When will EVs and petrol cars cost the same to buy and run?

Welcome to The Switch, Euronews Next’s new mobility series for people considering making the switch to an EV.

As the pace of electrification quickens amid a growing climate crisis and an uncertain economic outlook, we’ll be your companion as you make the transition from your fossil-fuelled car to electric. 

Each week, we’ll offer guidance and insights from industry experts as well as aim to demystify the process and dispel misinformation.

One of the big selling points of electric vehicles (EVs) is that they are cheaper to run than fossil-fuelled ones, but new car buyers opting for an electric model are still paying a large premium over a similarly sized petrol or diesel car.

It has long been expected that cost parity between electric, petrol and diesel models will be the tipping point in favour of electric car sales. Given how cheap EVs are to run, it will not make financial sense for most people to choose a petrol or diesel car.

In Norway, where price parity has already been achieved thanks to extensive government support, more than 80 per cent of new cars sold are electric. Overall, EVs now outnumber petrol cars on Norwegian roads.

So, how will parity be achieved?

The two main drivers of the price difference between internal combustion engines (ICE) and electric cars are the costs associated with batteries and car manufacturing processes.

The anticipated reduction in EV costs is likely to come from falling battery prices and by carmakers switching to vehicle platforms specifically designed for EVs as this allows for a simpler assembly, standardised battery packs and higher volumes.

Goldman Sachs Research predicts that battery prices will drop to $99 (€89) per kilowatt-hour (kWh) by 2025, a 40 per cent decrease from 2022 levels. 

This reduction will be driven in part by the declining costs of key raw materials such as lithium, nickel, and cobalt. 

Recent investments in mining and refining have ensured that global supply can easily meet current and growing demand.  Battery pack prices are expected to drop by an average of 11 per cent annually from 2023 to 2030. 

However, advancements in battery chemistry, particularly with the introduction of solid-state batteries, could be a game-changer in the EV industry. 

Solid-state batteries replace the liquid electrolyte found in current lithium-ion batteries with a solid material, making them safer by reducing the risk of leaks or lithium fires in the event of damage. 

These batteries also promise significantly improved range and could potentially double the driving distance of electric vehicles, from an average of 400 km per charge to over 800 km. 

These technological developments, combined with falling costs, pave the way for more accessible and efficient electric vehicles. 

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Meanwhile, the price of petrol and diesel cars is expected to increase due to stricter EU emission regulations, so all of these factors will combine to close the price gap.

How much of a premium do you pay on EVs compared to ICE cars?

The extent of the premium differs from country to country, depending on the rate of tax on cars, and the government incentives and grants being offered.

In Germany, the price gap between petrol and electric versions of the Peugeot 208 is significant. The petrol-powered 208 in Style trim is priced at €22,950, while the electric model jumps to €36,325 – a substantial difference. 

In France, the entry-level 208 Style trim starts at €20,850 for petrol, €23,550 for a hybrid, and €34,100 for the electric version. 

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Denmark sees a noticeable difference as well, with the Peugeot 208 Active trim petrol model priced at 169,990 DKK (€22,780), while the electric version is listed at 214,990 DKK (€28,811). 

In Ireland, the Peugeot 208 in Allure trim starts at €28,495 for petrol, €29,995 for a hybrid, and €33,185 for the electric version.

Why the Total Cost of Ownership matters

However, price parity isn’t just about purchase price; the total cost of ownership (TCO) must be considered. 

EVs typically offer lower running costs, including cheaper fuel (electricity), fewer maintenance requirements, and tax incentives. This means that even if purchase prices are higher, the TCO for EVs can already be lower than for ICE cars in many countries.

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According to Goldman Sachs Research, the EV market could reach parity in terms of total cost of ownership with petrol and diesel cars by the middle of this decade.

How far away is price parity?

According to a recent Gartner report, by 2027, the next-generation battery electric vehicles will be cheaper to produce than ICE cars due to innovations like centralised vehicle architecture which significantly lower production costs and assembly time. 

This means EVs will reach cost parity with ICE vehicles faster than anticipated. However, Gartner also predicts that while EV production becomes cheaper, repair costs are expected to rise, potentially leading to higher insurance premiums.

The automotive landscape is rapidly evolving and EV prices will continue to decrease as battery costs drop and manufacturing processes become more efficient. 

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While electric cars are expected to become increasingly competitive with traditional ICE cars, it’s likely that true price parity will not be achieved until the latter half of this decade.

• Geraldine Herbertis the motoring editor for the Sunday Independent newspaper and an e-mobility expert.