The high initial purchase price of electric cars compared to ICE equivalents prevents many from buying EVs today.
Thankfully, electric cars are expected to have price parity with ICE equivalents by 2026, but this depends on several factors.
The biggest factor is the cost of EV batteries coming down. Forbes estimates that batteries make up around 15% of the cost of an electric car, but Statista figures show that this can be as high as 32% depending on the vehicle.
The larger the battery, the more it costs because it requires more raw materials like nickel, cobalt and lithium.
Right now, prices for these materials are going through the roof due to supply issues, inflation, and soaring demand. For example, lithium prices increased by 478.3% between January 2021 and January 2022.
However, the price to manufacture EV batteries is falling over time. According to Statista, battery prices fell from $300 per kWh in 2016 to $132 in 2022, and from $1,200 per kWh in 2010 – an enormous drop.
By 2026, battery prices are expected to drop below $100 per kWh, the price where making an electric car is as cheap as an ICE car.
According to Visual Capitalist, 54% of an EV battery’s cost is in the cathode, while 24% is in manufacturing and depreciation.
Batteries aren’t the only factor driving prices
Research published by MDPI shows that, on average, components in electric vehicles are more expensive than components in ICE vehicles. One of the key reasons for this is that EVs tend to have more advanced technologies.
Batteries can account for up to one-third of total vehicle cost, but the following components also play a role in total production cost:
- Electric motor
- Power electronics
Electric motors – the components that drive the wheels and provide power – cost between $4,000 and $15,000. This is around the same as equivalent ICE engines, and some state-of-the-art electric motors cost significantly more.
MDPI’s research is interesting because it considers how the cost structure of an electric car is different to an ICE car. For example, EVs tend to have more advanced ADAS systems and semi-autonomous driving aids, increasing costs.
In total, the electric motor, gearbox and power electronics make up an additional 35% of an EV’s cost, reaching 50% with sensors and technologies.
Electric cars are predicted to get cheaper over time with the latest estimates pegging price parity with ICE cars by 2026.
Technological developments and mass production will drive down battery manufacturing costs, as well as costs for electric motors, power electronics, sensors and other components.
If the high cost of electric cars is putting you off buying one today, there are several reasons why they still make financial sense:
- Road tax exemption (for now)
- Super-low running costs – around 3p per mile if you charge at home with an EV tariff – versus around 15p with petrol
- Significantly cheaper servicing costs – typically 50% less because the only serviceable parts are brakes, tyres and windscreen wipers.
Some drivers save hundreds of pounds per month running an electric car, which more than offsets the high initial cost to buy it.
If you do make the switch to electric and have off-street parking, a smart charger lets you charge rapidly at home and you can also upload your tariff information to collect cost data. Check out our EV charger reviews for ideas.