The total cost of ownership for e-cars is approaching that of ICEs. Purchase price parity is expected within 5 years.

Today, the high purchase price (without incentives) is regarded by consumers as the main barrier to choosing a new electric vehicle (EV) over an internal combustion engine (ICE) vehicle of similar size. The purchase price, however, doesn’t give the full picture. Operating costs should also be taken into account. 

Total cost of ownership

The total cost of ownership (TCO) combines both the purchase price and operating expense. Electricity costs less than petrol and diesel, there’s less tax to pay, and EV service and maintenance cost about a third less than an ICE car.  Over the next six years experts expect the cost of EV batteries to drop between 19 and 37%, which will further lower TCO. Meanwhile, more stringent emission standards will likely drive up the complexity of ICE car emission systems and raise costs.

Where fuel prices are high, plug-in hybrid electric vehicles (PHEVs) already have a lower TCO than ICE vehicles. And in a study of markets in UK, Japan, Texas and California, EVs came out better in total cost of ownership.

To reduce its carbon footprint, in 2020 Umicore switched to plug-in hybrid and battery electric vehicles for its leased company cars in Belgium. The cost effect was neutral. 

Several areas of particular importance promise to deliver significant cost reductions in electric vehicle prices:

Battery manufacturing

Analysis of the future development of the three main determinants of battery costs – battery pack size, plant production capacity, and battery chemistry – suggests that battery costs declined during 2018 and are expected to keep falling in the near term. According to Bloomberg, EVs should be cheaper to buy than gasoline cars from the mid-2020s.

Redesigned vehicle platforms

Using simpler, innovative architecture, EVs take advantage of the compact size of electric motors and fewer moving parts than in ICE vehicles. Volkswagen has already announced the development of such a platform: the new Volkswagen ID.3 EV costs the same as an equivalent Golf TDI.

Subsidies

The EU is pushing toward decarbonizing transport, and to stimulate demand in response to the coronavirus crisis governments introduced new, generous subsidies in 2020. Electric car buyers in Europe can now benefit from the most favorable subsidies in the world. China planned to end its subsidies this year, but extended them to 2022 in response to the pandemic. Even without subsidies the market is expected to accelerate by 2025, as electric vehicle prices continue to drop.