Credit: Bridie Schmidt
Credit: Bridie Schmidt

The purchase cost of electric vehicles in the US could fall below that of petrol and diesel fuelled vehicles in five to 10 years, a new report released by the International Council on Clean Transportation says.

As the popularity of electric cars rises over the next decade, accompanying drops in battery prices and reduced R&D costs should see the cost of purchasing an electric, crossovers or SUV come in line with that of similar internal combustion engine (ICE) vehicles.

Taking total cost of ownership over five years into account, these drops, as well as lower fuel and maintenance costs, could see EVs costing much less than their ICE counterparts by 2025, according to the report.

The figures fight back against detractors who say that electric vehicles will just not take hold because they are too expensive.

Short-range electric vehicles would be the first to drop in price, according to the report, reaching an equal purchase price for equivalent ICE counterparts as soon as 2024-2025.

Longer-range vehicles would follow, reaching a purchase price equal to ICE equivalents around 2026-2028, says the report.

Electric vehicles are currently priced much higher than petrol and diesel vehicles, largely because of the high price of the battery which powers the electric drivetrain, initial investments in developing the new drivetrains and other indirect costs.

(As an example, a petrol-powered Hyundai Kona starts in Australia at $A25,990 before on road costs and extras, compared to the Kona Electric which starts at $A59,990 before on road costs and extras.)

Source: ICCT
Source: ICCT

The report cites dropping battery costs as a key factor in reaching initial price parity – currently, battery pack costs per kilowatt-hour range from $US130-184 ($A183-258) according to a number of industry announcements and reports.

But with cost reductions expected in improved cathode chemistry, that seek to use less of the more expensive cell materials such as cobalt, and improvements in energy density, battery pack costs could drop to around $US104/kWh ($A146/kWh) by 2025 and $US72/kWh ($A101/kWh) by 2030.

These price drops could be even more significant if technology breakthroughs are reached, and as low as $US62/kWH ($A87/kWh) if an industry survey conducted by Bloomberg New Energy Finance in 2018 proves correct.

Source: ICCT
Source: ICCT

As the electric car market grows, indirect costs, which include research and development, depreciation, and amortised costs from electric vehicle investments, will also drop by around 70 per cent, as initial costs are spread out over a growing EV fleet.

Put side by side, there will be a less disparate range in total costs for production of cars, crossover and SUVs as the decade passes, with EVs with less powerful motors benefiting from the cost reductions first.

Although the cost of battery and electric drive-train components will still be more expensive than the production of an internal combustion engine, combined lower costs of R&D, depreciation and amortised costs, as well as slightly lower assembly costs, smaller EVs with 150kW motors should begin to see price parity achieved starting 2024-5.

Source: ICCT
Source: ICCT

When total cost of ownership is taken into account, including taxes, maintenance, fuel or electricity charges, dealer market and profit margin, it appears that even larger EVs such as SUVs with up to 250kW output from the motor will cost less than ICE counterparts in 2025.

A major factor here is, of course, fuel savings, particularly with larger vehicles such as SUVs.

Source: ICCT
Source: ICCT

Over the next decade, the continuing trend in dropping battery prices and relative indirect costs, as well as the added reduction in fuel savings, mean that EVs could well much less than the cost to own than an ICE cars.

Source: ICCT
Source: ICCT

Notably, plug-in hybrids (PHEVs) which use a combination of electric and internal combustion engine drivetrains, are not expected to reach the same competitiveness over time, due to increased manufacturing costs of two drivetrains.

Although the figures are certainly encouraging for those wanting to switch to zero emissions vehicles, but for the moment cannot do so due to the higher upfront costs, the report author’s note that, “achieving cost parity does not
ensure a complete transition to electric mobility.”

For investment in battery technology to make sense and R&D and other indirect costs to reduce, a growing global EV fleet must be nurtured.

Pointing to the example of Norway, the report notes that incentives in Norway that brought the relative cost of EV ownership under that of ICE vehicles, accelerating EV sales from almost zero in 2012 to half of all registered electric and plug-in vehicles sales as of March 2019.

“The relative progress in Norway underscores the importance of incentives. But it also underscores the insufficiency of cost parity to transition to an all-electric market; if cost parity was the only critical barrier, markets with such compelling incentives would more rapidly approach 100% electric.

“To comprehensively address the barriers to adoption, policies can encourage or require more electric models, a robust charging infrastructure ecosystem to ensure convenience, and programs to inform consumers,” says the report.

Note: This article has been edited to reflect that electric cars may cost less, not half, that of ICE cars in total ownership costs by 2030.

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