8.2 Outlook to 2020 for PHEV and EV costs

The key cost component for PHEVs and EVs are their battery packs. Cost reductions from improved R&D, economies of scale in manufacturing and learning effects will all help to push down costs in the period to 2020 as deployment accelerates. Learning rates for cells and the remaining pack components and the rate of deployment to 2020 will determine cost reductions. As a result of diverging assumptions on learning rates and the rate of deployment, the cost reduction potential varies widely depending on the source.

Analysis of the existing literature from multiple sources puts the consensus at USD 300-400/kWh for battery pack costs for EVs by 2020 (Contestabile, 2012; IEA, 2013; Element Energy, 2012; NPC, 2012). Meanwhile, PHEV battery packs will remain perhaps two-thirds to twice as expensive (Element Energy, 2012). However, more optimistic projections exist. McKinsey has estimated that EV battery packs could cost as little as USD 200/kWh in 2020 (McKinsey, 2012).

Assuming that battery costs decline to USD 350/kWh for EVs and USD 500/kWh for PHEVs, this will signifi-cantly reduce total ownership costs over the life of the vehicle. For instance, the incremental costs of the Ford Focus Electric's 23 kWh battery pack would be reduced by around USD 5 500 in this scenario. 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 of EVs in 2020 assuming USD 350/kWh, extended life to 200 000 km, and no change in oil prices in real terms to consumers49 results in electric vehicles becoming significantly more competitive by 2020 (Figure 8.2). The total annualised cost of ownership, will be reduced by 20-50% depending on the vehicle compared to average battery pack prices in 2012 and a life of 160 000 km. This takes into account the vehicle cost (over a 200 000 km life) and fuel costs. The total annualised cost of ownership in 2020 compared to that for an equivalent ICE vehicle would be 2-13% lower (for the three models where direct equivalents are available) per year. This depends on the region and annual driving distances.

However, given oil market volatility a high oil price scenario could occur if global economic growth recovers more rapidly than anticipated in the next few years. Assuming oil prices increase to between USD 150 to USD 155/bbl by 2020, would increase consumer gasoline prices by around a quarter over 2012 levels by 2020 in the United States. However, smaller percentage increases would be felt in Europe and Japan where gasoline prices are higher due to taxation (U.S. EIA, 2013). This would significantly improve the economics of electric vehicles in 2020. The annualised total cost of ownership for the three EVs – for which there is a direct equivalent – is estimated to be 15-22% lower than their conventional ICE powered equivalent in this high oil price scenario.

Figure 8.2: Annualised total costs of ownership for EVs in 2012 and 2020

Note: Analysis is based on Figure 7.7 for 2012. The average cost of capital is assumed to be 10%, and residual value for the vehicle 30% of the MSRP after 200 000 km. Battery pack costs are assumed to decline to USD 350/kWh by 2020. Values for different regions are based on varying annual vehicle use and fuel prices. The results are indicative of annualised running costs. Insurance and maintenance costs are not considered.

Sources: Table 7.2 for vehicle costs and fuel consumption, Contestabile, 2012; U.S. EIA, 2013; IEA, 2013; Element Energy, 2012a; NPC, 2012; World Bank, 2013; Eurostat, 2013; and IEEJ, 2013.

49 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 its Reference Scenario (U.S. EIA, 2013).