It’s never been cheaper to buy an EV. Here’s why.

The price of electric cars is plummeting so fast that they’re now almost as cheap as gas-powered cars.

Since EVs first hit the market, car buyers have had to pay a steep premium if they wanted a car that ran on batteries instead of a gas engine. Two years ago, they would have paid about $17,000 more on average for a new electric car than for a new gas-powered car. But that gap has been rapidly closing, shrinking to $5,000 last month, according to data from Cox Automotive.

That’s an 11% markup over the average new car price last month — roughly similar to the price difference between picking the base model of some cars vs. the performance model that comes with all the bells and whistles.

Tesla is setting electric vehicle prices so low, they’re almost even with gas-powered cars.

Of course, part of the reason EV prices are plunging is that consumers are not buying them as fast as dealers and automakers expected. As the industry moves beyond enthusiastic early adopters, it now faces car buyers who are concerned about charging infrastructure and high upfront costs.

So car dealerships are discounting electric cars on their lots. Average EV prices dropped $2,000 last month. “We’re going to continue to see price cuts or discounts just because there’s inventory and [dealers are] really trying to get these sold,” said Stephanie Valdez Streaty, director of Industry Insights at Cox Automotive.

That’s good news for Americans in the market for a new car who might be considering going electric. “Price is always one of the top barriers for adoption, so I think getting down to price parity is key,” she said.

Which EVs are getting cheaper?

Tesla, which sells more electric cars in the U.S. than all other automakers combined, has been the driving force behind the EV price plunge. The automaker started slashing the price for its popular Model Y SUV and Model 3 sedan in January 2023, dragging down the average for all electric cars. For instance, the base Model 3 sedan, which cost $47,000 at the beginning of 2023, now sells for $39,000. The premium Model Y dropped from $70,000 to $52,500 in that same period.

Tesla is probably cutting prices to maintain its market share as rival automakers start selling electric cars, Valdez Streaty said. There are now 57 EV models for sale in the U.S., according to Car and Driver magazine. While Tesla once commanded roughly 80% of the U.S. market, it’s now clinging to a bare majority — and most of its top competitors are also cutting prices.

“Tesla still dominates, but … there’s so much more competition now,” Valdez Streaty said.

EV prices are set to keep dropping

Last month’s drop in EV prices is part of a long-term trend toward cheaper electric cars, mainly due to falling battery prices. Batteries are nearly 90% cheaper today than they were in 2008, according to the U.S. Energy Department.

“Batteries can make up as much as 40% of the cost of the vehicle,” Valdez Streaty said. “We’re going to see battery prices continue to drop … so I think we’re going to start to see this closing near that price parity.”

The cost to make a new electric car could fall to the same level as gas-powered ones as soon as 2027 because of more efficient manufacturing, according to a March 7 report from the technology consulting firm Gartner.

Cost is the main barrier for U.S. car buyers thinking of making the switch, according to a 2022 Cox Automotive survey. If prices keep dropping as they did last month, more Americans may be willing to ditch their gas-guzzlers for electric cars.