Electric vehicle pricing and battery costs: A misaligned assumption

TL;DR

This study challenges the common belief that reducing EV battery costs alone will make electric vehicles cheaper than traditional cars, showing other factors significantly influence EV prices and that battery cost reductions alone are insufficient for price parity.

Contribution

It reveals that EV prices have increased despite falling battery costs and identifies additional factors influencing EV pricing beyond battery costs.

Findings

EV MSRP has increased over time despite declining battery costs.

Reducing battery costs to zero would only lower EV prices by $4,025.

Battery cost reductions alone are unlikely to achieve price parity with ICEVs.

Abstract

Although electric vehicles (EVs) are a climate friendly alternative to internal combustion engine vehicles (ICEVs), EV adoption is challenged by higher up-front procurement prices. Existing discourse attributes this price differential to high battery costs and reasons that lowering these costs will reduce EV upfront price differentials. However, other factors beyond battery price may influence prices. Leveraging data for over 400 EV models and trims sold in the United Sates between 2011-2023, we scrutinize these factors. We find that contrary to existing discourse, EV MSRP has increased over time despite declining EV battery costs. We attribute this increase to the growing accommodation of attributes that strongly influence EV prices but have long been underappreciated in mainstream discourse. Furthermore, and relevant to decarbonization efforts, we observe that continued reductions in pack-level battery costs are unlikely to deliver price parity between EVs and ICEVs. Were pack level battery costs reduced to zero, EV MSRP would decrease by $4,025, estimates that are insufficient to offset observed price differences between EVs and ICEVs. These findings warrant attention as decarbonization efforts increasingly emphasize EVs as a pathway for complying with domestic and international climate agreements.