What's wrong with electric car prices?

What's wrong with electric car prices?

Transport & Environment — 2024-10-23

News from Brussels

The average price of an EV in Europe has increased – despite battery prices hitting record lows

While headlines boast about affordable EVs emerging in markets like China, a visit to a European showroom tells a different story, one where the sticker prices of top-selling electric vehicles remain far from accessible.

If you feel like EV prices are rising rather than falling, you're not imagining things.

In 2020, the average price of an EV in Europe was around €40,000 (excluding taxes). Today, it's around €45,000 – a 11% jump. This is the latest finding from T&E’s analysis of EU car sales. For our calculations we used German car prices.

What’s driving this price hike? Primarily, it's the growing dominance of large, premium EVs. Sales of these more expensive models – C-segment SUVs and segments D and above – have more than doubled in the last four years, surging from 28% of the BEV market in 2020 to 64% in 2024.

Certain automakers have driven up their EV prices more aggressively than others. Groups including Mercedes-Benz, and BMW have seen the biggest increases (+55% and +50%), while Volvo Cars and Stellantis have bucked the trend with a line-up including more affordable options (-31%, -4%).

Strong demand for affordable EVs

So, are carmakers turning away from cheaper EVs because of a lack of consumer demand? Not quite.

According to a European Commission study, 57% of Europeans are open to buying an electric car, but price remains a key barrier. A survey by YouGov for T&E found that 35% of new car buyers already intend to go electric within the next year when presented with the option of a €25,000 EV.

Consumers want electric vehicles, but the median price Europeans are ready to pay for an EV is €20,000 (new and second hand sales combined), according to a study from the European Commission.

Falling battery prices

Surely, high battery costs are also to blame for inflated EV prices? Not exactly.

Battery prices are hitting record lows. Since 2020, the price of batteries in Europe has dropped by 33% down to 151 $/kWh. Meanwhile, in China, the price of the cheapest batteries has dropped to $53/kWh.

The reality is much simpler: automakers are prioritising larger, more profitable EVs as part of their profit maximisation strategy, rather than focusing on affordable, mass-market models.

Despite the declining cost of batteries and increased production volumes, electric vehicle prices remain high, highlighting the rise in automakers' profits from EVs over the past few years.

Ironically, many of these companies are now blaming “low consumer demand” for electric cars, when in fact, it’s their own product strategies that have skewed the market.

Expect EV prices to drop in 2025

Are we doomed to a future of overpriced, oversized EVs that miss the mark on consumer demand? Thankfully, no.

Automakers will prioritise the sales of EV as they face new EU targets in 2025, which will shift the focus back toward more affordable models and more price competitive offerings.

T&E expects that EVs will make up 20-24% of the market next year, and will continue to grow, thanks in part to a wave of 12 new electric models priced under €25,000 set to arrive in the coming years.

We are seeing signs of EV prices coming down already in 2024. Volkswagen has announced that the price for the basic version of the ID.3 would be lowered from €36,900 to €29,760, almost reaching parity with the equivalent Golf starting at €28,330.

So, the next time you visit a dealership in 2025, you might just find a more competitive electric model waiting for you.