For car buyers, a new reality is setting in: You don’t necessarily have to pay more to go electric. The automotive industry can never be the same.
There are some qualifiers, but the bottom line is a potentially important change.
With recent price declines, the cost of buying and operating some electric vehicles over several years is now roughly on par with gasoline-powered cars. The significant government subsidies available to electric car buyers—including a federal credit of up to $7,500 for eligible buyers and vehicles—play a role in this. But in some cases electric cars and their conventional equivalents are at cost parity even without these.
It’s true that many electric vehicles still have a higher list price than their gas equivalents. But the gap is closing. We are now at the point where the significant savings on fuel and maintenance costs that an electric car offers can make that difference, for some vehicles, in the first 2 to 5 years of life. These savings also translate to an equal or lower monthly cost of owning many electric cars, when you add up the loan payment and fuel costs.
A notable detail about this development: It wasn’t Tesla that got us here, although the company has played a big role in spurring the rest of the industry to roll out new models. Almost all the vehicles with cost parity with their gas equivalents are non-Teslas. At the company’s investor day on Wednesday, CEO Elon Musk said Tesla is working to cut production costs, but he stopped short of announcing the next-generation affordable electric car that many had hoped for.
There are other reasons why electric cars are becoming more attractive, including improvements in charging technology and the availability of public chargers. But the main reason for the closing cost gap is the falling price of battery packs – the most expensive component in electric cars, and the main reason they usually cost more than conventional cars.
We can thank two things for the falling costs of these batteries. One is economies of scale. Domestic and international manufacturers have become significantly better at removing batteries, for the market research firm Adamas Intelligence projects there will be almost 20 million vehicles in 2023.
The other factor, just as important, is the gradual – and often overlooked – accretion of countless technological improvements in the battery manufacturing process over the past decade.
“Battery costs are the biggest contributor to the overall change in the cost of electric cars, and their premium compared to [internal combustion engine] vehicles, says Paul Augustine, director of sustainability at the ride-sharing company Lyft.
“We’ve seen costs drop by 90% from 2010 to 2020.”
From the earliest days of electric vehicles, skeptics and advocates have argued that until electric vehicles cost the same as gas-powered ones, most people are unlikely to switch. Mr Musk echoed the sentiment on Wednesday, saying: “The desire for people to own a Tesla is extremely high – the limiting factor is their ability to pay for a Tesla.”
Given the importance of batteries, this has led to an almost single-minded focus on bringing costs down. It’s not just that scientists and engineers have figured out how to make batteries cheaper. They also learn to make new types of batteries that use fewer expensive components. Some, such as new iron-based batteries, known as LFPs, used in some models by Tesla – and in the future by Volkswagen and Ford – do not use metals such as nickel and cobalt, which are increasingly limited in supply and expensive.
As the global share of these nickel- and cobalt-free batteries has grown, they have helped keep the prices of these elements from spiraling out of control, said Ryan Castilloux, CEO of Adamas Intelligence. Iron-based batteries now represent almost a third of all batteries in electric vehicles worldwide, and that share could continue to grow, he adds.
Comparing apples to apples in electric cars and conventional cars
Robbie Orvis is senior director of modeling and analysis at Energy Innovation, an energy and climate policy think tank. He recently published an article that found that many new electric cars are cheaper to own and operate than their gasoline equivalents, on a monthly basis.
Take, for example, the Mustang Mach-E, Ford’s popular electric crossover SUV. This varies by location, but the base model would cost about $46,000 total if the buyer bought it cash in New Jersey, according to Edmunds. Assuming a one-off fee of $2,000 – the amount varies, but it’s on the low end of what a consumer might expect – the total cost of owning such a vehicle over 5 years, including depreciation, insurance, fuel and maintenance costs, is . also happens to be around $46,000. The full federal tax credit, and state credits, can bring that amount even lower for those who qualify.
Compare that to a comparable gasoline-powered Toyota RAV4. If a buyer pays cash and buys it outright, the RAV4 costs about $34,000, according to Edmunds. But, thanks largely to gas costs, the RAV4’s total cost of ownership over 5 years is around $45,000.
In other words, in this case, choosing the Mach-E over the RAV4 only costs the user about $200 more a year, assuming gas prices stay around current levels. (If gas prices rise again, the electric vehicle could save the driver significant savings.)
Similar calculations can be made for low-end electric cars, including the Chevrolet Bolt, the lowest-priced electric car in America, with a list price of $26,500. That’s about $2,500 more than a comparable gasoline-powered Hyundai Kona, which has similar dimensions and cargo capacity. Assuming it’s driven 15,000 miles a year and charged primarily at home, the Bolt can easily make up that difference in fuel savings alone in the first couple of years a person owns it, according to Edmunds.
That doesn’t include state and federal tax breaks a buyer of such a Bolt can take advantage of. These can be difficult to navigate, but both the US Energy Department and various non-profit organizations operate websites that can display them by vehicle type and buyer location. For many buyers, these incentives even bring the cash cost of a Bolt well below its gasoline equivalents. In a very real sense, the federal government decided to pay drivers to go electric.
An unexpected source of cheaper batteries
In 2022, the price of a battery pack for an electric vehicle rose 6.9% from the previous year, according to BloombergNEF, which collects data on transportation and renewable energy. The main reason for this was high prices for critical components of the batteries used in most electric cars, including lithium, nickel and cobalt. Cobalt in particular has seen a rapid rise in price, and some of it is mined in inhumane conditions, by hand, in one of the poorest countries on earth – the Democratic Republic of Congo.
It triggered fears that the EV revolution could be limited for decades to come. But several things happened.
First, new sources of these critical minerals have rapidly come online just as the global economy has cooled and consumers have pulled back on purchases of new vehicles and consumer electronics. In recent months, this has dampened prices.
At the same time, the automotive industry has quickly adopted iron-based battery technology, an alternative to the conventional battery technology used in almost all of our gadgets, and most electric cars. These iron-based batteries still contain lithium, but do not contain nickel or cobalt, and are therefore unaffected by these metals’ price fluctuations. At Tesla’s recent investor day, Musk said that “the vast majority of heavy lifting for electrification will be iron-based cells.”
The first research that made iron-based batteries possible was carried out by Arumugam Manthiram in the mid-1980s, both at the University of Oxford and the University of Texas at Austin, in the laboratories of John Goodenough, who in 2019 shared the Nobel Prize in Chemistry for research leading to the development of modern lithium-ion batteries.
The reason Dr. Manthiram worked on batteries that could use iron, he says, was that as early as the mid-1980s he predicted that if batteries became widespread in energy storage, there might be problems in obtaining enough nickel and cobalt to build them. everyone.
While Dr. Manthiram pioneered the chemistry required to make iron-based batteries, it was China-based battery manufacturers, using significant subsidies from the Chinese government, who built the manufacturing capacity to make them on a large scale. Such batteries now power most electric cars in China and are an option on some Tesla Model 3s in the US. Ford has committed to importing them from China and using them in some of its vehicles. Ford has also committed to building a $3.5 billion factory in Michigan to manufacture them, with help from China’s Contemporary Amperex Technology.
One reason why the future will continue to be full of electric vehicles powered by both conventional and iron-based batteries is that each has its strengths and weaknesses. Those used in consumer electronics and most electric vehicles in the US, which contain nickel and cobalt, are more energy dense, meaning they can give cars longer range. Iron-based batteries, on the other hand, are cheaper, tougher and can last longer.
Ever cheaper electric cars
There are reasons to believe that electric cars could become even cheaper than their conventional equivalents in the near future.
In total, the world’s car manufacturers will spend more than half a trillion dollars through 2026 to build and develop electric cars, according to the consulting firm AlixPartners. This investment, supplemented by billions of dollars from the Infrastructure Investment and Jobs Act, will lead to additional economies of scale in the construction of electric vehicles.
Mr. Augustine, of Lyft, says that some of the company’s drivers who drive hundreds of miles a week have found for years that existing electric cars cost them less to own and operate than gas cars. As EV prices continue to fall and models proliferate, a much larger proportion of tour company drivers will switch to EVs, as will everyday car buyers for personal use, he adds.
“Four years ago there were only two affordable models, the Bolt and [
] Leaf, says Mr. Augustine. Now there are nearly a dozen models available for less than the $40,000 list price. Dozens will arrive by the end of 2024, and more than a hundred by the end of the decade.
As this transition unfolds, it could soon put gas-powered vehicle buyers in a unique position: They’ll have to pay a premium to stick with the latest generation of technology.
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