Why are electric cars so expensive?

Plenty of objections have been raised against EVs - chief among them the purchase price - but futurists are predicting the big breakthrough within a decade.

In the early days of the horseless carriage, the internal-combustion engine attracted a lot of bad press – not least of all for scaring horses.

And the then-new powertrain technology was also considered smelly, unreliable, unsafe and inconvenient to refuel – because there wasn't a service station on every street corner.

Over a century later we're encountering the same sort of resistance to electric vehicles (EVs) – except now the issues are different. Electric cars will run down deaf and blind pedestrians, they lack character, they can't travel long distances before they have to be recharged – and there isn't a recharging station on every street corner.

Mostly, however, the major grievance is that electric vehicles are just too expensive to buy. No one cares about the environment if doing the right thing is going to cost the consumer big bucks.

The pricing timeline

When it arrived in Australia, Nissan's first electric car, the LEAF was introduced to the public at double the price of a similarly specified conventional small car – so buyers of the LEAF were clearly 'early adopters' rather than more pragmatic consumers.

Before the LEAF, the Mitsubishi i-MiEV arrived here in 2010. Mitsubishi was so concerned about sticker shock at the time that the importer leased the tiny electric vehicles to customers, rather than selling them. It made no difference; sales of 112 vehicles in 2010 dropped to just 30 the following year. And even after adopting the selling business model and posting a (reduced) price of $48,990 the i-MiEV sold just 95 units in 2012.

Mitsubishi quietly withdrew the i-MiEV from the market (and from VFACTS sales figures) in 2013.

Enter Tesla

Tesla arrived in the market not long after the i-MiEV was consigned to history. Initially, Tesla dipped a toe in the water with its high-performance Roadster. Very few of the sporty electric vehicles sold here, but the manufacturer was encouraged by the local consumer interest in electric vehicles.

Subsequently, Tesla launched the Model S – a range of electric vehicles looking more like prestige limousines than the polarising city cars from Nissan and Mitsubishi.

Although the American EV brand has been very secretive about its sales numbers in different global markets, including Australia, it has met with apparent sales success in the years since entering the local market, despite even the cheapest Model S from 2015 selling at a price more than double that of the i-MiEV.

With the arrival of the Model S, there was suddenly an electric car offering appealing looks, a roomy, desirable interior and better than adequate performance. You could comfortably seat five adults in the Model S, and drive a reasonable distance before the vehicle needed recharging.

And when comparing the Model S and i-MiEV, the Tesla was a clear step ahead of the Mitsubishi for battery capacity, in dollar terms. If you divide the final selling price of the i-MiEV by its battery storage capacity (16kW/h) the cost works out at over $3000 per kilowatt-hour.

Try that same calculation with the 2015 Model S 60 and the cost comes down to $1677 per kilowatt-hour.

Now, you can find all the reasons under the sun for that, including aggressive pricing to establish the brand and more margin in the prestige-level pricing to compete directly with competitors.

But according to Tim Washington, Director of local EV recharging service JET Charge, the difference is one of battery technology.

"Battery prices are the main reason, lack of scale is another," Washington said to carsales, explaining the higher pricing for EVs.

"However, both are changing incredibly fast. Battery prices, for example, have fallen 85 per cent since 2010, and are forecast to hit $USD $100/kWh at the pack level within the next five years.

"At those levels, an EV will be cheaper than an Internal Combustion Engine vehicle at the dealership. Couple that with the cost advantages of running an EV, and it becomes a no-brainer for almost everyone."

Future battery development

To store the necessary power for performance and range, the battery of an electric car has to be 'energy-dense' and compact. The best technology to date for electric vehicles is the lithium-ion battery. This is basically the same sort of technology that powers your laptop or mobile phone, but the battery has to be scaled for a car.

As companies gear up to develop and produce these batteries (and other companies dig up more lithium), the price for electric vehicles will reduce. Indeed, electric vehicles and plug-in hybrids, using the same type of energy reservoir, are increasingly affordable already.

While the upfront cost still seems high, electric vehicles promise lower running and maintenance costs – and total expenditure for electric vehicles is within range of vehicles powered by internal combustion engines well before the purchase prices are directly comparable.

"Based on the average driving distance of less than 50km a day, the average person would spend around $2.10 on peak price electricity to refuel their daily drive, and half that on off-peak electricity (free on excess solar generation). That's $14.70 a week," says Washington.

"If we convert it to $/L terms, it's equivalent to around $0.32c per litre based on peak price electricity."

And that's just the spend for day-to-day running. Add in reduced servicing costs and lower taxes, and the disparity between the purchase price for electric vehicles and conventional cars is reduced to irrelevance.

EVs are subject to a higher threshold for the Luxury Car Tax, avoid stamp duty in the ACT and (for example) receive a $100 registration discount in Victoria. The newly formed EV Council is working with the Federal Government for further tax concessions to support EV purchases.

What will bring down the cost of buying an EV is either steady progress refining current battery technology or some major breakthrough. The holy grail of battery development is a unit that is lighter, more compact – for its energy storage capacity – and cheaper to produce. No one knows when this will be, but teams all over the world are working towards the goal, and futurists are predicting the big breakthrough will occur within a decade.