Why the EV is Now Cheaper than an ICE Vehicle

Battery Costs Have Officially Reached Parity with the Internal Combustion Engine

One of the largest inhibitors of electrification has been battery costs. The high cost per kilowatt-hour (kWh) has made it hard for battery electric vehicles (BEVs) to truly compete against the lower cost structure of fossil-fueled vehicles.

In 2016, experts predicted that cost parity between BEVs and ICE, which would require a battery cost of roughly $100 per kWh, wouldn't occur until at least 2030. This meant the industry wouldn't see a realistic adoption of BEVs for at least another decade and would instead see a more modest shift from ICE to BEVs.

However, recent innovations to the lithium-ion battery have broken those barriers and put BEVs cost on par with fossil-fueled vehicles nearly 10 years earlier than projected. In many instances, the production, ownership, and maintenance of a BEV are actually cheaper than the internal combustion engine (ICE) vehicle design.

Subsequently, these innovations are almost guaranteed to catapult the industry into electrification and rapidly increase the production and ownership of BEVs.

Tesla's Innovative Battery Design

One of the most significant battery announcements came from the 'Tesla Battery Day,' when Tesla unveiled its new '4680' tabless, high-nickel, dry cathode, silicon anode cylindrical battery cell. The innovative battery design promises to increase the battery pack's power, range, and energy capacity-all while streamlining the production process and reducing the overall battery cost.

Tesla's new '4680' battery pack has dropped battery costs as low as $57 (USD) per kW/h-$40 less than the needed $100 per kW/h to reach cost parity.

The new cell-to-pack design also makes it easier to streamline and scale the production of the new batteries-further dropping investment and manufacturing costs. These lower costs don't come at the expense of functionality either. The new battery packs resulted in a 54% improvement from EV ranges, further reducing costs.

These advancements have enabled Tesla to lower the total cost of production for a battery-electric vehicle by $5,000 - $7,000 per vehicle. This is an astronomical change to the industry as it makes EVs officially more affordable than the traditional internal combustion engine.

Competitor's Battery Strategies

A large implication of Tesla's announcement is the guarantee that other OEMs and technology companies will be rushing to compete. We can expect to hear even more announcements in the near future as competitors scramble to duplicate the design or come to the market with their own innovations. Some competitors, however, have already come to the table with their own designs.

General Motors (GM) recently announced its partnershipwith the tech giant LG Chem to produce low-cobalt batteries from its $2.3 billion factory in Ohio. Under their 'Ultium Battery Strategy,' the two corporations plan to reduce the priciest component of current battery technology, Cobalt, and drive battery costs well below $100 per 400-mile range battery.

The most significant feature of the Ultium battery is its unique pouch design, which could make it versatile enough to pair with a broader range of vehicles and use cases.

China's Key Role in Lowering Battery Costs

Another key area of battery innovation is coming from China. Contemporary Amperex Technology Ltd. (CATL) is a state-owned Chinese battery manufacturer that, despite its relative youth, has climbed to become the global leader in lithium-ion battery development and manufacturing.

This year, the new battery giant plans to provide Tesla with an improved long-life nickel- manganese-cobalt (NMC) battery pack. The innovative NMC battery design only consists of 20% Cobalt, dropping costs to $100/kWh-on par with the average cost of a fossil-fuel vehicle.

CATL was also behind the creation of the cobalt-free lithium iron phosphate battery that dropped the battery pack price below $80/kWh and battery cells below $60/kWh, as well as the development of the cell-to-pack packaging process that streamlined and shortened the process and further reduced costs.

As we speed into a battery-powered future, CATL will be the company to look tofor innovation and industry-wide standards.

Additional Factors that Influence the Cost of BEVs

Battery technology isn't the only thing that is making EVs a more economical choice. Its simplerdesignand fewer parts allow OEMs to operate under a leaner, more streamlined process, eliminating the assembly needs of hundreds of components.

The cost of maintenance and servicing will also be all but virtually eliminated, with no more oil changes, engine checks, or gas station stops. Instead, many 'repairs' and updates could be done via Bluetooth and WiFi. Plus, with a longer projected lifespan, BEV owners won't have to invest as often in a new vehicle.

Government influence is also playing a major role in BEV adoption. This global legislation is pushing the industry into electrification quicker, the heavy investments are also helping to speed up cost parity and bridge the gap between ICE and BEV. Many governments are investing heavily in the technology and infrastructure required for a zero-emission automotive market by implementing incentive programs, installing public charging stations, and adopting EV ownership themselves.

Lower Battery Costs are Cranking Up the Pressure to Electrify

The pressure to reach a cleaner electrified automotive market is no longer coming only from environmental motivations and global legislation. Major battery breakthroughs and strategic investments have drastically reduced the cost of production, ownership, and maintenance of electric vehicles (EVs), officially making EVs more cost-effective than their traditional fossil-fueled competitor.

Overall, this significant milestone only further solidifies that electric vehicles are the future. Battery costs have already dropped 90% over the last decade and are expected to continue to fall, making EVs the more economical, environmental, and logical choice for automakers and consumers.

These announcements, coming years ahead of predictions, have paved significant shortcuts in the previously established timeline to a zero-emission automotive market. Suppliers, investors, start-ups, and other key players should take this as a loud and clear warning-if you haven't yet strategized how you will cope with the coming changes, your company will face a significant hit. Automotive suppliers, in particular, should be focused on scenario planningto determine how they will adapt or scale down as BEVs take over an increasingly larger portion of the market.

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