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With no gas price relief, car buyers turn to electric options – despite hefty prices

As gas prices across the country hover near record highs, David White is blissfully unaware of the going rate for a gallon of unleaded in his Los Angeles neighborhood. 

White, 68, of Pacific Palisades, recently overcame his initial sticker shock and sealed the deal on an all-electric Kia Niro. He's among the consumers in the U.S. whose interest in electrified vehicles has soared amid the surge in gas prices following Russia's invasion of Ukraine in late February. 

High interest in electrified vehicles is colliding with the global supply-chain issues that have hampered automotive production over the last two years. Would-be buyers of plug-in cars face some steep barriers to entry — namely, extremely limited availability and high prices that increasingly include markups by dealers.

Still, some buyers who can afford an electrified option are going for it despite the pricing environment. And although consumers' interest in alternative fuel vehicles historically has waned as gas prices have moderated, some experts see the demand for EVs remaining elevated as the market begins to shift in that direction, with more charging infrastructure being put in place and a bevy of new electrified nameplates becoming available.

David Eagle, an LA-based EV and hybrid car broker, told The Detroit News he has seen demand rise significantly in recent months — with no sign of letting up, despite markups becoming the norm for EVs and their internal combustion engine counterparts alike.

"Specializing in electric vehicles, because of the high price of gas, has now stepped up our business noticeably," he said. "We have more people reserving vehicles that dealers tell us will be coming within a week, a few weeks or a month or longer. They are willing to pay the markups and wait for a vehicle that they know is difficult to get at this time."

EV interest climbs

Interest in EVs, as measured by search index rankings, rose about 300% between Feb. 11 and March 11, according to QuoteWizard, an insurance comparison marketplace owned by LendingTree. For hybrid cars, it was up 257% over that period.

Even now, months since gas prices began making headlines, interest is elevated across the country. QuoteWizard found that interest in alternative fuel vehicles is up 40% and 50%, respectively, over last year.

A recent CBS News poll found that 59% of Americans would or might consider buying an EV, according to an April report. And, in another signal of demand, George Chamoun, CEO of online dealer auction platform ACV Auctions, has found that dealers are now willing to pay top dollar for EVs.

"You can go on our platform right now and buy a Mach-E and you're going to pay, wholesale, close to what that customer paid, retail, last year," he said. "Dealers are willing to buy these vehicles. And dealers are willing to pay very strong values for these vehicles — and they're not doing it because they're speculating. They're doing it because consumers want these used cars."

Meanwhile, just this week, the average price of regular-grade gasoline nationally jumped 13 cents to $4.32 per gallon, according to AAA. The price is just a cent under a record high (not accounting for inflation) of $4.33 set in March. 

"Mid-March, when gas prices became a Main Street conversation amongst everybody, we really saw a lot of demand for battery electrics, but also hybrids," said Jessica Caldwell, an analyst at Inc. And although traffic has leveled off somewhat since then, it's still higher than it was before.

"I think that what's different this time around is, societal acceptance has changed," said Nick VinZant, a senior research analyst at QuoteWizard. "This isn't some arcane technology that is brand new, and people are going, 'Well I don't know about that.' I think that this is now transitioning from search interest to actual purchasing."

But the heightened demand doesn't come at an ideal time for an industry struggling with a nagging semiconductor chip shortage, the war in Ukraine and other supply-chain disruptions that are constraining vehicle production.

“Like everything else in the industry, supply isn’t really able to keep up with demand. Had this spike hit at a different time, perhaps automakers would be in a better situation to take advantage of it," Caldwell said. "But I think the good thing is that what these gas price spikes do is they create awareness of these vehicles.”

The low inventory situation has sidelined some buyers, such as Karin Anderson of Los Angeles. Working with Eagle, Anderson started to evaluate her options when the end of her Chevrolet Volt's lease approached but found few options that fit what she was looking for. She doesn't drive much to begin with and has opted to share a car with her husband and ride her electric bicycle for the time being.

“I’ll wait until I definitely have to, which will be in October, and we’ll see — prices rarely come down," she said. "But we’ll see if things become more available.”

Prices climb, too

Production constraints also have pushed vehicle prices to record highs and made markups the norm rather than the exception.

In January, buyers paid above MSRP in a record 82.2% of new-vehicle purchases, Edmunds found. Cox Automotive said this week that new-vehicle average transaction prices increased to $46,526 in April, which marked the 11th straight month of an "over sticker" market. 

That includes plug-in cars: Some dealers in California, for example, are adding $8,000 markups to the new Kia EV6 crossover, the Los Angeles Times recently reported. And EV makers such as Tesla Inc. and Rivian Automotive Inc. recently have raised their prices, citing rising costs.

Still, EVs are turning on dealer lots at nearly the same rate as vehicles industrywide, according to Edmunds, even though their ATPs are higher than the industry average. In April, the ATP for an EV was nearly $61,000 compared to just under $46,000 for the industry overall.

And although EVs remain a small part of the market overall, they've been gaining market share. Last month, EVs accounted for 4.5% of sales in the U.S. — up from just 2.2% a year ago.

Kevin Verhoff of Indiana experienced some sticker shock when he traded in his 2009 Ford Escape for a new, plug-in electric hybrid version of the compact SUV.

He and his wife had been on several waiting lists for new vehicles but hadn't heard back and were resigning themselves to buying something they didn't really want. But they got lucky when the PHEV showed up on a local dealer's website. They ended up essentially buying it right off the truck.

The dealer tacked on about $4,000 over MSRP, Verhoff said, and the monthly payment ended up being around $700.

"We justified it by saying we haven't had a car payment for several years now, and we will probably hold on to this car for a long time," he said. "It’s a bit of a shock not having a car payment for a while and then suddenly being like, “Oh, this is kind of a lot of money.’ It’s not quite as much as our mortgage, but it’s up there.”

Meanwhile, Eagle, the EV broker, began to notice dealers adding markups several months ago. Up until recently, many customers he worked with weren't even willing to consider paying above sticker price.

But then the war in Ukraine started, and "within a week ... people started coming out of the woodwork," he said. Some customers who initially had decided to wait it out changed their minds and asked Eagle to find them an electric option.

Among them was White, who had paused his EV search when he learned he'd likely have to pay above sticker price.

“I just could not see it," he said. "It just offended my sensibility to be paying more than sticker price, just because of the moment in time that we were in.”

But then gas prices soared. In his neighborhood, he recalls prices reaching $6.25 a gallon. Even with a hybrid, his commute meant he was spending hundreds of dollars per month to fill his tank.

So, he settled on leasing the Niro. Between financing incentives, a state rebate for EVs and a city program that paid for EV charger installation — plus the expected fuel and maintenance savings — paying over sticker price suddenly didn't seem so bad.

“It’s turned out to be a really strong practical and financial decision," said White. “Honestly I have not been into a gas station in a couple of months now and I don’t even know what gas costs in Los Angeles anymore, which is kind of a wonderful thing.”

Twitter: @JGrzelewski