The automotive industry and public sector continue to invest in electric vehicles (EVs), redefining the future of personal transportation. As the shift toward electric mobility sales growth rate gains momentum (but not mass adoption, yet) a critical question has emerged: How do consumers value EVs against internal combustion engine (ICE) vehicles, and how can we actually achieve price parity?
It’s not an easy question to answer, mostly because we, as consumers, have decades of experience understanding the value of ICE vehicles compared with only a handful of years for EVs. The challenge first lies in understanding how the total lifecycle cost of ownership of EVs stacks up to ICE vehicles, especially given that each consumer values different things. While most consumers value the initial purchase price of a vehicle above all else, that’s only one element in achieving full parity.
At the end of the day, EV cost parity is truly in the eye of the consumer and can be best achieved by focusing on the following four aspects:
Initial purchase price
Historically, a vehicle’s initial purchase price has been the easiest way to assess its value. That said, in the past few years, we have seen immense progress toward price parity between EVs and ICE vehicles. For many similar makes and models, we’re seeing there’s currently less than a 10% difference in purchase cost. This is mainly due to the decreasing cost of the EV battery, in large part because of the continued decline of the cost per kwh. Automakers have also offered significant price cuts for new EVs, reflecting lowering consumer demand and growing levels of inventory.
EV incentives, such as the $7,500 tax credit, bring the cost of acquisition of a new EV lower than a comparable ICE vehicle counterpart in some cases. Initial price aside, consumers are gravitating toward EVs because they believe them to be superior products and are willing to pay a premium to obtain one. In fact, a recent EY study found that consumers perceive an EV to be a superior product, with 88% noting they are willing to pay more up front for an EV.
The cost of ownership
The ownership costs of an EV are often touted for being lower than those of ICE vehicles, due in large part to savings on fuel and maintenance. In fact, the average EV driver will spend 60% less to power their vehicle over its lifetime.
Another argument often made for EV affordability is ongoing maintenance. While EVs and ICE vehicles share similar maintenance costs, the difference lies in the engine. With an EV, the costs associated with the battery—barring a full replacement—are significantly lower than those associated with engine maintenance. Without costs such as regular oil changes, EV owners spend about $300 less on maintenance than their ICE peers in five years’ time ($4,246 to $4,583). Additionally, the battery, motor, and technology do not need regular maintenance, and brake wear is reduced due to regenerative braking.
The cost of repairs
Where we aren’t seeing parity between EVs and ICE vehicles is with repair costs. According to a recent report, the average number of hours to repair ICE vehicles is 1.66, while EVs have an average of 3.04—almost double. Given that EVs are still new, this isn’t surprising. Technicians—who have 100 years of institutional ICE knowledge—are still learning how to effectively repair an EV, and there’s an expected learning curve. And time is money; when technicians are spending more time on repairs, the cost will be greater. Soon, we can expect this average to go down considerably, as more EVs are brought in for repairs and technicians’ education and experience get stronger.
Another factor that influences the larger repair cost of EVs is the need for repair shops to get a completely new OEM part each time vs. repairing or reusing a previously used part. ICE vehicles have a robust aftermarket, while EV parts are still primarily proprietary, meaning ICE vehicles benefit from a more extensive variety of recycled, repaired, and aftermarket alternative parts compared with EVs—making the parts cheaper to obtain and maintain.
Residual value
Let’s face it, the residual value of EVs is declining faster than ICE vehicles, something that has kept some consumers from purchasing an EV in the first place. A recent study found that in the United States, the average price of a one- to five-year-old EV decreased 31.8% year over year, which equates to about $14,418. In comparison, the average price for a similarly aged ICE vehicle fell 3.6%.
However, today’s fluctuating market dynamics have a greater impact on EV residual values after 12 months than after 60 months. In fact, the average EV residual value rose $460 in the first quarter of 2024 vs. the first quarter of 2022. This can be attributed to two main factors: 1) automakers prioritizing new EVs to be more competitive with ICE vehicles and 2) the increase in consumer comfort and confidence in long-term battery life.
As we begin to see more confidence in EV batteries, it’s fair to note that consumers still haven’t fully wrapped their heads around it; many think a used EV battery will ultimately lead to a $25,000 replacement, which is not true. The U.S. Department of Energy predicts that batteries used in moderate climates will last 12 to 15 years, while those used in more extreme conditions will most likely last 8 to 12 years. Compare that to your typical ICE engine life expectations.
When it comes to pricing a used EV, there’s not enough historical data on what price point it should be, largely driven by a lack of history in used battery valuation. Plus, as automakers continue to lower the price of new EVs, the value of used EVs is fluctuating greatly.
In conclusion
Ultimately, no consumer experience is the same, and the value placed on vehicles will depend on each individual. Despite that, we can solve price parity between EVs and ICE vehicles in the coming years if there’s a spotlight put on education. As we wait for parity, consumers purchasing a vehicle have more options than ever—including hybrid vehicles, which are gaining popularity for being a pathway between ICE and EV vehicles. In fact, EY’s most recent Mobility Consumer Index showed that 21% of U.S. consumers are considering a hybrid vehicle as their next car purchase.
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