The Amazing Shrinking Difference: Electric Cars Bridging the Gap with Combustion Engines
Electric vehicles and traditional internal combustion cars now carry a minimal price gap.
The price chasm between electric vehicles (EVs) and conventional cars has narrowed to an unprecedented low, as per a recent analysis. Now, on average, an electric vehicle costs just €3,655 more than a traditional car, equating to a difference of 11%. This figure was calculated by auto expert Ferdinand Dudenhöffer from the Center Automotive Research (CAR) in Bochum, Germany. Comparatively, the price gap was 13.5% less in May compared to April.
The assessment focuses on the transaction costs, or the final purchase price after eliminating discounts, manufacturer incentives, and government subsidies, of the top 20 best-selling combustion engine and electric models.
Dudenhöffer attributes the record-breaking price gap reduction primarily to steep discounts on brand-new electric vehicles. In May, an average discount of 17.4% was applied - the highest electric vehicle discount recorded since the tracking of such data began, according to Dudenhöffer.
Transaction prices of an average electric vehicle were €36,519 in May. The explanation highlights that the removal of the Tesla Model 3 from their comparison and the addition of models from Kia, Volvo, Toyota, and Ford, for instance, played a role in the falling transaction prices. It appears that traditional manufacturers, rather than US-based Tesla, now drive electric mobility.
Sources: ntv.de, AFP
Insights:
Various factors have collaborated to create the current narrow price divide between EVs and Internal Combustion Engine (ICE) vehicles.
1. Drastic Reduction in EV Production and Battery Costs- Battery Prices: Significant advances in battery production technology and economies of scale have led to a steep decrease in lithium-ion battery costs - a substantial component of EV manufacturing expenses.- Manufacturing Efficiency: Automakers have optimized production processes, lowering overhead and increasing efficiency, further reducing unit costs.
2. Governmental Policies and Subsidies- Direct Incentives: Many governments, including prominent ones like China, have implemented subsidies, tax breaks, and financial incentives to lower the effective consumer price for electric vehicles.- Emissions Regulations: Stricter emission standards and future Internal Combustion Engine bans in some regions have hastened EV production, boosting the competitiveness of automakers.
3. Growing Competition and Enhanced Scale- Market Competition: New entrants, particularly Chinese automakers like BYD and XPeng, have intensified competition, compelling incumbents to reduce prices to maintain their position.- Economies of Scale: As production volumes increase, fixed costs are dispersed over more vehicles, leading to lower per-unit prices.
4. Localization, Innovation, and Technological Advancements- Domestic Production: In countries like China, localization of supply chains and vertical integration have significantly reduced costs.- Technological Innovations: Continuous improvements in battery chemistry and vehicle design are enhancing range and reducing the need for expensive materials, thereby driving down prices.
5. Change in Consumer Preferences and Market Dynamics- Changing Consumer Attitudes: Growing awareness of environmental concerns and the advantages of electric vehicles has augmented demand, paving the way for economies of scale.- Infrastructure Improvements: The expansion of charging infrastructure has curtailed "range anxiety," making electric vehicles more appealing and bolstering sales growth.
It's worth noting that China is leading the pack with two-thirds of electric vehicles now costing less than their gasoline counterparts, primarily due to supportive government policies, robust domestic competition, and a highly competitive market. While pricing parity is closest in China, affordability is also progressing in other regions, albeit at a slower pace because of differences in policy and market circumstances.
The community policy in China, which includes subsidies, tax breaks, and financial incentives, plays a crucial role in making electric vehicles more affordable for consumers, contributing to the current narrow price divide. With vocational training programs, technology advancements in battery production and battery chemistry are accelerated, further driving down the cost of electric vehicles.
