3.2 The current costs of PHEVs and EVs and the outlook to 2020

The current challenge for PHEVs and EVs is their high incremental costs and relatively low range compared to conventional ICE vehicles for EVs. However, they are just at the beginning of their commercialisation and the data emerging on their costs is encouraging.

The average cost of gasoline saved by the first-of-a-kind mass production PHEVs now being offered for sale taking into account the amortised additional capital cost and additional electricity expenses varies depending on the incremental vehicle costs, electricity and gasoline prices, and the fuel efficiency of the incumbent technology.

With average retail gasoline prices of around USD 2/litre in 2012 in Europe and Japan, the cost of the gasoline saved is close or less than the retail price for the PHEV offerings of Ford, Honda and Chevrolet compared to a comparable non-PHEV model from these manufacturer's (Figure 3.2). However, these results are quite sensitive to driving patterns and average annual vehicle travel patterns.

The challenge facing manufacturer's is that the base model against which PHEVs are compared is usually already relatively fuel efficient, resulting in the incremental costs being apportioned over relatively low fuel savings.

The average annual cost of ownership for EVs currently on the market in the United States, Europe, Japan, China and India varies significantly depending on the vehicle. Where a direct comparison with an ICE-powered vehicle is possible, the results are similar to the trend for PHEVs. Where the base model is not the most fuel efficient in its class, EVs look particularly attractive, even with today's low-production volume models. However, where the base-model is relatively fuel efficient the additional costs of the EV aren't recovered within the 160 000 km assumed for this economic comparison.

However, cost reductions for PHEV and EV batteries by 2020 could be significant. The consensus from multiple sources puts future battery pack costs at between USD 300 and USD 400/kWh for EVs by 2020, although more optimistic projections also exist.14 An order of magnitude of the reduction in incremental costs if battery costs decline to USD 350/kWh for EV's and USD 500/kWh for PHEVs can be seen for the Ford Focus Electric's 23 kWh battery pack, which would be reduced in price by around USD 5 500. At the same time, improvements in battery performance should see the overall life of batteries increase from the current manufacturer's guarantees of around 160 000 km.

The total cost of ownership for EVs in 2020 assuming USD 350/kWh, extended life to 200 000 km, and no change in oil prices in real terms to consumers15 results in electric vehicles becoming significantly more competitive by 2020 (Figure 3.3). The total annualised cost of ownership taking into account the vehicle cost (over a 200 000 km life) and fuel costs would be reduced by between one-fifth and a half depending on the vehicle compared to average battery pack prices in 2012 and a life of 160 000 km. Compared to the cost of ownership for an equivalent ICE vehicle, the total annualised cost of ownership in 2020 would be lower than for the equivalent ICE vehicle by between 2% and 13% (for the three models where direct equivalents are available) per year depending on the region and annual driving distances.

Figure 3.3: Total ownership costs for electric vehicles, 2012 and 2020

14 McKinsey projects EV battery packs could decline to as little as USD 200/kWh in 2020 (McKinsey, 2012). It is important to note that PHEV battery packs will be perhaps two-thirds to twice as expensive. See sections Seven and Eight.

15 The U.S. EIA's latest Annual Energy Outlook projects that crude oil prices will be little changed from 2011/2012 prices by 2020 under their Reference Scenario (U.S. EIA, 2013).