Teslas are now cheaper than the average new gas-powered car

If you’re holding off on buying an EV until your electric dream car is cheaper than a gas-powered car, your wait may be over. The tipping point on price parity has been reached, so you’ll have to find another excuse to stick with fossil fuels.

Just look at the trend for the U.S. market leader, Tesla. The company’s most recent price cuts, the latest in a series of reductions this year, have brought the cost of a basic Model Y down to $43,990 before federal and state rebates, taxes and fees. The Model 3 is $38,990, before rebates and charges, according to Tesla’s online ordering portal.

Deducting the $7,500 federal rebate, that means the prices are around $36,490 for the Model Y and $31,490 for the Model 3, the latter of which Andrew Krulewitz, founder of EV financing startup Zevvy, called ​“silly-cheap.” He said that the average price of a new car in the U.S. is about $45,000 right now, and a used car averages a hefty $30,000, ​“which places the Model Y between the new and used [internal-combustion-engine] average,” even before rebates.

Importantly, as of January 2024, the $7,500 federal rebate for a new EV will happen at the time of purchase, regardless of the buyer’s tax liability — not at tax time up to a year later. This opens up the market to low- and moderate-income car buyers and helps advance the Biden administration’s goal of EVs making up half of new car sales by 2030.

Tesla offers some of the most affordable (and popular) EVs on the market, but it’s not the only automaker with cheaper-than-average electric vehicles. Several other automakers offer vehicles that start under $45,000, though they’re not all widely available, nor do they all qualify for the federal rebates at this time.

To be fair, Krulewitz also pointed out that EV-owners-to-be will have to consider the cost of installing a home charger — and possibly upgrading their electrical panel — if they’re lucky enough to have dedicated parking or own their home. But once the car and charging infrastructure is taken care of, EVs tend to be cheaper to own and maintain than fossil-fueled alternatives.

Electric vehicles accounted for more than 7 percent of new cars sold in the U.S. in the first half of 2023. That’s an important milestone. ​“Once 5 percent of new car sales go fully electric, everything changes,” according to an analysis by Bloomberg Green. It calls the 5 percent point a key tipping point that marks the shift to mass adoption; after that threshold is crossed, Bloomberg contends, ​“technological preferences rapidly flip.”

But this is just the beginning of a seismic shift in the multibillion-dollar automotive market.

The transition to EVs is unsurprisingly proving to be a messy affair that’s both constructive for the goal of cutting emissions and destructive for the auto industry status quo. We’re now in the high-velocity portion of the growth curve, and it’s not wholly unexpected that traditional market structures and supply chains will experience some growing pains.

Example one of this disruption: Scrappy startups are threatening and dislodging the dominant players. Despite repeated reports of its inevitable decline, Tesla is maintaining its EV lead over incumbent automakers like General Motors, Ford and Volkswagen. Even after recent price cuts, Tesla is posting better overall profit numbers than most traditional automakers. Only China’s BYD is keeping up with Tesla’s scale and growth in EVs.

The battle for the electric truck market is also about to commence. Startup Rivian’s R1T electric truck, which was the first EV truck on the market in the U.S., continues to outsell Ford’s F-150 Lightning. Meanwhile, after years of delay, Tesla’s Cybertruck will finally (maybe) launch soon, right on time by Musk standards. The rollout of GM’s new electric models, the Chevy Blazer, Equinox and Silverado, have been delayed. Pickup trucks in particular are a high-profit-margin product line, and the majors will be loath to lose this moneymaking segment to upstarts such as the Cybertruck or the R1T.

EVs are also ushering in a new relationship with labor. Electric-vehicle manufacturing has been a critical issue in contract negotiations with the striking United Auto Workers union concerned about their work disappearing as the transition deepens. Just last week, GM agreed in writing to bring EV battery manufacturing facilities into its UAW agreement.

The electric era is transforming manufacturing and vertical-integration strategies, too. Tesla has shown that the manufacturing methods and corporate structures of the conventional car business are not always well suited to EV manufacturing. Legacy automakers will learn this lesson, one way or another.

Like every rapid technological shift, from home telephones to smartphones to the rapid deployment of solar, the EV transition seems inevitable now that we’re in it. We’re living through the breakneck ride to electric transportation, and the starting gun has just gone off.