Why are electric vehicles so expensive?

The primary reason why electric vehicles are currently expensive is due to the high cost of the lithium-ion batteries that they use. 

Key parts such as batteries and motors are expensive to manufacture

Electric vehicle battery size is typically measured in kilowatt hours (kWh). While the average cost of a lithium-ion battery pack been trending downwards by almost a factor of ten (some estimates suggest that the cost per kWh has declined from $US 1,200 to $US 132 from 2010 to 2021), consumers are also demanding longer range electric vehicles that require larger batteries. This means that most battery packs currently remain more expensive to manufacture than the typical four-cylinder combustion engine used in mainstream cars today.

This is compounded by the use of rare earth elements for many electric vehicle motors. Neodymium, for example, is a rare earth element often used in EV motors, and its scarcity makes this material difficult and expensive to source. 

Car manufacturers must meet stringent safety regulations that require expensive sensors

In addition to the high costs of sourcing materials to manufacture EV parts such as battery packs and motors, electric vehicles, just like other new cars, are expected to meet increasingly stringent safety regulations, and include active safety and advanced driver assistance systems (ADAS) onboard. 

For most carmakers, this necessitates the inclusion of more sensors such as cameras, radar, lidar and ultrasonic sensors to enable features such as autonomous emergency braking (AEB) and lane-keep assist (LKA), as well as more powerful semiconductors, all of which drive up costs further. In the future, a fully autonomous vehicle may require multiple redundant sensors, which could lead to an additional cost penalty before any economies of scale are reached. 

Consumers demand more in-car technology 

We live in a digital world, and this also translates to greater expectations for in-car technology. Consumers commonly expect their cars to have the latest in smartphone mirroring technology and larger infotainment displays, and this drives up the cost of manufacture even more compared to older vehicles that may have lacked a screen at all, and have purely used buttons or switches. 

Low government incentives and the broader economic outlook

Although the federal and state/territory governments are slowly rolling out incentives, rebates and other benefits for consumers to purchase electric vehicles, these continue to pale in comparison to the benefits and incentives available elsewhere, especially in the US and Europe, which help reduce the initial purchase price of a new EV.  

Of course, it is also important to consider the broader economic environment. Rising interest rates and inflation all have an effect on new vehicle pricing and the cost of financing a vehicle, and EVs are no exception.