Electric vehicles (EVs) are great for the environment but currently not so great for our pockets. While their maintenance is affordable and charging them is cheaper than refuelling with petrol, the sticker price of an EV is keeping some shoppers away – even with the current New Zealand government clean car discount.
The big question is: why do they cost more than their petrol counterparts? And when will they cost the same, or perhaps even less?
The answer to this rides on one key factor: the cost of batteries, which represents the largest single component cost of an EV. Other factors influencing the cost, such as the electrical systems and wiring, can be cheaper in an EV, while the heating and ventilation system can be more expensive because of the lack of heat from the engine. These and other factors all contribute to the cost per kilowatt-hour (kWh) of the batteries.
A recent study conducted by BloombergNEF (BNEF) found that battery prices need to drop below US$100/kWh before EV costs reach parity with normal internal combustion engine (ICE) vehicles. The good news is the average global price for batteries across all EV segments hit a new low of US$137/kWh in 2020.
This is an 89% drop from 2010 when the price was US$1,100/kWh. BNEF expects battery prices to reach US$80/kWh in 2026 and US$60/kWh in 2029.
The increased supply of and demand for EVs should also help lower prices, as they become more mainstream, as will cheaper and better batteries. It’s also expected that tighter emissions regulations around the world will make traditional internal combustion vehicles more expensive. These regulations could see EVs dominate the new car sales charts by the mid-2030s.
While the numbers are looking good from a global perspective, the transition from ICE to EV has been slow in New Zealand. In September this year nearly 9% of new registrations were for EVs, but this dropped back to just 4% in October. These figures compare poorly with Norway (87%) and the UK (23%), which boast very attractive ‘feebate’ schemes that subsidise the costs of switching to electric vehicles.
New Zealand’s ‘feebate’ clean car discount, which runs from 1 July 2021 through to 31 March 2022, has boosted Kiwis’ uptake of EVs. It is available for all new and light used electric vehicles (including PHEVs) under $80,000 (including GST and on-road costs) imported and registered in New Zealand from 1 July.
The move to electric here is being helped by the fact that high-end luxury manufacturers are now offering similar prices for their electric and ICE vehicles. Examples include the Porsche Taycan, Mercedes-Benz EQC and EQA, and the BMW i4.
However, this price parity is not being seen in cheaper EVs. While the clean car discount helps reduce the price gap in cheaper EVs, there is still a big difference in cost. For example, New Zealand’s cheapest new EV, the MG ZS EV, drops to just over $40,000 with the discount, while its closest ICE equivalent, the MG ZST Essence, costs significantly less at $33,990.
But with the price of batteries dropping at an accelerating rate we will soon start seeing EVs filtering into the used-car market, which is where we should see a widespread EV uptake over the next few years.