The current media negativity about EVs has continued, with the latest installment being Mercedes-Benz walking back from its commitment to sell only electric cars in 2030. In October 2023, Ford delayed its planned $12 billion spend on electrification, cut F-150 Lightning production in December 2023 and just a few weeks ago further scaled back its EV plans. Some have seen this as a sign that electric vehicles weren’t such a good idea after all. But these legacy automakers could be walking into a trap. Chinese brands are coming, promising similar or better quality for lower prices – and their focus is on EVs.
Anyone who has been paying attention to the EV market has concluded what the main problem is: EVs are still significantly more expensive than equivalent internal combustion engine (ICE) vehicles. In a cost-of-living crisis, this is a bigger issue than ever. Almost without exception, legacy automakers have targeted the premium end of the market, and SUVs in particular, in the hope of burying the design, development and factory retooling costs of the switch to electrification within the higher margins of more expensive models.
Another issue is the lack of choice on the secondhand market, although this was entirely predictable, and starting to smooth out now. Only a fraction of car sales are new vehicles. In the UK, in 2023 there were 1,903,054 new car sales, but 7,242,692 used cars changed hands. If you look at the UK market, the new generation of EVs (arriving after the early-adopting Nissan Leaf, Renault Zoe, and BMW i3) only kicked in during 2019, when the Tesla Model 3 and Jaguar i-Pace arrived. The volume of sales and range of brands available began to burgeon in 2020, and it was 2021 / 2022 before true volume shipped, even then hampered by Covid and chip shortages.
When you consider how many people now buy cars on leases for three or four years (or just generally refresh their car according to this schedule anyway), we’re only seeing a good supply of secondhand EVs now, and they’re still more expensive than the equivalent ICE vehicles. For example, in the UK a 2021 Volkswagen Golf can be had for around £10-11,000 ($12,500-14,000), whereas a similar vintage ID.3 will be more like £15,000 ($19,000), albeit likely to have better equipment specification than the Golf, as is usually the case with EVs. While there has been much controversy about the allegedly plummeting secondhand value of EVs, some of which is clearly a misunderstanding of finance and mathematics, there’s still some time to go before EVs hit mainstream affordability even secondhand.
Looking at the market in 2020, I was expecting price parity between BEVs and ICE around now, considering predictions for battery cell cost at the time. A price below $100 per kWh is considered to be the tipping point for BEVs to become cheaper than ICE, after which it should be game over. However, lithium-ion batteries went up a bit in 2022 to $161 per kWh on average, and then dropped again to $139 per kWh last year, so prices haven’t followed predictions, due to the economic shocks since 2020. Now, BNEF is expecting $113 per kWh in 2025 and $80 per kWh by the end of the decade, so there are a few more years to go – but price parity is coming. It’s also worth noting that the less energy-dense Lithium Iron Phosphate (LFP) chemistry batteries will hit $100 per kWh in 2025, and an increasing number of vehicles already employ them – including Mercedes-Benz’s new eSprinter van.
For now, though, battery pack pricing means BEV sales will still be held back by the premium positioning of the vehicles and absence of cheaper models. Even Tesla isn’t immune to this, although the Model Y was the bestselling car worldwide in 2023. Elon Musk talked about the $25,000 Tesla back in 2020, with an estimated arrival of around last year. While there are rumors that this vehicle (the Model 2?) is imminent, it’s not here yet, and is likely to be at least two years later than predicted.
Traditional automakers have an even bigger problem convincing customers to choose BEVs over their own equivalent ICE alternatives. In Mercedes-Benz’s case, while its EVs are very efficient and futuristic in appearance, they haven’t fared so well on the sales forecourt. In the USA, the company sold 351,746 units in 2023, and while EV sales were up 248% on 2022, they still make up only 15% of the total. Some of this is due to the price differential. For example, the EQS starts at £105,610 in the UK ($104,400 in the USA), whereas the fossil fuel-powered S-Class starts at £93,920. Some argue the ICE version of the S has the more opulent interior too. The proportion is better in Europe. In the UK, 22.5% of Mercedes sales were electric, but other brands are still faring better. BMW managed to shift 19.5% of its 2023 US sales to plug-in hybrids and BEVS, but in the UK 25% were fully electric.
There are cheaper EVs on the way from some European brands. The Dacia Spring is about to arrive in the UK, at last, and Volkswagen is promising its affordable ID. 2all – but that isn’t due until at least 2025. The problem is that, if legacy automakers don’t get going on cheaper models soon, Chinese vendors will step in and fill the void. BYD will be a big player here. This company – which has Warren Buffett as an investor – is the largest maker of “new energy vehicles” by volume in the world already, surpassing Tesla.
The BYD Dolphin, a compact hatchback, starts at £25,490 ($32,000) in the UK – but just $16,000 in China. The 2024 version will drop to $14,500 in China but with a third more battery capacity. The BYD Qin is a larger Tesla Model 3 competitor with a starting price of $15,000 in China. Formerly British brand MG has already made great inroads in the European market. Its MG4 was the fourth bestselling EV in Europe in 2023, and second bestselling in UK, achieving 60% of the volume of the Tesla Model Y. The MG4 starts at a similar price to the BYD Dolphin. Last year, I drove very credible cars from ZEEKR (part of Geely) and XPENG, which have entered the European market offering equivalent luxury to European brands, but at a keener price. NIO is waiting in the wings too. Many of the more keenly priced EVs in their class with European brands, such as the Smart #1 and Volvo EX30, are built in China.
If you look at all these companies’ local Chinese prices, they have plenty of room to undercut legacy European and American manufacturers. Batteries manufactured in China are 11% cheaper than those made in the USA and 26% cheaper than Europe. Of course, Chinese-made EVs face significant duties when imported into the USA or EU, which will protect local North American and European markets somewhat. But in the context of legacy automakers dragging their feet on their EV strategies, with affordable models still a few years off, there is a clear window of opportunity for Chinese EVs to step into the gap. Maybe the slowing growth in EV sales isn’t because people don’t want them, but because they’re still too expensive. If legacy automakers won’t make EVs cheaper, or can’t, Chinese companies will – and reap the benefits as sales continue to grow.
