HOW THE HOT EV MARKET LEFT MIDDLE-INCOME AMERICANS OUT IN THE COLD

There are, for instance, income limits to qualify for the EV tax credit, as well as limits on how much the car can cost. Yet “it remains a stubborn fact that EV owners are more likely to be higher-income,” she said. 

Households that earn at least $200,000 are the primary purchasers of electric cars, representing 42.6% of sales as of November, according to transaction data shared with MarketWatch by S&P Global Mobility. Households that earn $100,000 to $199,999 were behind 32.9% of sales. Meanwhile, the U.S. median household income was $80,610 in 2023.

These trends are inverted for gas cars, with 42.5% of sales coming from households that earn less than $100,000. Only 24.1% of sales of gas-powered cars were from buyers with incomes above $200,000.

Among those with more moderate incomes, electric cars are still barely a consideration. In a 2024 Gallup poll, 5% of households with incomes between $40,000 and $99,999 reported owning an electric car, while 9% said they were considering buying one. Among those who make less than $40,000, those rates were 2% and 7%, respectively. 

These buyer demographics are consistent with the relatively high cost of electric cars in an overall automobile market that has become unaffordable for the average American. 

Related (April 2024): Half of U.S. households can only afford a $400 car payment. Their options — new or used — are scarce.

“The prices, frankly, are much, much higher for the same size EV model versus a gas model,” Tom Libby, the associate director of industry analysis and loyalty solutions at S&P Global Mobility, told MarketWatch. Even after discounts, the average transaction price for EVs was $55,544 in December, 11.7% more than the average of $49,740 for gas vehicles, according to Kelly Blue Book. EVs from Tesla which has about a 49% share of the EV market, sold for an average of $55,258.

“[Many] people are living month to month,” Riofrancos said, something that Tesla CEO Elon Musk has noted as well. “How can they afford even a $50,000 new asset?” About one-third of workers surveyed by Bankrate last year said they were living paycheck to paycheck. 

Current EV incentives are not enough for middle-income Americans

Despite their small share of EV ownership, low- and middle-income buyers do respond to subsidies, according to a 2022 study about EV incentives in California, which has by far the biggest EV market, with 35% of the country’s registered electric vehicles. Subsidies lowering EV prices by 10% increased demand among customers in this income range by 21%, transaction data showed. Still, this ultimately translated into only a “modest” boost in sales, the study found.

For price-sensitive consumers, EV affordability is unlikely to improve anytime soon, Libby said. EVs may be too expensive for most buyers, but carmakers — Tesla aside — are generally still losing money on these vehicles, even when they sell them for relatively high prices. 

“The vehicles are higher priced because they’re trying to at least break even. But still, to this day, most of them are losing money,” he said. As long as this is true, “they’re going to want to avoid the lower-price models.”

The issue is that the proliferation of electric cars has never been the result of organic demand from mainstream consumers, Libby said. Rather, it has largely come about due to the implementation of stricter emissions standards that encourage the production of EVs in order to offset some of the devastating — and costly — effects of climate change. 

But pricey batteries, which account for the biggest portion of electric-vehicle costs, keep EVs from being competitive with gas-powered cars. Carmakers “have to keep working on lowering costs, and frankly, it’s all focused on the battery,” Libby said. Goldman Sachs researchers expect battery prices to fall to half their 2023 prices by next year.

While it’s not yet clear how the incoming Trump administration will handle the EV market, including with regard to tariff policies, the government for now is still incentivizing domestic production of batteries, which can help control costs. The hope is that as more electric cars are sold and costs drop, “manufacturers will be able to break even and then make money,” Libby said. “That’s the only way it’s going to work.”  

Until then, carmakers are testing demand for moderately priced models, which may make EVs more accessible to middle-income drivers. The new Chevy Equinox, for instance, starts at $33,600, and buyers can also take advantage of tax credits and other incentives. “There is a trend that’s moving in the direction of helping out middle-income households. They’re just going to have to be patient,” Libby said.

For middle-income households, price isn’t the only challenge

Still, if the U.S. is to make transitioning to electric cars a meaningful part of a strategy to reduce climate-changing emissions, reaching high-income households alone will not be enough, observers say. These vehicles must become far more affordable — largely by getting smaller, which allows carmakers to use smaller batteries, Riofrancos said.

There are other important considerations beyond sticker price, she added. The EV market currently caters to homeowners, excluding people who do not live in single-family homes or who rent housing without easy access to charging stations, she said. To facilitate EV adoption for apartment dwellers, some European cities, like Paris, have installed curbside chargers. 

“There are a lot of things to do … but they require thinking about what the actual impediments are, and not just slapping a $5,000 rebate on it,” Riofrancos said. 

Even then, she believes the decarbonizing of transportation will be slow and limited if it depends on middle- and low-income people shouldering high costs. “It’s a critical moment to think about [public support for] other transportation solutions,” she said, including mass transit, shared transit such as carsharing, and biking and walking.

“Working-class and middle-class people continue to really feel the brunt of the cost-of-living crisis,” Riofrancos said, adding that it’s not realistic for policy makers to expect these households to “invest in a new asset that they’ll probably have to take out an expensive loan for.”