Making electric vehicles more cost-effective

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【Summary】EVs have a higher retail price due to the cost of making them, particularly the battery. At the launch of the Nissan Leaf, the cost of goods sold was higher than the retail price. The cost of batteries has decreased from $1000 per kWh to around $150 per kWh, but it still adds up to the overall cost of the vehicle. The cost may continue to drop, but not significantly for a few years.

FutureCar Staff Nov 06, 2023 3:17 PM PT

Making electric vehicles more cost-effective

When it comes to considering electric car ownership, one of the main barriers for many people is the high retail price. Electric vehicles (EVs) are generally more expensive than traditional combustion engine cars, especially those with a range of around 250 miles or more. This steep price tag often deters potential buyers from taking the plunge into EV ownership. The question then arises: what will it take to make EVs more affordable? And is it even possible?

In order to understand the cost of buying an EV, it's important to first know how much it costs to make one. Andy Palmer, former chief operating officer at Nissan and leader of the Nissan Leaf launch, sheds some light on this. He explains that 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 the Leaf EV was similar to Toyota's strategy with the original Prius hybrid - both were loss leaders. However, EVs have a much larger battery compared to hybrids, which affects the cost. Palmer breaks it down further, stating that the cost of batteries has significantly decreased over the years. Back then, batteries were priced at around $1000 per kilowatt-hour (kWh), but today they can be pitched at around $150 per kWh.

If we assume that manufacturers consider a 60kWh battery necessary, the battery pack alone would cost around $9000. When you add manufacturers' overheads and a 15% dealer margin, the total cost rises to approximately $41,500. This calculation does not even include any profit for the manufacturer, and it takes into account the significant decrease in battery cost from $1000 to $150 per kWh over a 10-year period. Palmer believes that the cost will continue to drop, possibly reaching around $80 per kWh for a typical high-performance battery, but this may take a few more years and the rate of descent is slowing.

Overall, the high retail price of EVs remains a major obstacle for many potential buyers. However, with the decreasing cost of batteries and potential future advancements, it is possible that EVs will become more affordable in the coming years. This could open the doors to a wider range of consumers embracing electric car ownership.