The rising cost of electric vehicles (EVs) could delay and hurt the transition to electric driving. Both the purchase price and the charging price continue to rise, with more and more consumers seeing cost as the main barrier.
Consulting firm KPMG warns of this in a new report. The study is based on a survey of executives in the European automotive industry. They point out that although EV sales figures in Europe are currently still growing, this growth is compromised by the rising cost of EVs.
Geopolitical tensions
Geopolitical tensions, among others, affect the supply and availability of critical raw materials for batteries for EVs. The supply of electricity to Europe is also disrupted by geopolitical tensions.
These distortions are also affecting the EV market. For instance, KPMG concludes that EV models that meet or exceed customer expectations are still future proof.
Tipping point varies by country
The purchase price of an EV has a direct impact on its embrace. KPMG's research shows that the tipping point at which people are willing to embrace EVs varies by European country. For instance, this tipping point is at €38,023 in Germany, €36,737 in Norway and €31,820 in France. The tipping point is lowest in the UK at €20,883.
Consumers increasingly see price as a barrier to embracing an EV. In 2021, for instance, 54% of Dutch people still said this was the case, while in 2022 this percentage had risen to 66%. A similar rise can also be seen in other countries. For instance, the percentage of consumers citing price as the main obstacle rose from 40% in 2021 to 61% in 2022. In the UK, the percentage rose from 53% to 58%, while in France an increase from 49% to 53% was visible.
EVs are 27% more expensive on average
The average selling price of EVs in Europe is relatively stable. However, the difference in purchase price between an EV and combustion engine car remains substantial at 27%. This percentage did not increase in 2022 compared to a year earlier. Incidentally, the additional price customers pay for an EV varies by country.
The biggest factor in the higher price of an EV is the cost of the batteries, which account for 30-40% of the total cost. These costs include the cost of the raw materials required. Incidentally, battery prices have been falling for some time. Whereas a battery cost $1,200 per kWh in 2010, the price in 2021 was only $141 per kWh.
At the same time, the price of EV batteries has actually risen in recent years. This is partly due to the COVID-19 pandemic, the war in Ukraine and shortages of raw materials. EV battery prices, for instance, rose 7% in 2022 from a year earlier.
Price war
KPMG also points to a price war going on in the EV market. Tesla, for instance, has been implementing price cuts for some time in an attempt to boost demand for its EVs. This seems to be having an effect; the Tesla Model Y was one of the best-selling EVs in Europe in the first months of 2023.
Other manufacturers including VW, BMW and Ford now seem to be following Tesla's lead. At the same time, manufacturers are increasingly betting on introducing cheaper EVs of less than $30,000.
Higher charging costs
KPMG also points to the rising charging costs of EVs, which increase the overall cost of owning an EV. In most European countries, the cost - including depreciation, interest, insurance, taxes, maintenance and energy, is similar to that of an internal combustion engine car.
The Netherlands and Norway are anomalies here; in these countries, the total cost of owning an EV is significantly lower than that of an internal combustion engine vehicle. The difference is greatest in Norway, which can be attributed to incentive programmes set up by the Norwegian government.
Running costs must fall to offset higher purchase price
KPMG concludes that although in many cases the running costs of an EV are relatively similar to those of combustion engine cars, the running costs of an EV need to fall further to compensate for the higher purchase price. Only then will the price of an EV get closer to the tipping point at which consumers decide to prefer an EV over an internal combustion engine car.
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Author: Wouter Hoeffnagel
Photo: Goran Horvat via Pixabay
