Current Trends Shaping the Cost of Electric Vehicles in 2024

Good news for fans of electric cars: By most estimates, the cost of electric vehicles (EVs) is steeply declining. Take Tesla, a market leader. According to Kelley Blue Book, the average transaction price for a Tesla vehicle dropped 24.7% from June 2022 to June 2023.

Why are electric cars getting cheaper? Good question. Battery costs, tax incentives, and competition are current trends shaping the cost of electric vehicles in 2024.

Battery costs

The battery is the single most expensive part of an electric vehicle. It's the heart of the beast, the chrome crown at the center of it all. When batteries get cheaper, so do EVs. Battery production costs have declined 14% from 2022 to 2023, according to BloombergNEF.

Analysts anticipate the good times will continue. Goldman Sachs predicts that the cost of producing batteries will decline 11% each year on average through 2030; that could put EVs on equal cost footing with gas-powered vehicles by 2029. That's a win for the average car owner.

One reason battery costs are falling: Lithium, a critical component in many EV batteries, is becoming cheaper, according to a recent report by the International Energy Agency (IEA).

Lower battery costs ultimately translate into more affordable electric vehicles in 2024. But don't expect double-digit cost declines next year; it may be years before EV price tags reflect lower production costs. Much depends on EV demand continuing to go up.

Tax incentives

The government is all aboard the EV train. The IRS has proposed changes to EV tax credits, making them more flexible into 2024 and beyond. Though the complete list of eligible cars has yet to be released, credits could range from $7,500 for new EVs to $4,000 for used ones.

In fact, the U.S. government is getting a smidgen fed up with naysayers. The U.S. Department of Energy released a short and snappy myth-busting report, one that claims tax incentives offered by the Fed, states, and utilities are fueling rising EV demand.

Alright, Uncle Sam. We see you. And I'm inclined to believe you, considering China's BYD is possibly the biggest EV-manufacturing rival to Tesla, and China is the U.S.'s economic rival. The U.S. is betting big on American EVs sliding down that cost curve.

U.S. tax credits are set to continue into 2024, but some cars may no longer be eligible or only qualify for reduced credits. If the vehicle contains Chinese components, it could be in trouble.

Competition

Competition in China versus the U.S. is heating up, but what about traditional car manufacturers in America? They're not immune, either. The world took notice when Tesla made dramatic price cuts in early 2023; the company slashed prices by up to 20%.

When the No. 1 seller of EVs in America cuts prices like that, buyers expect other brands to make similar moves. Otherwise, buyers begin to wonder whether they should spend their money on a nicer vehicle, even if it costs more upfront than, say, a Volkswagen ID.4.

As competition heats up, price wars could continue to drop prices lower and lower.

EVs may be cheaper in 2024

Considering the current trends shaping electric vehicle prices, EVs will likely continue to get cheaper into 2024. Battery costs, tax incentives, and competition will contribute.

But there will likely be exceptions. Some popular vehicles, including the Tesla Model 3, may no longer get the full benefit of tax credits due to stricter regulations imposed by the Inflation Reduction Act. It remains to be seen exactly how these rules will play out.

Furthermore, so long as the Federal Reserve keeps rates high, car loans will remain expensive relative to recent history. The same applies to drivers who want to lease EVs (myself included). The cost of financing a car, EV or otherwise, depends on the federal funds rate.

Should the Federal Reserve cut rates in 2024, the cost of financing an electric vehicle will probably fall significantly. It's something I'll be keeping an eye on into the new year.

EV insurance could remain pricey

The cost of electric vehicle insurance varies by location, model, and insurance choices. Still. Generally speaking, insurance is more expensive than it was in 2022; some think that car insurance rates won't fall in 2024.

EV insurance is typically expensive because many EVs are luxury vehicles; they're pricey, they're built with expensive parts, and that makes them expensive to replace. Insurers charge a premium for that. Expect to pay more insurance for a $50,000 car than a $30,000 one.

Though the cost of EVs is trending downward, insurance may remain pricey into 2024. The best car insurance companies offer reasonable rates, but this cost is worth considering. If you're switching to a pricier electric vehicle, your insurance will probably go up, too.