Internal Combustion Cars Will Be An Expensive Luxury Compared To Electric By 2027

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Internal Combustion Cars Will Be An Expensive Luxury Compared To Electric By 2027

The most significant reason why everyone is not immediately buying an EV is the price. There are other reasons like inadequate charging infrastructure, but price is usually the problem most people cite. It is a valid concern, when an electric car is still £5-10,000 ($7-14,000) more than an internal combustion equivalent. But this is a temporary situation, and one that looks like it will be gone in 4-6 years’ time across all vehicle types, according to recent research by BloombergNEF for European green group Transport & Environment.

Enthusiasts will make the calculations showing that an EV purchased right now could still be cheaper overall after a few years of ownership. But most people just see the higher sticker price and walk away. This will particularly be the case in a country like the USA where fuel is still relatively cheap compared to countries like the UK. Daily running costs do not figure so much in most people’s minds compared to the initial price of purchase, particularly when the cost per mile is low either way. However, when people say “EVs are too expensive”, they assume the relative price right now will be the relative price forever, and that is just not going to be the case.

One of the things a lot of people, quite understandably, do not realize about EVs is that they do not get more expensive, they get cheaper. This is contrary to common sense about how car pricing normally behaves. The new auto model is usually a little bit more expensive than last year’s, because in a world where inflation is the norm, why wouldn’t it?

EVs, however, are as much computing products as they automotive ones. Anyone familiar with computing products will have noticed that they get cheaper, or at least you get more for your money, every year. Sure, iPhones are ridiculously pricey, but if you compare the processing power and screen resolution of successive generations it is always going up. The classic formulation of this is Moore’s Law, where the Intel co-founder Gordon Moore stated that the number of transistors on a microchip would double every two years.

The most obvious mainstream consumer example of this phenomenon is the price of TVs. A 55in 4K TV is currently about £500 ($700) in the UK, whereas in 2015 a budget 48in 4K model would have been more like £1,600 ($2,250) – over three times the price. In the space of just six years, you can get a bigger 4K screen for three times less money. Lots of technology products behave like this. Buy a new hard drive, USB memory key or memory card for your camera, and you get twice as much storage for half the price you would have a few years ago. Processors and graphics cards ramp up the performance for the same sort of money every generation.

Not all components in an EV follow this logic. The seats, interior, and chassis probably do not, unless you can make innovations like Tesla’s huge metal casting machines that can make half a car chassis in one go. But some of the most expensive elements will get cheaper every year, including the computer controls, screens, and the most expensive component of all – the batteries. There is a lot of talk about the magic $100 per kWh level for battery cells being the point where EVs reach price parity with internal combustion, and the usual rule of thumb is that this will happen around 2023/4.

The BloombergNEF study is being a bit more conservative with its estimate, putting the date for price parity at 2027, and this makes sense because businesses do not automatically pass on cost reductions to consumers. Some of this will be profiteering, but there are huge costs involved in developing a new platform such as the MEB one that Volkswagen uses for its ID.3, ID.4 and many other cars within the group. This needs to be paid off in initially higher prices. Then manufacturers must contend with how they can pass on falling prices without discouraging customers from buying now, because they are expecting next year’s model to cost less. Price inflation makes people want to buy now; price deflation makes people want to hold onto their money. Just look at how people hoard cryptocurrency rather than spend it, because its rapidly inflating value means you could buy more with your coins next year than this year.

But, eventually, the falling costs of EV production and particularly batteries will be reflected in cheaper EVs. The BloombergNEF research cites slightly different years for each vehicle sector, with light vans being one of the first to hit parity in 2025, C segment medium cars in 2026, and B segment small cars in 2027. Of course, this is for new cars, and the falling prices will take 3-5 years to filter through to the secondhand market. But when faced with a choice between an internal combustion car or a cheaper electric vehicle that is also cheaper to run, new car buyers will vote with their wallets. All the spurious arguments against EVs will filter away when your neighbor has a cheaper, better car than you.

Much publicized governmental bans on the sale of fossil fuel-powered cars, such as the one announced last year in the UK set for 2030, provoke an emotional response. People do not like being told they cannot have something they are used to having. Transport & Environment also argues that these will remain necessary to hurry things along and meet climate change targets. But even without bans the dominance of EVs is inevitable.

Of course, mass EV adoption could be a disaster if the charging infrastructure is not massively increased to match. But if there are plenty of EV buying customers out there, there will be money to be made from giving them places to charge, so the market will favor improved charging infrastructure as well. The switch to EVs looks like foregone conclusion, and it is only a few years away now.

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