One the barriers for adoption of electric vehicles that I touched on in a previous post is the price of electric cars. This aspect needs a lot of attention, from various points of views.
There are three main issues with the price of electric cars. One dealing with the customer’s perception and behavior, one dealing with the size of the industry and a last one dealing with the complexity of the technology and the difference between battery-powered cars and their gas-guzzling equivalents.
Getting the gas-guzzling consumer into an pricey electric car
Traditionally (in the Netherlands at least), people buy their cars. After their house, it’s the second-most expensive purchase in their lives. The difference with a house however is that for a car, people (again, in the Netherlands) usually do not use lend money or otherwise finance the purchase. They save money for their car and simply buy it.
The general perception of cost associated to a car is the list price of the car. In other words, a €39.000 car that uses 1 liter of gasoline for every 10 kilometers of gas is still considered to be less expensive than a €40.000 car that only uses 0,8 liters for every 10 kilometers of gasoline, while the difference in gasoline consumption over four years (and a yearly average of 13.000 kilometers) makes up for the €1000 price difference.
This €1000 difference all of a sudden gets a lot larger if you’re talking about the difference between electric cars and gas cars. An electric car uses on average about one-third of the amount of energy (measured in Euro’s that is) compared to a gas car. Taxes are largely absent for electric cars (and not for gas cars). Electric cars however are more expensive (largely due to the battery in the car).
The small difference in purchase price between the different gas cars all of a sudden gets very big when comparing to electric cars. And with all these Dutch people nicely saving up their money to buy a car and not looking at the monthly costs, we’re screwed. The electric car starts with a large disadvantage here.
There’s only one option and that’s breaking the habit of people looking at the purchase price. Instead they have to start looking at the monthly costs (regardless of whether or not people finance their car). Even though it might make sense for any rational human being, this still is very difficult! We’re still trying though, because we don’t expect people to start forking out €40.000 for an average-size 4-seater in the coming years. So, what we’re doing these days is talking about monthly costs only!
More info (in Dutch) by the way about the total costs for a car can be found here
Economies of scale
A second part of the price barrier has to do with a lack of economies of scale. Currently, only a few thousand electric vehicles are produced every year (world-wide). In Holland only, about 389.000 vehicles were sold in 2009 (and this was a pretty bad year). As soon as large numbers of car are produced, efficiency in the production process can increase and prices can decrease. This needs to happen for electric cars before they start being affordable without monetary incentices (subsidies).
That’s why we’re actively creating demand for the cars (with projects like a large EV tender with more than 3.500 vehicles of only three different types being ordere by large Dutch companies in an initiative started by us amongst others).
Batteries
The last part of the price barrier has to do with the battery that powers the car. While an electric car in and of itself is a rather simple and low-maintenance piece of machinery (much simpler than a gas-guzzler), the complexity lies in the battery and the battery management system.
The battery is first and foremost an expensive component of an EV. The battery in my Tesla Roadster probably goes for €30.000 to €40.000. The second thing (and much more important) is the amount of knowledge we have about the life expectancy of these batteries. We simply do not know yet whether or not such batteries will hold up for 5, 7 or 15 years. Some people have a hunch and tests obviously have been performed, but there’s no objective opinion or verdict about it.
This is why financial services companies such as lease car companies write off the battery in about 4 years and sometimes even add an extra amount of money to take into account the risk associated with the battery breaking down in these 4 years.
Writing off €40k in for years, calculates to a total of about €800 per month (not taking into account the interest). And then we haven’t calculated other costs, such as the other parts in the car, and insurance, et cetera. If this doesn’t change, it’s going be a pretty expensive car.
The 4-year term is not very reasonable though. Financial services companies don’t know anything about batteries, so they’re just being the usual conservative self. This needs to change and that’s exactly what we’re doing.
We’re going to continuously monitor the battery (by instaling a little device in every car) and use the monitoring data to come up with an accurate prediction of the life expectancy of the car. Using real-world data along with lab tests, we’ll be providing an objective opinion for every battery about the so-called state of health. This opinion we’re going to use, to provide better financing options.
Concluding
By increasing the amount of cars being produced and accurately measuring and predicting the state of health of the battery in the battery-powered cars, prices will go down. Chances are that it’ll take a long time before we get to the same purchase prices for gas cars compared to electric cars, so this is why we also have to change the perception of the consumer: we need to start talking about monthly costs instead of purchase price only.
In other words: a lot of work is left to be done.
More on the individual subjects in future blog posts.
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