A $20,000 Aussie hatchback EV could cause a ‘Kodak-Moment’ for car industry

Remember how the old cell phone was largely replaced by the smart phone in one replacement cycle? Remember how film cameras gave way to digital cameras over a couple of years?

The recent announcement of a $20,000 Australian-made small hatchback EV by 2020 suggests that the motor and motor-finance industry may be on the cusp of the great disruption that sustainable transport experts have been predicting, similar to the famous “Kodak-Moment”.

If such a vehicle were to be available in Australia, whether it is from Uniti or another manufacturer such as Sanjeev Gupta (and it will happen), what could the consequences be?

Firstly, it would economically irrational to buy an equivalently-sized petrol vehicle as the EV would have a lower cost of ownership per km.

Modelling, using my company’s EV-Business-Case Tool (shameless plug – pun intended), reveals that a $20,000 EV would be much cheaper to operate than a petrol or diesel vehicle. This is based on a Total Cost of Ownership view of the vehicle which factors in resale value, fuel and other operating costs.

Our modelling reveals that, when comparing a petrol hatchback with an equivalently-sized EV, the lifetime cost for the EV is only 65% of the lifetime cost the petrol car if a distance of 25,000km a year (i.e. 100km per weekday) is driven over 5 years. This is graphed below, along with other annual distances travelled.

On the other hand, if the EV stays in use for longer than 5 years (which is not unreasonable for an EV with few moving parts and such low maintenance requirements), then lifetime costs improve for the EV, thus making the petrol vehicle even less sensible.

In these calculations, the EV’s resale value was assumed to be 5% lower than the petrol vehicle, due to current lack of EV resale data and certainty.

However, if it became financially irrational to buy a petrol vehicle, the petrol vehicle’s resale value would quickly plummet. This could result in a ‘Kodak-moment’ for that class of vehicle (in this case, the hatchback class), where a petrol hatchback would be assumed to have little to no resale value after a few years.

For example, if the petrol hatchback had a zero resale value, the total cost of ownership modelling changes quite dramatically, with the EV showing a lower lifetime cost across all annual distances modelled.

If the EV resale value increased to equal or above the current resale value of a petrol-engined car, then the benefit of choosing an EV would be even greater.

Multiple other scenarios can be also be modelled, such as the optimum period to own (or lease) the vehicle, the effect of different resale values on petrol vehicles and EV business cases, the cost of implementing varying types of charging infrastructure at base, inter alia.

As well as evaluating the financials of EVs in fleets, company cars and novated leases can also be modelled and such modelling can provide owners with peace of mind.

Bede Doherty is principal Bede Doherty Consulting