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KEY POINTS The cost gap between electric vehicle models and traditional gas cars is beginning to shrink.

As the cost of lithium-ion batteries has gone down by over 70%, the gap in average transaction price between the Nissan LEAF and Nissan Maxima is closing.

Tesla Model 3 Source: Tesla

Members of the millennial and Gen Z generations care more than past generations about climate change, but younger Americans have been slow to show that belief in one important way: electric-car buying. Only 10% of electric vehicle buyers are between the ages of 25 and 34, according to Cox Automotive. A big reason: price. Younger generations of Americans are struggling with student debt and wage stagnation at a time when more than 70% of electric car customers' incomes are at least $100,000. The biggest competition has been in the affluent consumer market, where Tesla had an early lead and is now being challenged by luxury car makers including Porsche, which recently debuted its first electric car at an even higher price point than Tesla's most expensive models. But with global auto manufacturers including GM, Volkswagen, Nissan and Kia coming to market with more electric car offerings, the situation is changing. The cost gap between electric models and gas models is beginning to shrink, according to Rachelle Petusky, the manager of research and market intelligence for Cox Automotive Mobility. And that shift is going to accelerate. "Going to be even more so the case in the next two to three years," she said. Between 2010 and 2016, the cost of electric car batteries went down by over 70%, lowering the average transaction cost for electric cars. Nissan LEAF prices have decreased by 2.5% since 2012, while combustion engine cars like the Nissan Maxima have increased by 7.5%, closing the cost gap. Younger demographics are becoming more aware of the economic benefits of owning electric vehicles. The Cox Automotive survey showed 65% of Gen Z consumers said that charging an EV costs less than fueling a gas car. According to the US Department of Energy, fueling an electric car costs almost half as much as a gasoline car, with a gallon of gasoline costing $2.64 on average in the U.S., and an electric eGallon costing $1.24.

Affluent buyers still dominate EV market

Source: IHS Markit/Cox Automotive Other concerns are still holding them back, according to Petusky. Their biggest concern is not price, but range anxiety — the fear that the car will run out of power before the battery can be recharged. That was the main hesitation for 26-year-old William Lai, who currently leases a BMW i3, which has an MSRP around $44,450, according to Edmunds. Cox Automotive's research shows that electric vehicles are closing the gap in expected range. A Nissan Leaf has a range of approximately 225 miles, while Gen Z's average estimated range for electric cars is 218 miles; for millennials the average estimated range is 248 miles. The density of younger consumers in urban areas can be a reason for the limited appeal of electric cars, said Jessica Caldwell, executive director of insights at Edmunds. According to the 2017 census, 17.8% of people living in New York City were between the ages of 25 and 35, the age group with the highest percentage. Younger people who live in many urban areas may not need to own a car – public transportation is the norm. But Lai, who lives in the San Francisco Bay Area, said public charging stations helped make an EV work for his lifestyle. "You have to live in a place where you can charge it," said Lai. Although he does not have a home-charging station, he said he has the ability to use charging stations at his place of work, as well as free stations in public spaces like grocery store parking lots.

Buying a used electric vehicle is cheaper than buying a new one, with used EVs costing between 43% to 72% less than new ones, depending on the model, according to Edmunds. For 25-year-old Brain LaClair, buying a used electric car was the best option for him. LaClair recently purchased his first electric car in July, a used 2017 Nissan LEAF. While he admits the engines on newer models are much better, he said his can go 120 miles before needing to charge, fitting into his daily commute of roughly 40 to 50 miles. "A lot of people my age would be able to afford an electric vehicle if they looked into it," he said. "I really don't think that it's a thought that really crosses a lot of people's minds, because when they think about electric cars, they think about Tesla." LaClair paid $12,000 for his used Nissan LEAF. He received $1,000 for trading in his old vehicle and also received a $750 electric vehicle incentive from a local utility for home charging. He was surprised by how inexpensive it is to maintain and power his car, spending $14 on charging fees in August. But LaClair is not the norm in the electric vehicle consumer market according to Caldwell, who said buyers of used electric cars remain rare. Lai, whose annual income is $100,000, said he prefers to lease his BMW i3due to how rapidly technology advances. He said he wouldn't want to purchase a car in which the battery and technology would quickly go out of date with each new update.

Tesla remains the leader

Even though the LEAF has a base MSRP of $29,990, more car buyers are interested in Tesla, which just increased the price for the most affordable version of Model 3 from $38,990 to $39,940. Electric cars make up around 2% of car sales, and the majority of the market share is Tesla, according to Cox Automotive's research. There are federal tax incentives for electric car purchases, though those decline once a manufacturer reaches a fixed number of 200,000 cars sold, and Tesla's models are already in the incentive phase out-period, with the original $7,500 credit now down to $1,875 tax credit available until the end of this year.

Electric car prices Maker Model MSRP BMW i3 $44,450 Tesla Model 3 $39,490 Hyundai Kona $38,305 Chevrolet Bolt $36,620 Volkswagon e-Golf $31,895 Nissan LEAF $29,990