Price parity not too far off

Electric vehicles cost more than equivalent ICE models, but that will be changing soon, writes Damien O’Carroll.

Why do EVs cost more than ICE cars? And, when will they cost the same, or even less? These are probably the two most common questions asked when it comes to EVs in New Zealand. The answer to both is linked to one simple thing – the cost of the batteries.

The batteries represent the largest single cost in an EV, which is in keeping with internal combustion engine (ICE) vehicles where the drivetrain also represents the largest cost there too – the engine generally accounts for around 20 to 25 per cent of the cost, while the transmission is around 8 to 10 per cent.

There are other factors that influence the cost difference between EV and ICE vehicles – like ancillary electrical systems and wiring, which

can be cheaper in an EV, and the heating and ventilation system, which can be more expensive in an EV because of the lack of thermal output from the engine – but the biggest factor in getting the price difference between the two down is the cost per kilowatt hour (kWh) of the batteries.

Research by BloombergNEF (BNEF) found that battery prices need to drop well below the US$100/kWh mark that has long been held up as the magic number for EVs to reach parity with ICE vehicles.

The research found that, given current consumer preferences for higher ranges, a figure closer to US$80/kWh is more likely to see parity in major markets like the United States and Europe, while US$60/kWh is likely to be when EVs will become cheaper than ICE vehicles in all segments and countries.

BNEF expects battery prices to reach US$80/kWh in 2026 and US$60/kWh in 2029, down from US$137/kWh last year.

However, the rate of research and development continues to grow exponentially, and a single breakthrough could well shake things up

drastically. Indeed, the BNEF research is at the more conservative end of estimates, with other research suggesting price parity could come as soon as 2024.

Indeed, high-end luxury manufacturers are already achieving price parity in the New Zealand market,

with the likes of the Porsche Taycan, Mercedes-Benz EQC and EQA, and the recently announced BMW i4 essentially the same price as comparable ICE models.

As it always does, it will take time for that parity to filter down into the cheaper end of the market, but that is

where subsidies come in to help foster EV uptake, like the recentlylaunched Clean Car Discount here in New Zealand.

The Clean Car Discount is available to all new and used light electric vehicles (as well as PHEVs) under $80,000 (including GST and on-road costs) imported and registered in New Zealand from July 1.

From January 1 next year this will change to a sliding scale based on CO2 emissions to include low emission vehicles, such as hybrids, with the maximum discount remaining $8625 for a zero-emission vehicle under the $80,000 cutoff, and decreasing based on CO2 emissions.

However, while this rebate helps reduce the price gap in cheaper EVs, it still leaves a big difference – for example, New Zealand’s cheapest new EV, the MG ZS EV, drops to just over $40,000 with the rebate, its closest ICE equivalent is the $33,990 ZST Essence.

The gap is dropping quickly, however, and will soon also start filtering into the used market, which is where the real acceleration towards widespread EV uptake will actually occur over the next few years.