How close are we to electric vehicle cost parity?
February 26, 2024
As the world embraces sustainability, incorporating electric vehicles (EVs) into commercial fleets emerges as the largest lever for reducing greenhouse gas (GHG) emissions. Navigating this terrain means balancing eco-friendliness with economic practicality. Access your EV cost parity summary today.
EV and ICE cost parity projections
Total cost of ownership (TCO) parity, a vital milestone for EV adoption, is no longer a distant concept. Research indicates that some light-duty vehicle applications are already at TCO parity and others are rapidly closing the gap as early as 2025.1 Meanwhile, medium and heavy-duty vehicles not far behind, expected to reach parity within the next decade in 2027.2 By then, the total cost of owning an EV, encompassing purchase, operations, and maintenance, could be comparable to, if not lower than, that of their Internal Combustion Engine (ICE) counterparts.
The cost-effectiveness of electric vehicles
EV electricity costs provide more predictable pricing and are generally less subject to the volatility of global fuel prices given domestic regulatory control. Additionally, EVs offer long-term cost-effectiveness due to their energy efficiency and reduced maintenance costs.
- Consistent, low-cost electric “fuel”: Despite recent increases in electricity rates, electricity costs are generally more stable and substantially lower cost on an e-Gallon basis compared to gasoline and diesel.3
- Improved energy efficiency: EVs efficiently convert a higher percentage of their power source into vehicle motion, minimizing energy waste.
- Lower maintenance expenses: Based on Element Fleet Management’s EV maintenance analysis, EVs typically require 40% less maintenance spend compared to ICE vehicles. With fewer moving parts, they require less frequent maintenance.
The benefits of EVs go beyond environmental advantages, providing greater predictability in electricity costs, enhanced energy efficiency, and reduced maintenance expenses. Transitioning to EVs can be a smart choice for longer term fleet cost savings.
8 unique TCO considerations for commercial EV fleets
There are several unique cost factors in the context of commercial EV fleets. Aspects such as upfront costs, incentives, utilization, and environmental factors should be considered.
- EVs generally come with higher upfront costs, but government incentives and lower variable costs (maintenance, fuel) can offset this.
- TCO parity is already a reality for certain commercial EVs when including tax credits and government incentives.
- An in-depth lifecycle cost analysis (LCCA) is crucial to make informed decisions. You can determine the lowest cost vehicle choices by comparing costs over the asset's life.
- An LCCA is also critical for planning depreciation and changes in the resale market.
- Transitioning to EVs involves costs associated with charging infrastructure, driver change management, and potential need for daytime charging.
- Optimal vehicle utilization for EVs is crucial to balancing driving frequency with lower variable costs, while avoiding excessive charging events during the day to limit productivity impacts.
- Location impacts EVs, especially in extreme cold and hot climates, affecting range and performance.
- While electricity is almost always cheaper relative to fuel, regional pricing variances of both gas and electricity can have an impact on fleet TCO.
EV battery prices continue to drop
A key driver for EV TCO parity is declining battery prices as EV batteries typically make up 30-35% of EV prices. Despite the 2022 hike in battery prices due to increases in raw material and battery component prices coupled with high inflation, a long-term downward trend is anticipated. The price of lithium-ion battery packs dropped 14% to a record low of $139/kWh in 2023.4 As we move ahead, advancements in technology and production methods are expected to drive a continuing drop in battery costs. By 2025, prices are expected to reach $113 per kilowatt-hour (kWh), and by 2030 $80/kWh5
Source: Adapted from BloombergNEF, 2023. Historical prices have been updated to reflect real 2023 dollars.
Government incentives and tax credits aid EV adoption
Government policies and vehicle tax breaks are encouraging the adoption of EVs in U.S. and Canada.
United States
- Businesses that purchase electric vehicles (EVs) can receive a tax credit of $7,500 without having to meet specific criteria related to consumers. For larger vehicles weighing over 14,000 pounds, the credit can even go up to $40,000.
- Commercial fleets are not able to apply EV credits as a point of sale discount. The timing to receive credits will defer depending on your leasing structure and tax situation.
Canada
- Businesses can claim rebates of up to $5,000 for eligible light-duty vehicles. For Medium- and Heavy-Duty vehicles, the credit can go up to $200,000.
To learn more about the government incentives and tax credits available for your fleet get in touch with an Element representative. Element can help you budget for fleet electrification and navigate your vehicle finances.
Global EV sales are expected to grow rapidly
In 2023, BEVs accounted for 7.6% of the US market, up from 5.9% in 2022.6 In Canada, BEV volumes hit record levels in Q3 2023, making up 10.1% of new vehicles.7 The shift to electric vehicles has been significant, taking around six years for EVs to go from 1% to 10% of global new car sales. Looking ahead, RMI predicts that EV sales will accelerate rapidly in the coming years and by 2030 EVs will dominate global car sales.8
EV maintenance and repairs come with added complexity
EVs offer significant advantages in terms of reduced overall maintenance spend. However, maintaining and repairing EVs present unique challenges compared to ICE vehicles.
- Glass and windshield maintenance: Auto glass services for EVs come at a higher price due to advanced technology in windshields. Replacing windshields for EVs costs more than for ICE vehicles, with additional expenses for Advanced driver-assistance system (ADAS) calibration, making repairs and replacements more complex and costly.
- Collision repair costs: An Element study from 2022 to 2023 comparing EVs and ICE vehicles revealed that collision repairs for EVs led to significantly higher repair costs, due to the need for more labor hours and part replacements. This is in part a result of EV construction methods, materials, and the need for labor intensive scanning and calibration.
- Greater vehicle down time: Repairing EVs often takes longer than internal ICE vehicles due to specialized procedures and staffing, and delays in sourcing parts. EV repairs involve unique operations, like disabling and re-enabling the high voltage system, which adds to the overall repair time.
While EVs offer advantages in reduced overall maintenance spend, the complexities and cost considerations in glass/windshield maintenance and collision repair highlight the evolving landscape of automotive maintenance and the need for specialized expertise in servicing electric vehicles.
Demand for EVs today will contribute to a strong base in EV resale market
- Battery Electric Vehicles (BEVs) make up a small portion (1.14%) of total auction sales today.9 However, since 2018 the relative percentage of EV sales has been steadily climbing and EV auction volume continues to increase each year.
- The number of unique EV make/models has also been increasing each year since 2019. While Tesla is the predominant EV manufacturer, traditional OEMs are closing the gap.
Based on used vehicle sales over past 5 years from auctions across the U.S. Similar trends are present in Canada. Source: Element remarketing analysis based on U.S. used vehicle auction data from AutoIMS, 2023.
How does depreciation for EVs compare to ICE vehicles?
"Overall, EVs currently depreciate faster than comparable ICE vehicles as they are still relatively new to the used market. However, many premium EVs do outperform ICE vehicles in auction sales, and it is only a matter of time before more EV models experience the same trend as the premium segment.” – Trevor Ramsey, Valuations Manager
Depreciation trend represents estimates of auction sale price as a percentage of Manufacturer’s Suggested Retail Price (MSRP). Source: Element remarketing analysis based on U.S. used vehicle auction data from AutoIMS, 2023.
Charging behaviors and EV battery degradation
The EV industry has seen remarkable advancements in battery technology, serving as a pivotal component in the performance and longevity of these vehicles. The condition of an EV's battery is a strong determinant of its depreciation. Therefore, effective battery health management is essential for maximizing the lifespan and efficiency of these vehicles. Here are some essential practices to adopt:
- Initiate Level 3/DC fast charging when the battery is near empty
Efficiently managing DC fast charging (DCFC) events is vital for battery health. Minimizing frequent deep discharging (i.e. letting the battery go from completely full to completely empty) helps mitigate accelerated battery degradation and preserves long-term capacity. - Manage high-speed travel
To maintain battery performance, consider the impact of high-speed travel on temperature and stress levels. By being mindful of driving behaviors and moderating speed, you can alleviate strain on the battery. - Optimize charging conditions in extreme temperatures
Extreme ambient temperatures, whether excessively low or high, can impact both the efficiency and health of an EV battery. It is recommended to avoid level 3/DC fast charging during extreme weather conditions and instead aim for moderate temperatures. Charging during cooler periods, such as at night or in shaded areas, can help maintain optimal battery conditions. If charging during extreme temperatures is unavoidable, it is recommended to utilize the vehicle’s battery pre-conditioning feature to ensure the battery is at the proper temperature prior to initiating fast charging.
Ready to compare ICE and EV alternatives for your fleet?
Transitioning to EVs is becoming a more attractive option for many fleets. In fact, growing interest in fleet sustainability is evident based on a recent Element survey conducted with nearly 100 fleet decision makers. Almost two thirds of respondents operating within an organization have stated or planned long-term decarbonization targets. Assessing financial costs is a key driver for many fleets looking to deploy EVs.
Below is an example TCO ICE and EV model comparison. A fleet partner like Element can help you project cost estimates over the life of the vehicle for EV fleet budgeting and planning. The model is flexible to assist with scenario analysis and factors in electricity costs for a strong ICE to EV comparison.
Cost estimates are illustrative and specific results differ by client and vehicle type.
Fleet vehicle selection provides the opportunity to positively impact your TCO, safety, productivity, and environmental footprint for years to come. A fleet partner like Element can help you build a successful plan and analyze lifetime fleet TCO among different vehicle alternatives.
Interested in comparing financial options for your fleet? Get in touch today to learn how Arc by Element™, Element’s end-to-end electric vehicle fleet offering can complement your fleet EV strategy.
[1] Why the economics of electrification make this decarbonization transition different, McKinsey, 2023
[2] Electric Vehicle Market Update, Environmental Defense Fund (EDF), 2022
[3] Gasoline is cheap right now – but charging an EV is still cheaper, Canary Media, 2024
[4] Lithium-Ion Battery Pack Prices Hit Record Low of $139/kWh, BloombergNEF, 2023
[6] A Record 1.2 Million EVs Were Sold in the U.S. in 2023, COX Automotive, 2024
[7] Automotive Insights – Q3 2023 Canadian EV Information and Analysis, S&P Global, 2023
[9] Source: Element remarketing analysis based on U.S. used vehicle auction data from AutoIMS, 2023.
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