Have Electric Vehicles Reached Parity With Their ICE Counterparts?

Energy
Thursday, July 7th, 2022 8:13 am EDT

Transportation is currently the largest source of greenhouse gas (GHG) emissions in the US, and transportation sector electrification is widely recognized as one of the best strategies for significantly reducing these emissions. Mass electric vehicle (EV) adoption will accelerate when price parity with internal combustion engine (ICE) older siblings occurs.

How close are EVs to achieving price parity? It depends whom you ask.

Germany will end sales of new ICE vehicles in 2030. What has long been seen as a massive gap between the appeal of ICEs and EVs is quickly fading. Globally, EV sales grew 80% in 2021.

The National Academies of Sciences, Engineering, and Medicine declares that “the period from 2025-2035 could bring the most fundamental transformation in the 100-plus year history of the automobile” as battery costs fall and EVs reach price parity with internal combustion engine vehicles, leading them to become the “dominant type of new vehicles sold by 2035.”

It is expected that, by 2030, battery EVs will account for 81% (25.3 million) of all new EVs sold.

Besides eliminating exhaust emissions and tackling part of the 23% of global CO2 emissions contributed by the transportation sector, EVs will also provide key flexibility to the grid as we transition to a greater share of renewable energy supply.

Taking into Account Total Cost of Ownership

Capital cost has always been a major factor in the EV purchase decision, with 63% of consumers believing that an EV is beyond their budget. Some of these consumers perceive the often higher upfront costs to be an insurmountable barrier to EV adoption. Then again, parity between EVs and ICE vehicles doesn’t require the sticker price to be exactly the same.

For EVs’ total cost of ownership (“TCO”) — the full cost to own and operate a vehicle, accounting for inputs such as purchase and fuel prices — to become the most important deciding factor for consumers, the operating costs of both kinds of vehicles must be made transparent.

Several pundits indicate that TCO for EVs is already lower than its ICE counterpart. Deloitte has concluded that price has already reached parity, if you consider subsidies in various markets and TCO. They say that other pluses for EVs now also include the fact that EVs’ driving range is already comparable to that of ICE vehicles, and the number of models available is increasing.

Some more reserved analysts expect TCO parity between EVs and ICE vehicles as soon as 2024 to 2026 for shorter range EVs and 2027 to 2030 for longer range EVs.

Part of the EV TCO advantage comes into play when EVs driver save consumers substantial amounts in avoided fuel costs. For instance, an Environmental Defense Fund analysis concludes that, at current average fuel prices, an EV buyer could save over $5,000 in avoided fuel costs over the life of the vehicle.

Battery Technology Advances are Key to Parity

A common argument for EV cost parity with ICE vehicles, based on TCO without considering any tax incentives, looks to battery pack prices with lower up-front purchase prices. Currently, EV batteries comprise 30-35% of EV prices.

EV battery prices fell 6% between 2020 and 2021, reaching an average price of $132 per kWh in 2021. According to BloombergNEF’s 2021 annual battery price survey, due to higher raw material prices, a $3 price increase has taken place in 2022, to $135/ kWh. (EPRI estimates that the current cost is between $120 and $200/kWh; the Electrification Coalition estimates current costs are around $150/kWh.)

When battery prices cross a means test threshold, aided by more resilient supply chain strategies to make battery sourcing more affordable, batteries will achieve price parity on a TCO basis. Most analysts agree that price parity between EVs and ICE vehicles will occur sometime between 2023 and 2025.

Beyond Sedans & SUVs — Other EVs & Parity

Despite challenges, it is becoming increasingly viable for fleet operators to electrify their fleets. Medium- to heavy-duty fleet electrification is expected to undergo significant electrification over the next 5 to 10 years as fleet operators look to cut emissions. Commercial fleets, particularly in Class 7 and 8 vehicles that range from delivery vans to school buses to garbage trucks, are seeing increases in EV sales. In a recent study, Roush Industries concluded that purchase price parity for M/HD vehicles will be reached by 2027 in nearly all vehicle segments.

Federal and state incentive programs are helping. Electric transit and school buses accounted for 39% of new EV sales in 2020, with companies like Proterra, Lion Electric, and Bluebird at the lead of the pack. While electric school buses remain more expensive over the lifetime of the asset, the difference is marginal.

Other vehicle segments such as freight are seeing similar impetus, as electrification becomes increasingly cost-effective. For the first time, long-haul freight and garbage trucks have TCO less than their ICE counterparts; EVs offer substantially lower fuel and maintenance costs for this class of vehicle. Electric long-haul Class 8 vehicle usage will continue to expand, albeit highly contingent on the deployment of en-route fast charging.

Zero-emission trucks (ZETs) are relatively new to the US commercial automotive market, but with numerous pending orders and purchase commitments now in place and increasing regulatory policy action at the state level, these vehicles are poised to see significant increases in deployments over the next few years. Key factors such as model availability, technical capability, and vehicle cost are changing rapidly and indicate that ZETs are ready to deploy across multiple commercial vehicle market segments, according to CALSTART.

ZETs could reach cost parity by 2030 as a result of decreasing costs in key components such as batteries and motors and the expected cost increase in fuel. This shift for commercial fleets will alter business models, as higher up-front costs and lower fuel costs would change capital allocation and financing structures. A complete transition to ZET technology would not only help mitigate the impacts of climate change and poor air quality but could eventually lower TCO for fleets and create job growth in the US.

Final Thoughts about EV Parity

Automakers and their dealers must assume responsibility for informing their customers about the conversion to EVs. To do so will ensure current customers remain loyal during the transition from ICE to EV, and it will also convert new customers to an EV brand or product.

The World Economic Forum outlines challenges to widespread EV adoption at this time, which include infrequent charging infrastructure, risk of grid overload, high carbon grid profiles, and questions about sustainable extraction of finite critical minerals and rare earth metals.

But it is within grasp to assuage potential EV consumers in these areas through smart and flexible charging, smart energy management for effective EV load management, and IoT battery monitoring, analytics, and recycling.

 

 

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