Why Are Electric Cars So Expensive?

The future is electric, so they say. But for the majority, electric cars remain prohibitively expensive.

In this article, we take a look at why electric cars remain more expensive to buy or lease than petrol and diesel cars, how much more you can expect to pay for one, and where you might make some savings. 

Why are electric cars more expensive than petrol or diesel?

Electric cars generally have a higher recommended retail price than petrol or diesel cars because:

• They are produced in smaller numbers 
• And they use a battery pack that is made of expensive materials. 

As you’d expect, that also translates into higher monthly leasing payments. 

But it isn’t quite as clear cut as “electric cars are more expensive”. 

Electric cars can already work out cheaper over their lifetime due to reduced fuel and maintenance costs. 

If you’re a business owner, you can also save on company electric car tax (EVs qualify for the lowest BiK tax bands), and under some circumstances, you can claim back VAT on electric cars and EV charging. 

How much more expensive are electric cars?

If you’re looking to buy or lease a new electric car, you can expect to pay several thousand pounds more than a comparable conventionally-fuelled car.

So, how much is an electric car? 

At the time of writing, prices for the standard Fiat 500 hatchback start at £14,005. By comparison, the new Fiat 500 electric starts at £23,835. 

Similarly, the new Corsa starts at £17,380, while the electric Corsa-E costs £25,805 and upwards. 

It might look bleak, but the average cost of buying or leasing an electric car is starting to fall. As EV uptake has increased, economies of scale have made it much cheaper to manufacture things like EV batteries, the most expensive component of an electric car. 

According to McKinsey, the average cost of an EV battery, by kWh, fell by around 80% from 2010 to 2016 alone, from ~$1,000/kWh to ~$227/kWh. 

Industry experts generally agree that EVs will reach price parity with ICE cars when the cost per kWh reaches around $100. Swiss bank UBS had optimistically predicted price parity being reached as early as 2024, though this is looking increasingly unlikely. 

But don’t worry, there are other ways to save with an EV, as we will see below.

Are electric car maintenance costs more expensive?

Electric cars generally work out cheaper to service and maintain than the equivalent petrol and diesel models, largely because they have fewer moving parts and parts that need to be replaced due to wear and tear. 

For instance, while an ICE drivetrain can have over 200 moving parts, a Tesla Model 3 drivetrain has just 17 moving parts.

Electric cars don’t need oil changes and have no cambelts or other items that can be fairly expensive to replace. 

You can also prolong the life of your brake pads/disks by using regenerative braking. This uses your motor as a generator, converting kinetic energy into electrical energy rather than waste heat energy (produced by friction brakes) that ultimately degrades your brake pads. 

Many EVs, such as the Nissan Leaf, actively encourage ‘one pedal driving’, where regen braking is mostly used to slow the car down.

Servicing will generally focus on ensuring the battery and electric drivetrain work as intended. Often, the charging cable is checked for damage, tears and performance, and the battery is checked for its ‘State of Health’ (the amount of charge the battery can hold now, compared to when it was new).

Of course, if you’ve just bought a Tesla Model S Plaid and you’re eager to show off that sub- 2 second acceleration time, you can probably expect to replace tyres a lot more frequently than on an ICE. 

Electric cars are also much heavier, which can speed up the rate at which tyres degrade, particularly as EV manufacturers turn to narrower tyres to eke out some extra miles as we’ve seen on the BMW i3.

Are electric car running costs more expensive?

Although the cost of purchasing an electric car remains high, many are surprised by just how little it can cost to charge an electric car.

Costs will vary depending on the EV charger types and speeds you use, which electric car charging companies you use, and whether you have a subscription to the charging service provider or not. 

Charging at public points

For example, a Pay As You Go customer using a public BP Pulse charging point can expect to pay at least £0.38/kWh for regular slow or fast charging and £0.44kWh for rapid charging. If you decide to purchase one of their subscriptions, you will get access to tariffs starting from £0.28/kWh.

For comparison, a Tesla Model S has a battery capacity of 100kWh, with an estimated 405 miles of range. If we used the lowest tariff offered by BP Chargemaster (£0.28/kWh), then the charging costs would be:

100kWh x 28p = £28.00, or 6.9p per mile.

Charging at home

However, if you have your own driveway or parking space, then electric car charging at home with a dedicated smart wallbox can save you a lot of money. You’ll be charged according to your supplier's standard electricity rates. In 2021, that was about 18.9p/kWh. 

100kWh x 18.9p = £18.90. That’s about 4.6p per mile.

By installing a smart wallbox, you’ll also be able to take advantage of variable pricing throughout the day with special EV tariffs. 

A smart wallbox and mode 3 charging cable will allow your car to effectively communicate with your home charger so it knows when the car needs charging and how much electricity costs at that point in time. This means your car will only charge when it is cheapest to do so. 

With EDF energy’s GoElectric35 tariff, you’ll be able to recharge at just 4.5p per kWh between 12am and 5am every day. Better still, the energy you use is 100% renewable and can help to balance the grid!

At these prices, driving the same Model S would cost just 1.1p per mile!

To find the best deal on an electric car charger, you can compare prices with RightCharge. (This is an affiliate link where we earn commission if you purchase a product via Rightcharge, but you aren't charged extra for it).

Is electric car insurance more expensive?

They may be cheaper to run and maintain than petrol or diesel cars, but electric cars still remain more expensive to insure. This is largely down to their higher RRP and the cost of replacing a battery, as well as the fact that there is much less data available on EV performance over time compared to ICEs. 

Because there aren’t as many EVs on the road as petrol or diesel cars, replacement parts are often less readily available, and there are less specialist mechanics available to make the repairs.

However, this is likely to change in the near future, following the UK Government’s announcement that there would be a ban on the sale of new petrol and diesel cars from 2030. This will drive demand in the electric car market, creating economies of scale and causing prices to fall, which should make EVs cheaper to insure. 

Although electric cars are more expensive to insure than petrol or diesel cars, there are other ways to cut the cost of electric car insurance in the meantime. These include:

• Paying upfront rather than monthly
• Increasing your excess
• Shopping around rather than auto-renewing your insurance.

When will electric cars be cheaper?

For the past decade, there have been generous Government grants for electric cars to encourage EV uptake while purchase prices remain high. 

Gradually, these incentives are being removed - a sign that we are nearing the all-important ‘price parity’ point with petrol and diesel cars. 

However, as Governments around the world set new net zero targets, they must also source the materials such as lithium, cobalt, and various rare earth elements required to enable a green transition. 

The impact of new net zero targets is already being felt. In 2021, lithium carbonate prices jumped by 500%, and experts believe the prices will climb further still!

It is for this reason that new EV battery chemistries that rely less on rare or expensive metals may be the key to cheaper EVs. 

The good news is, the electric car batteries of the future are already well on their way, with researchers and manufacturers already experimenting with lithium-sulphur, lithium iron phosphate (LFP), and sodium-ion batteries as a way to eliminate expensive metals like cobalt, nickel and lithium. 

Conclusion

It could be several years before we see electric cars with a comparable RRP to a petrol or diesel car. 

But if you drive a lot and you have access to home charging facilities, leasing or buying an electric car is a great way to cut costs - and your carbon footprint - over the longer term. You can find out more in our post on the pros and cons of electric cars.

If you’re particularly cost-conscious but you need a new car, why not check out our cheapest electric cars and the best small electric cars for some inspiration?