Price parity among electric, gasoline and diesel-powered vehicles has for a long time been predicted to be the turning point in sales for electric vehicles. Considering how inexpensive electric cars are to operate, choosing a gasoline or diesel vehicle will make no financial sense for the vast majority of consumers if both options cost the same.
The cost of batteries and car production costs are the two key factors influencing the price gap between EVs and ICEs.
A decline in battery prices and automakers transitioning to vehicle chassis made exclusively for electric vehicles are likely to contribute to the expected decrease in electric vehicle costs since they allow for easier assembly, standardized battery cells and greater volume production. Tighter European Union emission standards are also anticipated to drive up the cost of gasoline and diesel vehicles. The cost gap will be closed by a combination of these reasons.
Are electric vehicles becoming more affordable?
The belief that battery prices are going to drop, however, is in jeopardy due to recent developments.
Battery prices started to increase as the price of essential raw materials skyrocketed after Russia’s attack on Ukraine. During the months that followed, nickel prices nearly doubled. Russia is a major producer of class 1 nickel for batteries, a critical component of EV batteries that accounts for about 15% of worldwide supply.
Bloomberg reported an increase in li-ion battery pricing, despite the fact that cobalt and nickel prices had subsequently stabilized. A hike in the cost of raw materials would certainly drive up the prices of electric vehicle batteries and potentially buck the downward trend in battery pricing.
New vehicle purchasers who choose an electric model still pay a significant premium above comparable-sized gasoline or diesel vehicles. The premium rate varies from nation to nation based on the amount of the state’s grants and subsidies offered as well as the rate of tax on vehicles.
For comparison, a BEV (VW ID.3) costs 710 euros ($764) a year to power, while a gasoline vehicle (VW Golf) costs 1,677 euros ($1,805), given an average annual range of 18,000 kilometers. Therefore, fueling an internal combustion engine vehicle cost more than double the cost of “fueling” an electric vehicle.
A major increase in the buying price of electric vehicles could jeopardize the European Union’s EV ambition plans, because they are based on electric vehicles dominating all new vehicle sales in the decade’s final half.
Cost parity will essentially mean the termination of government subsidies and grants that are presently used to close the cost disparity between electric vehicles and fuel-powered vehicles. At that point, the production costs and margins of carmakers such as Kandi Technologies Group Inc. (NASDAQ: KNDI) will be the main drivers of whether this cost parity is maintained or not in the absence of supportive subsidies.
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