Price comparison: should electric cars be more expensive than combustion engines?

These are seemingly simple questions to which there are no simple answers – neither for manufacturers nor for car buyers. But technical progress and development are progressing rapidly. Yesterday’s supposed bargain price may already be very expensive tomorrow – and vice versa.

The life cycle costs of cars are crucial

Also, if you only have your eye on the purchase price, you can fall into the cost trap. Because an average “car life” in Germany lasts about ten years. It is also about maintenance costs, stability of value when reselling, taxes and insurance as well as the development of fuel prices. Moreover, the current war-related upheavals in commodity markets make it de facto impossible for industry, commerce and buyers to make serious long-term calculations.

So far, realistic comparison calculations over a vehicle’s entire life cycle have helped cost-conscious buyers. But they are also very uncertain at the moment.

The total costs of electric cars and combustion engines are currently reversed

The ADAC has carried out current calculations to determine the total costs of purely electric vehicles per kilometer driven. Electricity and fuel prices, depreciation and maintenance costs, holding period and annual mileage were taken into account.

Subsidies for electric mobility and dealer discounts for conventional vehicles have been taken into account in the purchase price. The first imponderable arises here, because dealer discounts for combustion engines are currently rare. The reason for this is tight supply due to supply chain issues, according to the current report by automotive expert Ferdinand Dudenhöffer.

The new comparison with petrol and diesel vehicles still shows that the smaller a car, the greater the difference in purchase price between electric and combustion engines.

“With few exceptions, manufacturers still charge a premium price for electric mobility. The smaller an electric vehicle, the greater the price difference compared to a comparable conventional vehicle. The premium compensates for the high comparative prices. This is why the registration figures for electric vehicles have risen sharply over the past year.” Peter Sobotta, ADAC expert

Nevertheless, from the consumer’s point of view, the overall cost balance has reversed compared to gasoline engines. In the past, it was almost balanced because the state intervened with purchase bonuses and tax advantages for electric cars.

However, following their recent significant increase following the crisis, fuel prices in particular have been a game-changer. Electric cars also appear to be more economical than gasoline-powered vehicles for the first time when considering overall costs. They have already been able to compete with diesel cars in the past – at least in the overall cost analysis.

Two examples: With the BMW 118i petrol engine with a 100 kW engine, it costs 60.9 cents per kilometer, which is around 14 cents more than a year ago. A comparable electric BMW i3 in terms of equipment and performance currently costs only 50.6 cents, although the purchase price is 2,500 euros higher. Even though the 15% dealer discount that was once customary were to apply to the combustion engine, the gasoline engine no longer helps in the cost balance.

The example of the VW Golf: the 1.5 TSI LifeDSG petrol model is offered with a discount of 49.9 cents, the successor to the electric Golf VW ID3 costs 47.2 cents per kilometer, although its list price is 4,500 euros more expensive.

Electric car buyers benefit from subsidies

The state currently pays up to 9,000 euros in subsidy for pure electric cars – and the subsidies are to flow until 2025. The increase in sales figures shows that these purchase incentives are working. According to the Federal Motor Transport Authority, the number of purely electric cars in 2021 has doubled to more than 600,000. But what electric car buyers receive as a bonus is paid for by the taxpayer community. Therefore, the economic sense of such subsidies must always be that they are abolished again. For the moment, the opposite is observed. There are additional privileges for owners of electric cars, such as being allowed to trade emission certificates for individuals through the Law on Further Development of Greenhouse Gas Reduction Quota.

But what does the math look like without state subsidies for electric vehicles and dealer rebates for combustion engines?

Here, too, the ADAC has determined the total costs per kilometer with the current prices (as of April 27, 2022). As a result, the petrol BMW 118 i costs 61 cents, while the comparable BMWi3 costs 60 cents. Tied for the VW Golf 1.5 TSI and the VW ID.3 with a total cost of around 57 cents per kilometer.

A year ago, combustion engines were clearly in the lead in this comparison. This ratio is now offset by high fuel prices.

Norway: Cheap electricity and tax advantages make electric cars attractive

A look at Norway is also revealing. More than half of the cars there are already purely electric or hybrid. Because electricity from hydropower is relatively cheap and electric cars are almost completely tax-free. The example shows that if you want to serve the mass market with micro and small cars, you cannot avoid low energy costs and subsidies for e-mobility.

Car manufacturers between regulation and market

The state is intervening massively in the German automotive market at European and national level: constantly falling CO2 limits and billions in fines for non-compliance on the one hand, billions in investment aid for development e-mobility on the other hand. With all this, car manufacturers are forced to assert themselves in the face of international competition. This means that they must continue to be profitable. A complex task.

“The cat bites its tail when it comes to the heavier weight of e-mobiles. The use of light metals like magnesium is therefore essential. This in turn leads to very high additional costs.” Jörg Wellnitz, bodywork expert, Technical University of Ingolstadt

In a study, the management consulting firm Deloitte identified more than 25 levers that manufacturers must reconcile in their cost accounting. The battery technology in particular will be decisive for the price. Batteries represent up to 40% of the total price of an electric car. The evolution of the prices of the necessary raw materials such as cobalt or nickel is a big unknown. This is particularly evident these days.

Sanctions against Russia also mean a shortage of needed battery metals. Take nickel, for example, the price of which rose more than 100% in March 2022 alone. An average electric vehicle needs 40 kilograms, while a combustion engine only needs zero kilograms.

Even if recycling concepts are in the making, electric car manufacturers have to recalculate and are looking for alternatives such as lithium iron phosphate cells. But it also means billions in investments that consumers pay as customers in the purchase price or as taxpayers for research grants.

Electric luxury cars: profitable for manufacturers, but not the solution

Larger Stromers are most likely to succeed at not being more expensive at purchase price. In the case of large volume and heavy SUVs costing more than 50,000 euros, the price gap between gasoline, diesel or electric vehicles is narrowing more and more, and the profit margin of the manufacturers is more and more important.

This explains why Audi CEO Markus Duesmann, according to “Wirtschaftswoche”, wants to compete with Tesla in the premium segment from 2024: With the TT sports car successor “e-tron GT” – while ‘at the same time the small car A1 will be removed from the model range in the future.

To what extent heavy, high-margin electric cars still have a better overall ecological balance than comparable combustion engines is another question. Experts like Marcel Weil from the Karlsruhe Institute for Technology Assessment speak of “complete nonsense from a sustainability point of view” and therefore advocate the smallest possible cars.

Policy orientations as a “game changer”

But one thing is certain: policy makers in Germany, but also throughout the European Union, have set the course for the transformation towards alternative modes of propulsion. They do this on the assumption that less carbon dioxide from vehicle exhaust will help counter ongoing global warming. Regardless of what you think about it, change in the automobile is becoming inevitable. But even if the purchase price of electric cars does not drop for various reasons, the policy still has a “trump card”.

If electric cars can’t get cheaper, costs are expected to rise for competitors with the same performance as combustion engines. This strategy is also supported by current ADAC benchmark data for diesel and electric vehicles. The BMW 118d and the Golf 2.0 TDI perform significantly worse than their electric siblings. In the case of diesel, the increase in taxes led to higher operating and fixed costs and therefore greater loss of value. Decreasing the competitiveness of electric vehicles is the politically desired outcome.

But gasoline engines could also become less attractive in the future due to political demands. The EU is currently considering introducing the new Euro 7 emissions standard. Euro 7 requires every vehicle to be largely free of emissions in all driving situations. Whether the Euro-7 will actually come from 2025 is currently the subject of intense debate among experts. In any case, the German automotive industry speaks openly of a “declaration of war”, considers further tightening technically impossible and refers to 600,000 industrial jobs at risk which, according to the ifo study, depend on combustion engines in Germany.

On the other hand, it is unlikely that subsidies and privileges for electric cars will be maintained in the long term. This would not only be a mistake in terms of regulatory policy, but it would also be a problem for the fiscal state. In any case, as a precaution, car buyers should not rely on permanent subsidies when planning, because the state always needs revenue somewhere, for example, for road construction.

Conclusion from the buyer’s point of view

For consumers, all this most likely means that electric mobility will continue to be promoted for some time, the range of electric vehicles will increase, the automotive industry will have to make an effort, for better or for worse, to use the research and development to improve e-mobility at all levels.

But the risk of comparing apples to oranges when buying a car remains high. Because even if combustion engines and pure e-mobiles in the same segment were to have roughly the same prices in the future: a closer look at the design, equipment and follow-up costs of the specific vehicles considered will be even more important. This is especially true for the mass market micro and small cars.

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