Making electric vehicles more cost-effective

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【Summary】Electric cars have a higher retail price compared to combustion counterparts, making them unaffordable for many. The cost of batteries has decreased significantly, but it still contributes to the high price. The cost of a 60kWh battery pack is around $9,000, and when adding overheads and dealer margins, the total cost rises to around $41,500. The cost of batteries is expected to continue decreasing, but it will take a few more years and the rate of descent is slowing.

FutureCar Staff Nov 06, 2023 8:18 AM PT

Making electric vehicles more cost-effective

When it comes to considering electric car ownership, one of the main factors that often deters potential buyers is the high retail price. It is widely known that electric vehicles (EVs) generally come with a significantly higher price tag compared to their combustion engine counterparts, especially for EVs with a range of around 250 miles or more. For many people, this steep price is simply too much to afford. This raises the question of what it will take to make EVs more affordable and whether it is even possible.

In order to understand the cost of buying something, it is important to first know how much it costs to make. Andy Palmer, former chief operating officer at Nissan and leader of the Nissan Leaf launch, had direct responsibility for the company's electric vehicle and battery business. According to Palmer, at the time of the Leaf's launch, the cost of goods sold was actually higher than the manufacturer's suggested retail price. This means that Nissan was not only failing to cover their overhead costs, but they were also not even covering the cost of materials.

Nissan's approach to selling the Leaf EV at a loss was a strategic decision similar to what Toyota did with the original Prius hybrid. However, EVs have much larger batteries than hybrids, so Palmer breaks down the costs: back then, batteries cost around $1000 per kilowatt-hour (kWh), but today they are estimated to be around $150 per kWh. Assuming that manufacturers believe a 60 kWh battery is necessary, the battery pack alone would cost around $9000. When you factor in manufacturers' overhead costs and a 15% dealer margin, the total cost rises to around $41,500. This is without any profit for the manufacturer and after a 10-year decrease in battery costs from $1000 to $150 per kWh.

Palmer believes that the cost of batteries will continue to decrease, possibly reaching around $80 per kWh for a typical high-performance battery. However, this is not expected to happen for a few more years, and the rate of descent in prices is slowing down.