Why are EVs so expensive?

There is a massive problem with electric cars – their price tags.

It’s one of the key barriers in place that prevents the current crop of battery-powered vehicles from silently driving their way into the consciousness of new car buyers.

Sure, there aren’t that many options across the board right now, and the fear of limited driving range (the so-called ‘range anxiety’) and subsequent perception of being stranded in the middle of nowhere with a flat battery has limited their appeal.

So too has the understanding of how to prevent that scenario from happening in the first place by switching from the convenience of having petrol stations on every main road to using a growing network of public charging stations.

But, when you look at the fact the most affordable EV on sale in Australia today – the MG ZS EV – costs almost $20K more than the entry-grade model which looks almost identical and is fitted with a similar level of standard equipment, it doesn’t take a Rhodes Scholar to comprehend that the price difference offers a fair amount of pocket change to spend on petrol before the EV option even starts to make sense.

So, why are electric cars so expensive?

It’s a simple case of economics, when you look at the big picture.

For starters, the technology is relatively new and car companies have had to invest billions of dollars in research and development over such a short period of time just for EVs to become a feasible reality.

Next, and although they are mechanically less complex than a traditional combustion engine powertrain, electric motors and battery packs operate in a completely different manner and have required an altogether unique testing process that requires massive engineering teams to understand their nuances and tune them properly while also ensuring they are safe to drive and deliver long-term reliability.

Previously, with a new model or a simple update, the boffins have a benchmark from the existing car in which to begin and evolve.

But they have had to essentially start again from scratch with electric cars. And that is expensive.

Then, when they’ve been signed off and are running down the production line – even in the case of EV variants that are adapted from an existing model like the Hyundai Kona Electric, for example – the lack of consumer demand for EVs at the moment means they are built in smaller numbers.

And not only are the car companies attempting to recoup some of those billions spent in R&D but the unit price for each electric motor, battery pack and every unique part in an EV is more expensive because of the lower volumes.

It’s simple economies of scale.

The other factor to consider is that only a handful of companies, including LG Chem in South Korea, Panasonic in Japan and CATL in China, are producing batteries for EVs, and are therefore restricted in their production output and control the market price.

That will change over the next decade, and prices of electric cars will subsequently tumble, as the foundations of development costs stabilise and brands widen the range of EVs in their line-ups, thereby spreading the costs across a broader base with larger volumes and reducing the unit price of individual components.

A recent report by investment bank UBS claimed that battery costs will drop by 20 per cent in 2022 – to $100 per kilowatt-hour (kWh), which will reduce each unit price by approximately $1500 – forging a path for electric cars to become as cheap to produce as conventional vehicles within the next three years.

As a result, it predicts electric cars will make up 17 per cent of the global market by 2025 and increase to 40 per cent by 2030.

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