EV and traditional car to reach TCO parity in 2018
As early as next year, the Total Cost of Ownership of an electric vehicle (EV) could be as low as that of a traditional petrol- or diesel-powered car. That is the potentially revolutionary conclusion of a study by UBS.
According to UBS, the EV is “the most disruptive car category since the Model T Ford”, and it is about to get a whole lot more disruptive, soon: “The total cost of consumer ownership (of EVs) can reach parity with combustion engines from 2018”.
This does not mean that an EV will cost the same to buy new as a petrol or diesel car, only if you factor in maintenance, fuel, residual value and other TCO elements. The study singled out Europe as the region where this is most likely to happen first. TCO parity will create an inflection point, beyond which the market penetration of EVs is likely to accelerate.
As a consequence of its study, UBS raised its own EV sales forecast for 2025 by 50% to 14.2 million, which at that time will represent 14% of global car sales.
But how did the study arrive at this conclusion? It analysed the economics of EVs by dissecting a 2017 Chevrolet Bolt (pictured), because, as the study mentions, it is “the first mass-marketed EV with a range of more than 200 miles”.
The Chevy Bolt, which sells for $37,000, was completely disassembled and its parts analysed for cost. Conclusion of the UBS analysts: the electric drive could be produced $4,600 cheaper. That was the biggest, but not the only cost reduction potential: “We estimate that GM loses $7,400 in earning before interest and tax on every Bolt sold today, mainly due to a lack of scale”.
For comparison: UBS expects Tesla to lose $2,800 per entry-level unit of its soon to be introduced Model 3 (at $35,000), but thinks customers will include options that will raise the price to an average of $41,000, at which point they believe Tesla will break even. Only at (and beyond) break even do EVs become a viable commercial proposition.
If, as UBS predicts, TCO parity is possible from next year, this may send shockwaves through the auto industry, which did not expect that point to be reached for quite a few years. Volkswagen, for instance, reeling from Dieselgate, is racing to catch up with its rivals' investment levels in electric drivetrains.
UBS warns manufacturers that “the time to get ready and win in the (EV) space is shrinking”. While TCO parity may be achieved for consumers as early as next year, UBS points out that for manufacturers, parity will only arrive in 2023, when they will make a 5% margin on EVs, comparable to their profit on current vehicles.
The study, which revealed that the Bolt had $4,000 more electronics than an internal combustion car, also forecasts that tech companies will grab a growing slice of the automotive industry.
Finally, the higher resilience of electric drivetrains could radically transform the aftermarket for automotive replacement parts. Electric motors only have three moving parts, an internal combustion engine has over 1,000. The resulting difference in less wear and tear means that the need for spare parts in a totally EV environment would reduce by 60%, killing off much of the lucrative spare parts business. Such an environment, UBS says, is still “decades away”.
Image: Mariordo, CC BY-SA 4.0