With the first month of 2025 now over and the threat of tariffs hovering on multiple fronts, many an American household is asking: “Will 2025 be the year of more inflation – or will we finally bring it down?”

After inflation peaked at 9% in June 2022, the Bureau of Labor Statistics (BLS) reported inflation figures hovering below 3% since the middle of summer 2024. This is good news for consumers whose wallets have been stretched by surging prices for groceries, utilities, healthcare and, of course, gasoline.

If you’re in the market for a new car and considering an electric vehicle (EV), you might be asking yourself, “What impact does inflation have on my purchase decision?”

Does inflation affect the prices of new electric vehicles?

Before going any further, let’s anchor the discussion in a solid definition of inflation. 

Inflation is defined as the rate of increase in prices over a given period of time. It can be applied broadly, such as when we describe the overall cost of living in the U.S. It can also be applied more narrowly to certain goods or services – such as electric vehicles (EVs).

While EVs are known to be more expensive than vehicles with internal combustion engines (ICE), and the average price for an EV rose a bit in January, over the past several months the inflation trend for both has been relatively flat. EVs, however, have a few key differences that make their production cost structure unique:

• Batteries generally account for roughly one-third of an EV’s price and contain a number of expensive minerals. The price of lithium has dropped by one-third since March 2024. Similarly, the price of cobalt is down almost 10% this year.

• While labor costs have been rising as policymakers look to bring wages into lockstep with inflation, they only account for 7% of total production expense – and EV powertrains enjoy a much simpler assembly compared to ICE.

• What EVs lack in moving parts, they make up for in software (e.g. driver assistance, battery management), which tends to be more inflation-resistant due to the relative weight of upfront R&D investment needed for deployment.

This helps to explain the correction we’ve seen in new EV prices over the last few years. While the EV premium over ICE was quite high in 2020 (+42%), prices peaked by 2022 and now that premium is only +16%. Some of this can be attributed to Tesla, the EV market leader, cutting prices across its lineup a year ago. The fact remains, however, that today automakers can achieve greater economies of scale with EV production, helping to keep new vehicle prices in check.

How does inflation affect the cost of ownership for electric vehicles?

Once you drive home in your new EV, the focus shifts to costs of ownership.

1. Maintenance

Maintenance costs for ICE cars amount to roughly $0.10 per mile driven, or $1,452 per year (for 15,000 miles traveled). A number of common maintenance costs, however, do not apply to EVs, such as oil changes, spark plugs, transmission service and exhaust systems. These can account for up to 30% or more of typical annual maintenance costs, which puts a lot of money back in the EV owner’s pocket.

You’re not totally off the hook: your EV will still need new air filters, tire rotations and alignment, and battery cooling system maintenance. Your brake pads will last longer (due to regenerative braking), but your tires will wear out faster (due to the higher overall weight of EVs).

Any maintenance required on your car will also have labor costs priced in – and while wage growth is relatively low at 3.9%, that still outpaces inflation.

2. Charging

Compared to a gasoline-powered vehicle, the per-mile cost for electricity to power your EV will almost always be less. On average, it costs about $0.05 per mile to charge an EV, compared to 3-4 times higher with gasoline. But beware the nuance of these calculations:

• Inflation in commodity prices. Prices of both electricity and petroleum can fluctuate. Geopolitical turmoil in oil-producing countries and supply routes can have dramatic effects on the price of gasoline. In the past year, electricity prices have increased by 2.5%, while gasoline prices declined 8% in the same period. The price of electricity, however, is known to be far less volatile than gasoline.

• The price premium on public charging. When you charge at home, you’ll pay $0.16 per kWh (kilowatt-hour) on average, compared with up to $0.25 per kWh for public Level 2 charging. For public DC fast charging (Level 3), the cost can reach up to $0.60 per kWh, almost three times more expensive than charging at home. If electricity costs surge, you’ll feel it even more at the public charging stations.

3. Insurance

Insuring an EV has typically been more expensive than for ICE vehicles (there are fewer EV-certified repair shops, and specialized parts cost more to repair). However, that gap has decreased in recent years, with annual premiums reaching parity. While it is impossible to predict inflation trends with accuracy, conventional wisdom suggests that with continued EV adoption, insurers can collect more data, allowing them to bring down premiums for consumers.

4. Resale Value/Depreciation

Inflation doesn't just impact new EV prices—it also influences used vehicle resale values. When the cost of new EVs rises due to higher production costs (materials, labor, and technology investments), demand for used EVs increases as buyers seek more affordable alternatives.

Historically, higher new vehicle prices correlate with stronger resale values. According to iSeeCars, the average, 3-year depreciation rate for all vehicles is 33.3%, while for EVs it has historically been higher due to rapid technology advancements. However, that trend has been changing. In 2023, the depreciation rate for EVs improved to 49.1% from 52.9% the year before, indicating a more stable resale market.

Key factors impacting EV resale value:

1.) Battery health: The high-voltage battery is the most expensive EV component, and its condition significantly affects resale price. According to Recurrent, EVs with 90%+ battery health retained 10-20% more value than those with degraded batteries.

2.) New EV price trends: Tesla's price cuts in 2023 and 2024 temporarily pushed down used EV prices, but with lithium prices stabilizing and inflation affecting production costs, used EV values could rebound.

3.) Incentives & subsidies: The availability of federal tax credits for new EVs ($7,500) can influence used EV demand. If new EV affordability is reduced due to inflation or higher interest rates, used EVs become a more attractive option.

4.) Software updates: EVs from brands with frequent over-the-air (OTA) software updates—like Tesla—often retain value better than those with outdated tech.

Financing, Leasing, and Warranties to the Rescue

While the worst inflation appears to be behind us, who among us can predict the future? The smart buyer can mitigate risk in three ways:

• Financing. Spread out your costs over time, with predictable monthly payments. Keep that cash on hand for other inflation-sensitive essentials like groceries and health care.

• Leasing. Owning your EV for a finite period protects you not only against inflation risk, but also depreciation. With today’s fast pace of innovation in electrified mobility, you’ll have exciting new options at the end of the lease term.

• Warranties. Safeguard yourself against unexpected repairs, especially with regard to your high voltage battery. Who can put a price on that peace of mind?

Xcelerate helps you control your EV ownership costs in a time of uncertainty – leaving you free to enjoy the benefits of clean mobility, without the added financial stress of inflation.