely to increase in the next few years before eventually plateauing.

New EVs are expected in 2023, which will undoubtedly retail for much higher prices than originally expected. As the market slowly recovers, many will consider different options, especially considering the rising costs of owning an EV, given the global increase in energy prices.