When Should a 2 Car Family Buy an Electric Car
This turns out to be a more complicated story than you might think
Scroll to the bottom if you want to see the answers without the details.
I am using the example of a two car family to deal with most of the issues of range anxiety. If a family has two cars, they can use the electric one for local driving. This will be most of their driving, and they will never run out of energy before charging at night. This strategy will save operating costs. Their other car can be the newest internal combustion engine car they still own. This car can be used for long trips to avoid any problems with charging when they are away from home.
The picture at the top of this post is the prediction from ING on the price of cars in Europe. The prediction has a low range electric car at the same cost as an internal combustion engine car in 2023. For medium range car the date is 2028. Bloomberg New Energy Finance has a similar analysis for a 60 kWh car (medium range) as shown in the following graph:
So, if you are a two car family you should wait until about 2025–2026 to buy an electric car, right!
Supply Issues
Not so fast. If everyone is going to be doing that will you be able to get one? The answer is almost certainly no. Car manufacturers are ramping up to supply electric cars, but there is no way they can supply enough cars for everyone by 2025. Global car sales of passenger and light commercial vehicles were 88.1 million in 2016 according to Macquarie Bank. It is difficult to know how many electric cars there will be available for sale in 2025. There are many forecasts out there. The International Energy Agency has done a range of scenarios and has compared those to the manufacturer’s announcements. The optimistic end of that assessment says there will be about 70 million electric cars in the world in 2025. That is a huge increase from the 2 million vehicles at the end of 2016 but represents a further nine years of sales. The lower end their estimate is 40 million vehicles. Bloomberg New Energy Finance says there will be about 35 million electric vehicles in 2025, although this will ramp up to 110 million vehicles in 2030.
The forecasts are all being changed regularly but together they appear to be giving a range of between 5 and 10 million new electric car sales in 2025. This is out of projected new car sales of close to 100 million cars. So if you want one why will you get one rather than someone else?
The answer to that question is made more difficult by the policies of the Chinese Government. The rules for selling cars in China have changed. Manufacturers who sell more than 30,000 new cars a year in China are now required to meet new targets for low emission vehicles in 2019 and 2020. This was breathlessly reported as 10%, and 12% of cars must be electric vehicles respectively. The reality is less aggressive. Forbes reported an analysis by Colin McKerracher, a London-based analyst at Bloomberg New Energy Finance, that the 2020 target would mean about 4 to 5% of a company’s actual vehicle sales. If manufacturers do not reach the targets, they can buy credits, which they will try and avoid.
Sales of passenger vehicles and light commercial vehicles in China were about 24.1 million cars in 2016. Total sales might rise to 34.3 million by 2025 (4% annual growth). If the low emission vehicle requirement rises to equal 10% of all vehicle sales being electric in 2025, the Chinese market will suck in 3.4 million electric vehicles. No car manufacturer is going to ignore the Chinese market which is now the largest in the world. If total electric car production only gets to say 6 million vehicles and 3.4 million are sold in China what happens in Manchester, or Sydney, or Boston?
My guess is that there might be a 2–3yr waiting list in 2025 or 2026. So maybe you should buy one now?
Battery Depreciation Issues
Not so fast! This would allow you to avoid the future wait list, but there is another problem. The main reason that ING and BNEF are forecasting that electric and internal combustion cars will be the same price in around 2026 is falling battery prices. It is difficult to get accurate battery prices right now because the various companies want to keep it private. The publicly available data looks like the following graph:
This means that the price of the battery pack that is going into your car right now is going to be roughly half the price in 2025. That means the second-hand price of the electric car you buy now will be a lot lower than you might think by 2025.
So let's look at a Chevy Bolt which is showing increasing sales in the USA. The current Bolt has a 60 kWh battery pack. If the battery going into that car is US$218 per kWh and drops to US$109 per kwH in 2025 the price difference is US$6,540 (A$8,634). That is the amount that will disappear from the price of your new Chevy Bolt in 2025. That has to impact the second hand value of one that you buy now.
So you should wait until battery prices have fallen to a level where sharp reductions in price are no longer possible. Not so fast!
Cost savings
Not so fast! Electric cars are cheaper to run. The Chevy Bolt I am using as an example has a 238 mile range on a 60 kWh battery pack. That is 3.97 miles or 6.4 km per kWh. My off peak charge rate is 12.57 Australian cents per kWh, so if I charge the Bolt at my house, the cost is 1.96 cents per km. My current car (2016 Toyota Corolla Hatchback) does about 6.5 litres to 100 km at a price of $1.21 per litre. So the petrol cost is about 7.87 cents per km. That means the Bolt would save me $885 per year for 15,000 km of travel. Fuel costs vary though. In Europe and Australia, they are more expensive because of taxes. In Texas at the moment mid grade fuel is about US$2.55 per US Gallon which is US$0.674 per litre which is about A$0.89. So the savings in Texas, assuming the same electricity costs and distances would be A$651 per year.
There is uncertainty about maintenance costs, but it seems like electric car maintenance will be much lower. This difference is not huge in the first 3 or 4 years of ownership because modern cars run pretty well in the early stages, but it mounts up after that.
In a previous post (Electric Cars — Saving Real Money or Arbitrage Opportunity?) I have estimated that maintenance costs could be up to 5 cents Australian per km less over the long-term ownership of an electric car. That is $750 a year. It is higher in later years so I will use the figure of $375 a year saving over the next eight years to be conservative. This means a saving of $10,080 over eight years by buying a Chevy Bolt now instead. That more than covers the depreciation losses from falling battery costs calculated above. It does not take into account the extra costs of financing the more expensive vehicle over the next eight years.
So what to do
So the advice
(I am not a financial adviser so please do your own research and make your own decisions)
1/ If you are in a country where there is a significant subsidy or incentive to buy an electric car buy one now. Seriously, stop reading and go out and get one right now. In California the Chevy Bolt attracts a US$7,500 Federal credit, plus up to US$4,000 in State credits depending on your income. That will more than cover the battery depreciation issues and you can start saving straight away. Plus you get to travel in the carpool priority lanes with only you in the car.
2/ If you are in a country without significant subsidies wait until the battery costs fall a bit further and there are enough electric cars available. I think they will be sold at a discount until they are the same price as Internal combustion cars so you should be able to get a good deal in 2022 or 2023. If I am right about the delays you will face (see point 3) then the cost savings before you would be able to buy a car later will be significant.
3/ Be more cautious and wait until the price of an electric car falls to the same price as an internal combustion car but be prepared for a long waiting time.
4/ Play the game and go to a dealer in 2023 and sign up for a car to be delivered in 2025 and offer an up front deposit. Get in the queue early.
Paul Higgins
p.s. analysing this makes me more pessimistic about Australia. Incentives are low here, and we are not a large market by international standards. We might be waiting for a long time.
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I am writing a book on autonomous vehicles with Dr Chris Rice . It is called Rise of the Autobots: How Driverless Vehicles will Transform our Economies and our Communities. The interactions between electric cars and driverless electric cars are an integral part of the book
