Electric Car Price Parity Expected Next Year-Report.
“We found that the EV powertrain is $4,600 cheaper to produce than we thought and there is more cost reduction potential left
Electric cars will be cheaper much sooner than expected, with prices in Europe comparable with traditionally powered vehicles next year, according to a report from investment bank UBS.
The conventional wisdom expects price parity to be a long way off, with current electric cars criticised for being about twice as expensive as required for the mass market, and with range requiring to be doubled. Claims for longer range are also under scrutiny because higher speeds can halve claims.
UBS also raised its forecasts for global electric car sales by 50% to 14% by 2025 or 14.2 million vehicles. It raised the projection for 2021 to 3.1 million from 2.5 million. Europe will lead the way with 30% of its sales electric by 2025.
Costs will draw level for traditional cars by 2023 in China, and 2025 in the U.S., UBS said. Its forecast for U.S. electric car sales was increased to a market share of 5% in 2025 from 3%. Mainstream forecasts for electric car sales range from between 10 and 15% of the global market by 2025. Volkswagen expects this to hit 25%.
UBS said the report’s implications for Tesla Inc’s Model 3 are mixed, with advantages from lower costs to its bottom line, but also a bigger threat from the competition like the Audi e-tron Quattro and Jaguar I-Pace in 2018, and the Mercedes EQ in 2019.
UBS said it bought a General Motors Chevrolet Bolt electric car and took it apart to find out more about the economics of the electric car. The Bolt is priced at $30,000, including a U.S. government subsidy and boasts range of 238 miles. The specification is similar to the Tesla Model 3.
Parity in 2018
“We found that the EV powertrain is $4,600 cheaper to produce than we thought and there is more cost reduction potential left. Consumer cost of ownership parity vis-a-vis combustion engine (ICE – internal combustion engine)) cars can be reached from 2018 first in Europe, creating an inflexion point for demand,” the report said.
“We estimate GM loses $7,400 with every Bolt sold today, mainly due to lack of scale,” UBS said. By 2025 though, it should make a 5% profit margin, using the earnings before interest and tax (EBIT) measure.
The report said it expects the Model 3 to lose $2,800 in its base version, expected to be $35,000, but will break even at $41,000, a level likely to be exceeded.
The report also concluded that big car manufacturers would do better than previously feared, with the big suppliers the most at risk from electric car sales. This is because much more of the content will come from new suppliers like Korea’s LG, which has as 56% content share of the Bolt.
The report said although electric cars will be as affordable as ICE cars in 2018 they will still mean losses for the big manufacturers. What it called “true cost parity” – a 5% margin – will be reached in 2023. Manufacturers will benefit from electric cars’ simpler design. European car makers will also benefit from electrification because of its harsher rules requiring much higher fuel efficiency. Current plans assume diesels playing a big part in achieving this, but political and health lobbies are making this less viable.