Electric Cars Will Reach Cost Parity With Conventional Cars as Early as Next Year

Promo image. GM

Cost parity between gas & diesel cars and electric vehicles could be reached in 2018, most likely in Europe first.

According to a new report from investment firm UBS, electric cars are about to hit an inflection point that could shift the tide toward cleaner transportation, with electric vehicles steadily approaching cost parity with internal combustion engine (ICE) vehicles. Although many people might be thinking that affordable electric transportation is still some years away, and are waiting for uber-cheap electric cars with massive driving ranges, UBS sees "consumer cost of ownership parity" reaching that of conventional cars in Europe as early as 2018, without any new breakthroughs in terms of battery capacity or charge times, and without massive discounts or subsidies.

This forecast doesn't mean that new electric vehicle (EV) prices will be the same as ICE cars, but rather that when fuel costs, maintenance costs, and other related expenditures are considered over the life of the car, owning a new EV will be comparable to owning a gas or diesel car. And it doesn't necessarily mean that automakers will be making a profit on all of their electric cars, as that isn't predicted to happen until sometime in 2025, when it's expected that cars like the Chevy Bolt, which is currently estimated to lose GM some $7,400 per vehicle, will reach a 5% profit margin for the company.

Analysts at UBS tore down a $37,000 Chevrolet Bolt in order to estimate how much the vehicle cost to build, and found that "the EV powertrain is $4,600 cheaper to produce than we thought and there is more cost reduction potential left," stating that they estimated that the 238-mile range Bolt costs approximately $28700 to currently build. According to UBS, GM is only expected to produce some 30,000 Bolts in 2018, so there isn't a huge incentive for it to be profitable, whereas the Tesla Model 3, which the team also analyzed, is expected to be produced in numbers as high as 500,000 per year by 2018. UBS found that while the initial sales of the base version of the Model 3 at $35,000 will still lose some $2,800 per vehicle, it will break even when priced at $41,000, most likely through the addition of extras and options on the forthcoming EV.

In the bigger picture, UBS declared that electric vehicles are the "most disruptive car category since the Model T Ford" and that although overall percentage of sales for electric cars is rather small (just a scant few percentage points), the firm expects that global EV sales will hit 14% by 2025 (14.2 million vehicles), with Europe taking the lead with an estimated 30% of sales being for electric vehicles by 2025. The price tag for consumers won't necessarily drop precipitously, but rather the overall cost of ownership will put electric vehicles squarely in the category of cost-effective when fuel and maintenance prices are taken into consideration over the life of the vehicle, especially in areas with high fuel costs.

In addition to shaking up automakers' sales, the rise of electric vehicles is also expected to massively disrupt the parts and aftermarket sector, due to the much simpler drivetrains of EVs, which have far fewer parts to break or suffer significant wear over the years. In fact, UBS stated that "the highly lucrative spare parts business should shrink by ~60pc" in an all-EV end-game, although that is still "decades away."

With cost parity for EVs rapidly approaching, and awareness and desire for cleaner, more affordable cars growing, building up the charging infrastructure is the next big element needed for a true Model T inflection point, and a recent study verified that, stating that using subsidy money for new charging stations instead of underwriting consumer costs "could have led to five times more electric vehicles sold."