Price parity between electric vehicles and ICE vehicles is a major challenge ahead of the growth for zero-emission vehicles. However, with several factors playing their roles, price parity seems achievable in this decade.
Smaller electric vehicles with smaller batteries and lesser ranges will reach price parity with their internal combustion engine (ICE) powered counterparts between 2025 and 2028, claims a study by the IHS Markit. As the study also claims, in another one of two years, the battery-electric vehicles with around 180 kW power generating electric motor will achieve price parity with ICE counterparts that belt out the same power output.
The current price difference between electric vehicles and ICE vehicles are huge. This price gap is considered one of the major headwinds for the swift growth of electric vehicles in the automotive world where zero-emission vehicles account for not even merely 10%. In the recent past, EV sales have increased significantly despite the prevailing dominance of ICE vehicles. Sales of pure battery electric vehicles have grown dramatically over the past three years.
Around one million pure battery-electric vehicles were sold per annum for the last three years. Despite the Covid-19 pandemic’s devastating impact on the auto industry, global electric vehicle sales have reached approximately 2 million in 2020, led by China. In China alone, more than a million battery electric vehicles were sold in 2020, followed by Europe and the US. In Europe and the US, BEVs sold approximately 0.72 million and 0.29 million unit units of battery electric vehicles.
The sales of electric vehicles in 2020 in Europe roughly marked 4% of the total vehicle sales in the continent. Increasing government restrictions, tightening emission norms were among the major drivers for EV sales in Europe. Apart from that, the increasing price of ICE vehicles marks a slow but steady narrowing of the gap between EV and ICE vehicles prices. This too had a role to encourage the buyers to purchase electric vehicles. Overall, this comes as an encouraging picture for the EV manufacturers and stakeholders of the industry.
Key factors driving EV sales growth
The key reasons behind this substantial growth of EV sales can be attributed to the increasing demand for personal mobility combined during the pandemic, combined with the skyrocketing fuel price in a major part of the world. Also, the growth of awareness about EVs among consumers has also helped electric vehicle sales. Among other reasons, the increasing number of electric vehicles in the market have widened the choice pool for the buyers.
According to the study, the proportionate share of battery electric vehicles would increase tenfold by 2030 compared to their 2020 numbers on the back of multiple factors. These include tightening government restrictions related to climate change and global warming, changing customer perceptions, improving technologies, steady development of EV charging infrastructure etc.
Encouraged by the improving situation and forced by the government regulations, the automobile industry has increased the investment substantially to develop advanced powertrain platforms, technologies in the electric vehicle segment. This is expected to play a key role in the improvement of the electric vehicle market worldwide.
Changing customer perception giving dividends to EV makers
Customer perception plays a very crucial role in any automaker’s success. The same theory is applicable for any specific vehicle segment and type as well. The end-user acceptance or positive customer perception has played a key role in the growth of electric vehicle sales.
Customer perception is principally determined by two factors – the cost of purchasing a vehicle and the cost of operating a vehicle. The cost of operating a battery electric vehicle is much less compared to a petrol or diesel-powered vehicle. However, the upfront vehicle cost is a major factor that determines the demand quotient for an electric vehicle. But, consumers have started to understand the fact that the operating cost of an ICE vehicle is mostly much higher than its lower upfront cost. On the other hand, while the BEVs come with a higher upfront cost, the low maintenance cost offset that in their lifetime.
What drives electric vehicle prices higher?
There is only one answer to this question – Powertrain.
The electric powertrain comprises three major components – battery, electric motor and controller. Scarcity of rare earth metal like lithium, which is the main ingredient for making batteries for electric vehicles are behind the case of highly expensive EVs.
The battery packs account for nearly 68% of the total EV powertrain cost. However, with the increasing demand, improving thermal management technologies and encouraging government regulations, battery-pack costs are likely to come down gradually. This will eventually close the gap between electric vehicles and ICE vehicles. Hence, the EVs will financially and emotionally become appealing to the buyers.
Where’s the EV industry leading to?
Europe is certainly among the frontrunners when it comes to adopting electric vehicles. The Nordic countries have been playing a key role in this growth story. Hence, the European market is most likely to witness the price parity between the EVs and ICE vehicles sooner than in any other region. The cost of a battery pack per kWh is expected to fall to $125 by 2025, predicts the study.
The study forecasts that the European market would most likely witness the price parity between these two segments by the middle of this decade. Overall powertrain cost of a battery-electric vehicle powered by a 45 kWh battery would be comparable with an ICE vehicle of 280 kW engine power. A 280 kW power-generating engine is nearly a 3.5-litre six-cylinder power mill.
Being optimistic, the study also forecasts that in 2028, a 60 kWh battery electric vehicle will meet parity against an ICE vehicle with a 320 kW power output generating engine in the European market. In this case, battery pack costs will slump to $110 per kWh.