BEV vs ICE: The Costs

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Electric vehicles are probably one of the most discussed auto-related topics of the past year. Considering the increasing success of Tesla Motors, and the emergence of new concepts such as Faraday Future, we can say that this is just the beginning. But emotions aside, could we evaluate how much more feasible it is to rely on an EV when it comes to cost?


BEV vs. ICE: The Costs

Battery electric vehicles (BEVs) have numerous advantages over vehicles with internal combustion engines (ICE), there is no question to that. High efficiency, regenerative braking, and no tailpipe emissions are only some of the most common ones. Thanks to higher cost reductions, these features make BEVS quite attractive to vehicle owners who spend too much time in city driving.

There is one general problem with BEVs, however, and it’s visible already in their name – the battery that charges the vehicles. The biggest disadvantage electric vehicles have is the size and cost of the battery itself. Even if we take into account the promises for cheaper batteries and the technological advancements that could make it possible, the battery will still be heavier and more expensive than ICE or even a hybrid. But let’s look at the cost analysis more closely.

Consumer requirements that will help bring BEV to the mass market start with reducing range anxiety. To earn consumer acceptance BEVs have to achieve 200 km range and be able to maintain it for more than ten years of all-season driving. ICE vehicles today have the endurance of over 20 years before they start showing any signs of age or temperature-related range anxiety issues.

BEVs may depreciate significantly faster than ICE vehicles because the battery pack will degrade faster over time than the ICE drivetrain. Therefore, future BEVs will require a battery pack with the capacity of about 80 kWh. Considering the optimistic battery price of $100/kWh, the total cost would come to $8,000.  This amount constitutes the assumed price difference between BEVs and ICE vehicles in the near future.


When basic cost advantages are negligent

According to researchers from the Institute of Automotive Technology in Munich, Germany, the drivetrain of a BEV will be cheaper than an ICE drivetrain. The cost of a 70kW electric drivetrain in 2013 was about EUR 2640, while that of a gasoline drivetrain equaled EUR 2950. The simpler drivetrain gives BEVs a price advantage, which, unfortunately, could be canceled out by the large costs associated with the installation of a home charging station.

And why would you need a home-charging station? Because you won’t want to spend your time waiting at public charging stations, once everyone has an electric vehicle. It would be taking you six times longer to charge a car with power for three times shorter range than what you would have gotten at conventional filling stations. Rush hour would become a nightmare. Eventually, home charging stations will become the inevitable choice.


When home chargers are not the only charging cost

The installation of a home charging station would cost about $1,200 (for a level 1 charger), which includes the charger’s hardware plus additional hardware materials, permit, mobilization, and technician’s labor. The charger itself can be found for as low as $450 these days, but that doesn’t include the installation cost by an electrician.

Because most BEV users would charge their vehicles in their garage overnight, they would most likely have an existing breaker panel that can be used for the installation of the circuit. If there isn’t one, however, a new breaker panel could add up to $500 in additional costs. Also, the total price of the home charger installation does not include any maintenance costs. In addition to that, a BEV that will be in regular usage will need more than one charging station considering low battery range. Thus, the price of a BEV will contain a portion of the costs associated with other public chargers in parking lots or on highways.


When conventional vehicles are catching up in cost improvement

We’ve widely accepted that BEVs have lower fuel costs. The problem with this is that most calculations of BEV fuel saving costs are based on oil price above $100/barrel, which includes some heavy gasoline taxes. The reality today, however, is that oil production costs are dropping as low as $40/barrel with still plenty of oil to be extracted below this price point. The production and distribution costs of gasoline, then, could decrease to $1.83/gallon (taking $1/gallon for refinement & distribution), while the costs of electricity come to about $4.83/e-gallon (with $0.13/kWh & 10% charging losses). Moreover, ICEs still have room for improvement in their efficiencies – they are projected to reach 50 miles per gallons by 2025.

Image Source: USA Energy Information Administration

Image Source: USA Energy Information Administration

We can say that the actual fuel cost savings of BEV are quite negligible, and the up-front cost difference will remain. Ownership costs over five years were calculated considering both fuel and capital costs. The result showed that the mass-market BEV would cost $1,140/yr more than an equivalent ICE vehicle under similar depreciation assumptions and as much as $2,660/yr more if it depreciates faster. In developing countries this cost will be unacceptable, thus reducing the acceptance of BEV beyond consumers willing to pay the premium price.

When premium price is a more meaningful future of BEVs

For BEVs to take over the mass market where ICE vehicles prevail, people will have to be ready to pay this substantial price premium (defined by initial and ownership costs). Tesla Motors proved that electric vehicles could provide exquisite performance and driving experience, which is a feeling of its own that drivers eagerly pay for. It is doubtful, however, that this will extend much beyond the small-scale luxury/premium segment. High costs and lack of proper infrastructure in most parts of the world make the expansion of BEVs less meaningful at this point.

Considering the decline in car ownership among Millennials and younger consumers, this might not be such a bad conclusion. One potential path for BEVs is to remain the premium segment and position themselves as providers of alternative driving experiences, rather than just a means of transportation. This approach would create more meaning for the consumer, and the costs will be neglected when they treat BEVs as a gift rather than a commodity. The problem with this concept, however, is that it ignores the idea of sustainable transport that is in the very essence of BEVs. To make it meaningful, and more importantly – accessible, BEV automakers have to be patient, with slow market penetration and continuous cost improvements.




About the Author:

Dilyana Dobrinova is a nature & travel enthusiast. With a heart for books, scarves and vintage. She runs a brand consulting agency, while also running 10Ks between meetings. Dilyana holds an M.A. in International Marketing Management from the Berlin School of Economics and Law in Germany, and two B.As. in Journalism & Mass Communication and in Business Administration from AUBG.

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