Here's Why People Are Willing to Pay More for an EV

Electric vehicles are becoming much more common in the US. Just look at the plethora of Teslas driving down the main arterial in most cities. Models from Rivian, Polestar, or legacy automakers like Ford or General Motors show up more frequently too.

While EVs are becoming more mainstream — 1.2 million were sold in the US during 2023, according to Kelley Blue Book — they still tend to be more expensive than their gas-powered counterparts, though that gap is narrowing. In February, the average price paid for an EV was $52,314, according to data from Cox Automotive, 12.8% less than the year before. The average price for new vehicles overall was $47,244, but add in government incentives, like a revamped tax credit of up to $7,500 on qualifying electric vehicle purchases, and some EVs may actually be cheaper than a gas-powered car. 

Even in cases where EVs are more expensive, some Americans are willing to pay that premium. A recent report from GBK Collective, a marketing consultancy, found that potential EV buyers are willing to pay up to $7,650 more for an EV compared with a gas-powered car and current EV owners would spend up to $10,000 more.

Why? The answer is fairly simple: EV owners can save more on overall ownership costs, even if they pay more upfront.

Overall EV ownership costs vs. upfront costs

While the sticker price of the average gas-powered car is typically lower than that of an EV, it’s the ongoing costs of ownership that end up saving EV owners in the long run. 

“To the mainstream American driver, the cost of owning a vehicle is one of the most important factors when it comes to what type of car you’ll buy,” said Nick Nigro, founder of Atlas Public Policy. “EVs available today can cost less than owning the most popular gasoline [powered] vehicles.” That’s because EVs are more efficient and cheaper to maintain thanks to their fewer moving parts, he said. EVs also do without oil changes and cost less to fuel than gas-powered vehicles.

A March report from Atlas Public Policy details the cost differences. While the savings vary depending on vehicle type and other factors, the report finds savings across all major vehicle types. 

After seven years, the total cost of ownership for an electric Chevrolet Bolt EUV is $10,500 less than that of the gas-powered Toyota Corolla LE, despite the similar sticker prices for the two compact sedans (about $22,000). That difference accounts for taxes and fees, insurance, fuel, maintenance and repairs, tax credits, and expected resale value.

The report also finds total ownership cost differences of $2,825 for pickup trucks, $4,361 for mid-size SUVs and $7,099 for compact SUVs after seven years. Sedans, the closest in cost, saw the electric vehicle edging the internal combustion model by just $127.

There are some potential costs related to EV ownership that aren’t necessarily captured in the analysis. EV owners will need to figure out a way to charge their vehicles, which might entail having a charger installed at their home, which, if it requires an electrical upgrade, can cost thousands. The other option, public chargers, are more expensive than home chargers and require more time than a gas station trip. The Atlas Public Policy report assumes electric vehicles are charged at home 88% of the time.

But even with those expenses in mind, total EV ownership costs are still likely to be lower compared with gas-powered cars. And, as EV prices close the upfront cost gap with their internal combustion counterparts, EV owners potentially stand to save even more money. 

“Prices are coming down. It’s elevated, but it’s coming down,” Nigro said. “And the range of offerings is closer to what reflects the general auto market.”

Appealing to a broader market

While total ownership costs may be the primary reason that EV owners are willing to pay higher prices upfront, there may be personal reasons too. Barry Kresch, president of the EV Club of CT, started driving a plug-in hybrid EV in 2012, when he purchased a Chevrolet Volt for “environmental reasons,” he said.

“I think that the cohort who wanted to buy [EVs] were concerned about the environment,” he said about EV early adopters. But now that most of the people who wanted an EV for environmental or personal reasons have one, he thinks that the premium on EVs will be further reduced even as models that appeal to a wider range of drivers become available.

“We’re transitioning to mass market adoption,” he said. “What we need to see is more of a selection at mass-market price points — we didn’t have many. We had the Chevy Bolt, which was temporarily discontinued, and the Nissan Leaf [which is being phased out]. We need more selection,” he said. 

According to a recent report from Reuters, Tesla, the largest EV manufacturer in the country, has shelved plans for an entry-level EV to launch with a lower price point than its already popular models. Tesla hasn’t confirmed the report. The so-called Model 2 was expected to be priced under $30,000.

If the Model 2 ever hits the market, it could force other EV makers to compete at lower price points. Lower prices, combined with government incentives and lower total ownership costs, could make EV ownership much cheaper over a long time frame than owning a gas-powered vehicle, leading to a tipping point of EV adoption. At that point, Kresch said it’ll be difficult to wean drivers off of EVs once they realize the lower costs and other potential benefits of driving an EV. 

“I’ve been plugging in for a long time, and like many people who plug in,” Kresch said, “we don’t unplug.”