Reaching for Price Parity

The hopes and expectations for EV sales to rapidly scale up are based on assumptions that their costs will drop significantly – enough for them to reach price parity with ICE vehicles. Medium- and long-range BEVs generally cost more than PHEVs today, but there is consensus that BEV costs will drop faster and sooner, allowing them to achieve price parity in the near term, and so the discussion here will focus on BEVs. In fact, because they contain both electric and internal combustion engines, as well as a battery, it is less certain whether PHEVs will ever reach cost parity.

EV batteries receive much attention in discussions about price parity because they are by far the most expensive single components in EVs. Battery costs for different cars vary depending on the size and manufacturer, but the average cost per kilowatt-hour was U.S. $156 in 2019, according to an index calculated by BNEF. For a mid-range battery-powered sedan, for which the typical battery pack size was 58 kWh in 2018, that added up to.$9,048 or 25% of the $35,681 total cost for that same vehicle.

That cost has dropped fast and steadily for the past decade, from $1,000/kWh in 2010. Automakers and outside analysts predict it will continue to fall, though their forecasts vary for several reasons. Per-unit battery pack costs differ between automakers, partly because of technology and manufacturing techniques, but also depending on sales numbers; companies with higher sales can spread out fixed costs more than competitors. Tesla, the leading EV manufacturer, claims to have the lowest battery pack costs – around $130/kWh in 2019.

Some predict costs will take step decreases if the industry is able to switch to battery designs that have not yet been commercialized, for example changing the lithium nickel manganese cobalt oxide cathode in today’s lithium-ion batteries to lithium nickel manganese aluminum oxide; or switching the anode material from mostly graphite to a silicon alloy; or, more radically, switching to solid state batteries that use solid electrolytes instead of the liquid or polymer electrolytes in today’s lithium-ion batteries.

In 2018, a typical battery pack for a mid-range battery-powered sedan was 58 kWh and cost $9,048, or 25% of the total $35,681 price tag.

Several estimates predict that battery pack costs will decrease to $130 to $160/kWh between 2020 and 2022, though Tesla has stated that it will reach $100/kWh by 2022. BNEF predicted in December 2019 that the industry would reach that number by 2023. Researchers at Vrije University in Brussels believe costs could fall to $62/kWh by 2030. Any of these outcomes would more than offset the increased cost of shifting to larger battery packs, which is an ongoing trend.

Other costs are falling, too. A 2019 analysis by the International Council for Clean Transportation estimated that combined costs for nine items ranging from the power distribution module to the inverter/converter, the electric drive module and the charging cord will fall 12% between 2017 and 2025 to $2,800. Bigger savings will come from indirect costs, such as administration, research and development as increasing sales allow them to be spread across greater numbers of vehicles. ICCT estimated that the per-unit tally for these indirect costs will be slashed by more than $7,000 over the same time period to just $3,200.

Adding it all together, ICCT predicted that BEVs with a range of 150 miles will reach cost parity in 2024, and that those with range of 200 and 250 miles will do so in 2025 and 2027, respectively. Parity for the same categories of crossover and SUV will come in 2025-2028 and 2025-2027, respectively.

Other analyses have somewhat different timeframes, but most models show EVs having price tags equivalent to ICE vehicles – without any government subsidies – sometime during the coming decade.

When that happens, EVs should jump in popularity for a broader spectrum of motorists, thanks to the fuel savings they offer. Sales would increase exponentially, analysts say, assuming that sufficient recharging networks are developed and that recharging speeds continue to progress.