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Here’s how electric cars could be cheaper than gas guzzlers within a decade

People test drive the new all-wheel-drive version of the Tesla Model S car in Hawthorne, California October 9, 2014.
Reuters/Lucy Nicholson
Now cool, later cheap.
By Steve LeVine
Published Last updated This article is more than 2 years old.

One thing confounding the much-delayed electric car revolution is that its antagonist—the gasoline engine—is a moving target. Under dogged pressure from electric competitors and government emissions standards, the combustion engine keeps becoming more efficient, making it harder for electrics to compete on price. In its 2040 outlook last week, ExxonMobil—admittedly not a company that is predisposed to be bullish on electric vehicles—cast doubt on whether electrics will make much headway for the next quarter century.

But there is a counter-argument: The internal combustion engine’s dominance is actually almost over. Over the next decade, the cost of electric and combustion vehicles will more or less equal out, Deutsche Bank analyst Rod Lache writes in a new note to clients. Electrics could even be cheaper than combustion vehicles, Lache writes, which could “serve as a catalyst for significant expansion” of electric car sales.

There are two factors that could close the cost gap: The first is that battery prices are expected to drop by more than half to $100 per kilowatt hour—not because of a scientific leap, but due to engineering improvements and economies of scale, particularly at Tesla’s “gigafactory.” The second factor is that combustion engines will get a lot more expensive, Lache says. US gasoline efficiency standards, which require that light vehicle fleets average 54.5 miles a gallon by 2025, will incur added costs of $2,000 to $2,600 per vehicle. That will raise the total cost of a typical drive train—an engine, transmission, and fuel and exhaust system—to $7,000 to $7,600 per vehicle in the United States, he writes.

By comparison, using the $100 per kilowatt hour cost that Deutsche Bank expects, a 47 kilowatt-hour battery pack capable of taking a car 200 miles on a charge only would cost about $5,400. When you add in the electric motor, the entire power train would rise to $6,100—a price advantage of almost $2,000 over a combustion car.

Deutsche’s electric car math roughly jibes with that of industry darling Tesla. It is interesting that when you talk to oilmen or battery scientists, you hear rank pessimism about the chances for electric cars, including Tesla’s, to break into the mainstream. But the conversation is the opposite when it comes to people in the electric car industry, related start-ups, and Wall Street analysts—from them, you get forecasts like Lache’s.

Energy is like that, whether you’re talking about shale oil or renewable technology. The experts differ wildly about what comes next. In the case of electrics, though, the wild card is Elon Musk, Tesla’s iconic chairman. Few seem prepared to outright dismiss his foresight. Hence, the debate will go—regardless of what  Exxon has to say.

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