EVs Could Be Cheaper than Gas Cars by 2020

Jim Motavalli

Jim Motavalli | Mar 24, 2015

Electric small cars will be cheaper to buy and operate than their gasoline, diesel or natural gas equivalents by 2020, according to a new German study using a rather cool cost model you can download. We’ve seen a bunch of pie-in-the-sky predictions about plug-ins, but this is the first one I’ve seen with serious research behind it.

Tesla wants the sun to go down on internal combustion, and it knows that low battery costs are key. (Tesla photo)Do you know what the price of oil is going to be next week? Next month? I thought not. Judging by the Quinnipiac University financial conference I attended in New York this week, the experts don’t really know either. Without that as a variable, it’s very hard to predict how electric car sales will go in the near future. But Dr. Markus Lienkamp, a professor at the Technical University in Munich, thinks he’s got that problem licked.

By 2030, he predicts, “electric vehicles are the most economic powertrain technology,” assuming you drive at least 12,000 miles annually. The purchase price will probably still be higher for EVs then, so the savings are greater the more you use the car.

“The key driver is the battery price and performance,” Lienkamp told me, estimating that we’re seeing a seven percent improvement (in energy density and cost) annually. And, critically, say goodbye to cars that can go 100 miles on a charge. Lienkamp thinks it will be “no problem” for cars like, say, the VW e-Golf, to have 200 miles of range “from 2020 on.” The Chevrolet Bolt, Tesla Model 3 and promised similar models from Nissan and Ford are already projecting that kind of duty cycle.

The Gigafactory will reduce battery cost with sheer economies of scale. (Tesla rendering)Of course, models can be wrong. There’s no guarantee that battery costs will continue to go down seven percent a year, or that technology breakthroughs will allow longer-range affordable packs. But some heavyweights are weighing in. Citigroup said recently that $230 per kilowatt hour is the sweet spot where batteries beat internal combustion. And UBS, working with Navigant Research, said that the $230 magic number will be reached in a couple of years, with $100 per kilowatt hour on the horizon.

With those numbers in mind, Lienkamp’s battery price estimate of $120 per kilowatt hour by 2020, though less than half what it is now, doesn’t look too far off. That price would mean a big 40-kilowatt-hour pack would cost a modest $5,000. He says that significant price declines have recently been endorsed by a confirmed battery car skeptic, Menahem Anderman.

The German cost model is here. Opening it, the user can look at some set parameters for the prices of crude oil, batteries per kilowatt-hour, diesel, natural gas and electricity in both 2013 and 2030. For instance, Lienkamp is assuming a 40-percent increase in crude oil, a 45-percent increase in natural gas, and a 22-percent increase in electricity. But gas cars obviously aren’t standing still: The model assumes internal-combustion engines will increase their efficiency by 30 percent.

VW's e-Golf could have 200-mile range by 2020, the Germans say. (VW photo)And although there isn’t much cost for greenhouse gas emissions (CO2) right now (and who knows when there might be any penalties in the U.S.), but based on European regulations Lienkamp’s model assumes a doubling in CO2 costs by 2030. Emissions from making the cars are also factored in.

The model also allows you to compare likely prices for vehicles ranging from urban micros to large luxury sedans, and to change the values if you want. Admittedly, it’s all guesswork, but Lienkamp has research to back up the numbers. Dropping battery and power electronics costs are indeed likely to mean much cheaper electric cars.

Of course, we’re not there yet. The need to add range—with 200 miles being the key target—complicates the equation. Anderman projected last year that a 200-mile-range EV, if it was offered in 2017, would need a 70-kilowatt-hour battery that weighs 1,100 to 1,400 pounds and costs $15,000 to $20,000. On the other hand, he also issued a report saying that Tesla’s Gigafactory could be producing batteries for $167 per kilowatt hour by 2025. Tesla itself is much more optimistic--it says a 30-percent price reduction by 2017 is possible, and it has Deutsche Bank concurring. Anyway, Anderman's number may not be the holy grail of $100, but it’s below the threshold for big breakthroughs.

We’ll see. With a $20k battery, it’s hard to make a profit with a $35,000 car. And the caveats are many. As Lienkamp admits, a higher 2030 battery price “significantly impedes the competitiveness of electric vehicles throughout all vehicle classes and markets.”
 

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