7.2 Total incremental PHEV and EV vehicle costs and the cost of vehicle ownership and operation

The incremental vehicle costs for PHEVs and EVs are dominated by the cost of the battery pack. However, the electric motor and generator, as well as the power electronics, converter and inverter also create signifi-cant incremental costs. The cost of gasoline saved will vary depending on the incremental cost compared to an equivalent vehicle, the battery life and annual mileage.

PHEV incremental costs and the cost of gasoline saved

PHEVs are only just taking to the road in any significant numbers. Costs are still uncertain and will fall over time as deployment accelerates. The total incremental cost of PHEVs is dominated by the cost of the battery, particularly for high all-electric driving ranges (Figure 7.5). For a PHEV with a 16 km range, the battery pack is estimat- ed to account for around 45% of the gross40 incremental costs over an equivalent conventional ICE vehicle. For a PHEV with a 65 km range, the battery costs increase to 72% of the gross incremental cost.

Figure 7.4: Total cost breakdown for Li-Ion battery packs for EVs and PHEVs by vehicle class, 2012

Note: Assumes a maximum 80% of the EV battery is used in charge/discharge cycle and 70% for the PHEV batteries.

Source: Element Energy, 2012a.

The incremental vehicle costs and the cost of gasoline saved for production series PHEVs are presented in Figure 7.6. The incremental vehicle costs are based on manufacturer's recommended retail prices as of March 2013. In most cases, even where PHEVs are based on existing models, specifications can be very different, and making an exact comparison on a like-for-like basis is difficult. Where multiple specifications of the PHEV or the base model are possible for comparison, the high and low incremental costs are provided.

Of the models available, the Toyota Prius has the smallest battery and lowest all-electric range (around 18 km)41, while the Chevrolet Volt, an extended range electric vehicle, has the greatest all-electric range (around 56 km). Taking the average driving patterns of the United States, Europe and Japan and restricting charging only to the home results in the all-electric range of the Prius being estimated to cover around 30% of vehicle kilometres in the United States and around 45% in Japan over the course of a year. Meanwhile, the Chevrolet Volt would cover around 65-90% of annual vehicle kilometres. Charging at work or anywhere else would raise these values significantly.42

The average cost of gasoline saved by the PHEV varies depending on the amortised additional annual capital cost and additional electricity expenses. These costs are determined by the incremental vehicle costs, discount rate, electricity and gasoline prices, and fuel efficiency of the incumbent technology. The cost of the gasoline saved is close or less than the retail price for the Ford, Honda and Chevrolet offerings compared to a similar non-PHEV model from these manufacturers. This assumes average gasoline prices of around USD 2/litre in 2012 in Europe and Japan. The challenge facing Toyota, Mitsubishi and Volvo is that the base model against which their products are compared is already relatively fuel efficient. This means the incremental costs are apportioned over relatively lower fuel savings. A comparison against the best in class fuel efficiency would therefore raise the cost of gasoline saved for the Chevrolet and Ford. However, it is more open to interpretation.43 In the United States, where gasoline costs in 2012 averaged around USD 1.3/litre, the hurdle for competiveness is much higher.

Figure 7.5: PHEV gross incremental cost breakdown for all-electric ranges of 16 km and 65 km

Source: NAS, 2010.

Figure 7.6: PHEV incremental costs and cost of gasoline saved

Note: Fuel consumption calculations were based on U.S. testing cycles for all PHEVs, except the Mitsubishi and Volvo, which are based on European testing cycles. The share of all-electric operation based on all-electric range from U.S. and European testing cycles and vehicle travel profiles was converted to a percentage of total travel. This used data from VMCC (quoted in Niste, 2012) and NPC, 2012. Average annual travel for the U.S. was 17 000 km, 14 000km for Europe and 9 000 km for Japan. Battery life is assumed to be 160 000 km. These assumptions provide indicative average point estimates and are not definitive.

Source: EPA, 2013; Eurostat, 2013; fueleconomy.gov, 2013; World Bank, 2013; manufacturer's technical specifica-tions and MSRP as of May 2013 (Europe for Volvo and Mitsubishi, U.S. for the rest); Niste, 2012; and NPC, 2012.

EV vehicle costs and annualised costs of ownership

Pure EVs that rely 100% on batteries for their energy source and receive only electricity from the grid or regenerative breaking require larger battery packs to reach acceptable range levels. This significantly increases the cost of the vehicle. However, compared to PHEVs, the pure EV battery packs are cheaper per kWh resulting in relatively lower incremental costs over a conventional vehicle than for a PHEV for the equivalent battery size. There are also some cost reductions from some parts that are redundant when shifting from an ICE to an all-electric vehicle (e.g. the ICE, fuel tank and system, exhaust system). However, the net result is a significant increase in costs over what an equivalent model would cost.

Table 7.2 presents the manufacturer's suggested retail price (MSRP), range and the calculated or estimated electric efficiency of the vehicle. Only EVs in production and available for purchase by the general public have been included in Table 7.2; vehicles available in limited numbers to fleet customers have been excluded.44

Table 7.2: Electric vehicle prices, range and on-road efficiency

Note: Data for vehicle prices (MSRP) and electric range are from the manufacturer's website or www.fueleconomy.gov as of May 2013. On-road efficiency is taken from www.fueleconomy.gov or the New European Driving Cycle calculations. For vehicles not sold in the United States or Europe, manufacturer data has been used.

Sources: www.fueleconomy.gov, 2013 and manufacturer websites.

These prices represent a significant premium over an equivalent ICE-powered vehicle, but the all-electric drive is around three times as efficient as an ICE. Meanwhile, electricity prices can also be cheaper than gasoline or diesel depending on the country. In order to compare the relative economics of EVs and conventional vehicles, a different approach is required from that used for PHEVs. Instead of estimating the cost of gasoline saved, the EV evaluations are based on the annualised cost of ownership for 160 000 km. This lifetime was used given it is the average for the current warranty offerings by the vehicle manufacturers for the Li-Ion batteries powering this generation of EVs. The number of years over which the capital costs are spread will therefore depend on annual vehicle use. However, it represents just over nine years based on the average annual vehicle use in the United States, over 11 years in Europe and almost 17 years in Japan.45

Figure 7.7 presents the average annual cost of ownership of EVs currently on the market in the United States, Europe, Japan, China and India. Most of these EVs are new, original designs by their manufacturers, and a direct comparison with an ICE-powered direct equivalent is not possible. However, this can be done with the Smart, Fiat 500 and Ford Focus, although specifications across models are not an exact match and performance will differ. The results are similar to what was seen for PHEVs. Where the base model is not the most fuel ef-ficient 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 are not recovered within the 160 000 km assumed for this economic comparison.

Figure 7.7: Annualised costs of ownership (vehicle depreciation and fuel costs) for electric vehicles over 160 000 km

Note: Analysis is based on MSRPs and efficiency for the main market in which it is currently available. The average cost of capital is assumed to be 10%, and residual value for the vehicle 30% of the MSRP after 160 000 km. Values for different regions are based on varying annual vehicle use and fuel prices. It is assumed MSRPs would remain the same. Results are therefore indicative of annualised running costs. Insurance and maintenance costs are not considered. Sources: Table 7. 2 for vehicle costs and fuel consumption, World Bank, 2013; Eurostat, 2013; and IEEJ, 2013.

Box 7.2: Electrification of freight vehicles

Biofuels can be used in the gasoline and diesel internal combustion engines in short, medium and long haul road freight vehicles. Electrification of freight sectors is more challenging, as battery packs are not going to be able to provide the required range for medium-to long-haul freight vehicles. Electrification of these sectors in the longer term may be feasible through overhead electrification, similar to that used for trams and many rail systems, over fixed routes, or through the roadway using inductive power transfer (wireless). However, these are options for beyond 2020 and are therefore outside the scope of this report.

However, the electrification of light commercial vans and trucks could be attractive in the medium term. Figure 7.8 presents the estimated costs for a conventional ICE van and for PHEVs and EVs. Small plug-in hybrid vans are estimated to cost twice that of their conventional equivalent, and pure electric vans 2.4 times as much. However, by 2020 this premium could decline to just 40% for plug-in hybrids and around 85-90% for pure electric small vans. Larger "panel" vans (small trucks of 2.6-2.8 tonnes) have similar estimated incremental costs for plug-in hybrids today, but pure electric panel vans require significantly larger batteries to maintain payload and range. They also have capital costs 3.2 times greater than a conventional ICE panel van. By 2020 these incremental costs could decline to 40% for a plug-in hybrid panel van and 120% for a pure electric panel van.

These cost reductions mean the total ownership costs over four years of a small plug-in hybrid van could decline to a level only 15% greater than the equivalent ICE. The pure electric small van would have total ownership costs of around a quarter more than the ICE version over four years. The additional total ownership costs of panel vans in 2020 are estimated to be 10% more for a plug-in hybrid and 38% for a pure electric van (Element Energy, 2012b).

Figure 7.8: Vehicle costs for ICE PHEV and EV small vans and panel vans

Source: Element Energy, 2012b.

EVs are only just taking to the road in significant numbers, Figure 7.7 highlights that the economics of some offerings are already competitive or close to competive with an equivalent conventionally powered ICE vehicle. When using electricity generated by renewables GHG emissions are significantly reduced. However, the most significant co-benefits of PHEVs and EVs will quite possibly be the elimination of local pollutant emissions and the resulting improvements in local air quality. To whatever extent these societal benefits are incorporated by policy makers, they will improve the economics of these vehicles.

As charging infrastructure grows and consumers fear of range issues are assuaged by experience with EVs, favourable support policies should see an acceleration in deployment and corresponding cost reductions for EVs, particularly from improvements in battery technologies and the mass production of battery packs. EVs are therefore likely to become an increasingly competitive solution to reducing the reliance on fossil fuels in the light vehicle sector. Electrification of transport in conjunction with increasingly high shares of renewables in power generation will reduce not only local pollutants but global GHG emissions as well.

40 Before any cost savings from switching to a plug-in hybrid configu-ration.

41 In fact, for the Prius some gasoline consumption occurs even within this "all-electric" range and this also maybe the case for other models, depending on driving styles.

42 For instance, a 65 km all-electric range vehicle in the United States would see its all-electric share of annual vehicle km based on average driving patterns increase from around 65% with just home charging to 73% with charging at work and home, to 80% for charging everywhere (NPC, 2012).

43 This type of analysis is not presented here given the difficulty in identifying comparable specifications for the "best in class" fuel ef-ficiency model relative to the PHEV model from a different manufacturer. What is clear is that this would raise the cost of gasoline saved for the Ford and Chevrolet PHEVs.

44 These vehicles are typically leased to the fleet owners, so costs are not well known and they generally represent technology demonstration or proving programmes.

45 Average annual vehicle use in the United States is estimated to be 17 000 km/year, 14 000 km/year in Europe and 9 000 km/year in Japan. However, vehicles are typically not owned from new till 160 000 km by average new vehicle purchasers, and these vehicles are likely to be sold significantly before the battery life is met, particularly in Japan and Europe.