What is needed to make EVs more affordable?

Sure, there isn’t actually that many EVs to choose from at the moment – with less than a dozen dedicated battery-electric vehicles currently on sale in Australia – but that will change in the next year or so with a raft of new models set to arrive that will more than double the range of options.

What won’t change – at least in the short term – is the price premium of an electric vehicle, with even the cheapest EV likely to cost at least $20,000 more than a similar petrol-powered version.

So, what can be done to make EVs more affordable in the future in order for new car buyers to consider them as a legitimate option?

The old adage that competition breeds success can be applied to increasing the popularity and price of electric cars.

It’s a simple fact of economics that prices decrease when there is more competition, so expect the cost of electric cars to come down as car-makers introduce a broader range of models.

With that, the big players in the EV space are looking to share the same EV technology across a wider portfolio of variants.

The Volkswagen Group, for example, has said it plans to introduce 75 electric cars among its different brands by 2025, while rivals such as BMW, Mercedes-Benz and Hyundai, along with its sister operation Kia, each have dozens of new models in the development pipeline.

The by-product of having a range of vehicles that are based on the same fundamental underpinnings and share key components like the battery pack and electric motors is that the cost of production reduces in proportion to higher volumes, and the expensive costs in research and development can be amortised over a greater number of vehicles.

The other major factor is the cost of battery packs is expected to halve over the next five years.

A recent report from research company BloombergNEF cited that lithium-ion battery cost production had been slashed by 89 per cent over the past decade, dropping from $US1100/kWh in 2010 to an average of $US137/kWh in 2020.

In BloombergNEF’s 2020 Battery Price Survey, released in December 2020, it forecasts the cost of battery production will drop to below $US100/kWh by 2023, making it possible for car-makers to produce an electric vehicle at the same price as a vehicle with an internal combustion engine.

“It is a historic milestone to see pack prices of less than $100/kWh reported,” said BloombergNEF’s James Firth, the author of the Battery Price Survey.

“Within just a few years we will see the average price in the industry pass this point. What’s more, our analysis shows that even if prices for raw materials were to return to the highs seen in 2018, it would only delay average prices reaching $100/kWh by two years – rather than completely derailing the industry.

“The industry is becoming increasingly resilient to changing raw material prices, with leading battery manufacturers moving up the value chain and investing in cathode production or even mines.”

A significant factor that has contributed to a greater take-up of electric cars in countries such as Norway, the UK, China and the US, particularly in California, is financial incentives that make buying an EV more attractive.

Norway has long been the poster child for electric vehicles, with the Scandinavian country beating a government target of having 50,000 zero-emissions vehicles on its road by 2018 by three years.

It did this through a wide range of incentives that included exemptions from taxes that made the purchase price of an EV on par with an equivalent petrol vehicle while owners did not have to pay for parking fees and road tolls.

In the UK, EV buyers are eligible for a government grant up to $10,000 when purchasing a battery-powered vehicle (either a plug-in hybrid or full-electric car).

A similar rebate is available in California too, but also the added bonus that EV vehicles can use High-Occupancy Vehicle lanes on major freeways (commonly known as Carpool lanes).

The Australian federal government has yet to adopt any reasonable incentives for zero-emission vehicles. In fact, the majority of models that are available today still accrue the controversial luxury car tax as they are priced over the $75,375 threshold for fuel-efficient vehicles.

The biggest incentive to date has come from the Victorian state government, which has just implemented a $3000 subsidy for EVs priced below $68,425 plus on-road costs.

In the ACT, owners do not pay stamp duty tax when purchasing an EV and pay 20 per cent less on annual registration fees.