The ICE phase out: a Goldilocks moment
The UK government has chosen to announce the phase out of sales of petrol and diesel cars at just the right time. We are at a Goldilocks moment: just when EVs are becoming affordable, but before they become so cheap that we remain stuck in the past with the sharply declining technology of combustion engines.
Battery Prices – Car as Device
Why are EVs suddenly becoming cheaper, the models more varied and range and performance increasing so quickly?
The short answer is: battery prices.
EVs are powered by large batteries (lithium ion batteries, typically): these batteries replace all the internal combustion engine components, so therefore make up a large part of the cost of an EV – typically about 30%.
Historically these large batteries have been very expensive. That means the cars that use them have been expensive: as recently as 2015 the cost of these batteries was about £300/kWh. A typical EV needs a battery of 50kWh of power, so to just break-even the car would need to cost about £50,000 – thus EVs could only be a plaything of the rich. But while Tesla cars may seem like that, their sales volumes allowed the costs of batteries to fall in unit prices, allowing EVs to be very soon affordable by all.
That’s because battery prices follow learning curves in common with laptops and other tech devices, and as batteries get cheaper, EV car costs rapidly fall too. The cost reductions are dramatic: by the end of this year the battery costs will be about £120/kWh, meaning that 50kWh EV now only needs to cost about £20,000 to break even. Or – more powerful batteries can be added for the same cost as a few years ago.
This is why EVs are suddenly getting cheaper, and their performance and range are suddenly getting better and better.
Reaching Price Parity
Running a car on an efficient battery is far cheaper than on petrol or diesel too – typically 3-4p/mile vs 10-14p/mile in ICE cars, a saving of about £700/year for the average motorist. It also costs less to maintain: no oily pumps, exhausts, gears, clutches to wear down and perish.
So EVs are already equal in terms of total running cost of ownership (finance, fuel, maintenance, insurance, taxes) to their ICE counterparts.
However – the learning rate of battery production means that battery prices will keep on falling, which is why Tesla announced last month that their next smaller EV due in 2023 is expected to sell at ca £19,000.
This is the point at which EVs will start to become cheaper to buy and cheaper to run than an ICE vehicle.
Source: New AutoMotive & CarbonTracker Global EV analysis
Power of the Learning Curve – Cheaper and Cheaper EVs
Beyond 2023 prices will continue to fall as the logic of the learning curve for batteries will continue: at current rates every doubling of battery production reduces costs by about 10-20% per annum. By 2030 that could have battery prices below £50/kWh, meaning break even costs for cars could fall below £10,000.
That means in the space of 20 years from 2010 – 2030 battery prices will have fallen 95%. This is why the government’s decision to go for ban now is likely in retrospect to be seen as the perfect time to place bets on being a leader in a new, fast growing technology, and to exit a fast declining one in a managed, and responsible way.
It’s also why major car companies are now releasing EVs right across their model range, and why some like VW and Volvo are following Tesla’s approach, and are switching several popular models and manufacturing to EVs only. At the end of 2020 there will be over 100 BEV (5) model variants available in the UK and this set to increase rapidly in the subsequent 12-24 months.
Our central scenario below summarises these past and coming changes, and is consistent with over 95% of new car sales in the UK by 2030.
The Future
We’ll be monitoring this progress in volume and prices over the coming months – so far, actual sales match the typical disruption curve of a new technology, but happily the UK government has chosen to choose this exact moment to recognise the gradual rise of EV technology has reached a tipping point pf pricing where the rise will be much more sudden.
As we said in our report ‘The Missing Metric’, there is a big legacy of petrol and diesel vehicles on the road, which will take a long time to be replaced with EVs. The emissions problem will therefore take more than just a ban on sales, but a package of measures, like the ten point plan announced by the Prime Minister today. We look forward to seeing the detail.
Ending Sales of Fossil Fuelled Cars and Vans: The Facts
Get answers to your questions about the government’s plan to phase out sales of petrol and diesel cars and vans
The UK government is about to announce the date by which it will ban sales of petrol, diesel and hybrid cars and vans. If you’ve got questions, download our Q&A to get the answers about what this means for drivers, the economy and the environment.