Demand for electric cars from the likes of Tesla Inc (NASDAQ:TSLA), China’s Nio Inc (NYSE:NIO) and traditional carmakers such as Volkswagen and General Motors is continuing to grow amid concern about pollution and greenhouse gases.
But while many governments around the world have said they will put the kibosh on sales of new petrol and diesel cars in the coming years, the cost of electric vehicles (EVs) is still some way above comparable cars powered by internal combustion engines (ICEs).
Batteries are the key, as an EV’s battery pack accounts for about a quarter of total vehicle cost.
Tesla boss Elon Musk backed this up last year when he said that battery costs are the main handbrake on making electric cars more widely available, with scaling up production safely remaining “very difficult”.
Price parity is expected to be reached when this US$100 kWh level is reached, having been as high as $1,100/kWh in 2010.
Tesla's battery packs cost $156 per kWh in 2019 and boss Musk aims to get the per kilowatt-hour of long-range battery cells of “around 50 cents or 55 cents” in the long term.
With the increasing energy density of battery cells, such as Tesla’s promised 4680, and savings for automotive manufacturers for next-generation battery systems, UBS said this week it expects the cost of battery packs to reach $100 per kilowatt hour (kWh) by 2025.
Once parity has arrived, analyst Tim Bush said he does not see many reasons why a consumer would not purchase an EV when cost parity is achieved.
However, there may be new issues for the auto industry to content with, Bush and his colleagues believe, with a debate on “where supply chain pinch points may emerge as EV adoption goes parabolic”.
Battery supply, particularly in the EU market, could become an issue, for example, and battery cell shortages and pricing upside are expected by UBS to become a big industry debate this year.
Tesla, for example, said that battery production was its greatest limiting factor for the launch of its new Semi articulated lorry.
Even with cost parity, the UBS team only expect 17% EV penetration in 2025, rising to 40% at the end of the decade.