EV and combustion cost parity is coming

Electric and conventional combustion-engined vehicles will reach price parity. But not the way you hoped – petrol and diesel-engines cars and SUVs could end up much more expensive.

That’s one scenario for the future of the passenger car outlined by incoming boss of Daimler AG and Mercedes-Benz, Ola Kallenius.

Company scion, Dieter Zetsche, steps down on May 22, handing Kallenius the reins of the German giant.

For the short time remaining, Kallenius still heads up Mercedes-Benz' massive R&D operations at a time of unprecedented technical change.

In statements made this week he suggested that price parity may come thanks to a coalescence of cheaper EVs but more expensive ICE vehicles.

Speaking at an Australian roundtable on the same day he delivered Ambition2039, Mercedes’ blueprint for the next 20 years, Kallenius also suggested that in whole of life costs EVs are already competitive.

“The product cost structure of electric vehicles is significantly higher than what we have been used to in combustion engine vehicles. [But] With tightening regulation all around, the product cost of combustion-based vehicles will go up in the future as well,” Kallenius explained.

“Hand-in-hand with electrification, we have made a very conscious decision that on ‘the road to 2025’ there will not be a [Mercedes-Benz] combustion engine that is not electrified. So, 48-volt systems, mild-hybrid systems, are our minimum entry – which adds, of course, technology performance, better CO2 [emission] but also a [new] layer of cost to the car,” he stated.

Kallenius offered his view that it was too early to say when the "crossover point" would occur, but he could say with some surety that it was still "several years away".

In addition to technologies to decrease fuel use and improve the efficiency of combustion-engined vehicles, factors such as exhaust after-treatment are also adding to the cost. The price of fuel itself will also have a significant impact – at least in terms of TCO (total cost of ownership).

The incoming Mercedes-Benz boss asserts that based on fuel costs, the cost of ownership tipping point could arrive much more quickly.

“From a total cost of ownership point of view, depending on prices of petrol or diesel and electricity, and depending on tax regulations in individual countries, for the customer the total cost of ownership crossover point is probably [reached] much quicker.

“Norway’s a good example: no taxes on electric vehicles, very high taxes on combustion vehicles. So, there is no surprise that the customer then goes for that,” he asserted.

But ultimately it will be true cost, not government incentives and/or intervention that will drive the success of electrification, Kallenius asserts.

“In the long term though, we cannot rely on subsidies to forever create that potential TCO [total cost of ownership] parity... So our job, and that’s what we’re working on, is during the next several years, significantly engineer cost out [of EVs], improve the chemistry of the cells, together with the battery cell suppliers, work on scale and start shaving off cost layer, after cost layer,” Kallenius stated.

“I don’t want to pick a date when [parity will be reached], but it’s several years away,” he said.