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‘EVs will beat gasoline cars on cost by 2025’

Vinay Kamath | Updated on January 09, 2018

Thomas Dauner, global head for BCG’s auto practice, says it’s the tipping point for electric vehicles to take off

Thomas Dauner gives the example of a cab driver he met in Stuttgart, Germany, to reinforce his point about electric vehicles (EV) as the future of the automobile. The cabbie owned an electric vehicle and had driven two lakh km in it, without any engine or running problems whatsoever. He just kept switching tyres. Dauner, the Senior Partner & Managing Director for The Boston Consulting Group (BCG) who heads the automotive practice for the firm, believes the future is already upon the industry and the ‘tipping point’ for electric vehicles is just round the corner. Dauner says that the tipping point is predicated on the battery cost coming down, which, of course, is the big chunk of the cost of an electric vehicle.

Batteries getting cheaper

“If you take a medium-sized vehicle with a 250 km reach, the battery will today cost $12,000 and the vehicle will be $17,000,” says Dauner. “Battery costs will come down due to better technology and manufacturing processes. By 2025, it will come down by further 30 per cent to 40 per cent.”

According to a BCG analysis, a battery pack price in $/kWh, which costs $203 in 2017 will drop to $130 by 2025 and even further to $102 by 2030. “In 2025, there will be a tipping point for EVs as battery cost will come down and the cost for meeting CO2 compliance costs on conventional engines will go up,” Dauner explains. “In 2025 the total cost of owning an electric vehicle over its lifetime will be lower than those for a conventional combustion engine car across most regions and most segments. Thus, the consumer will have a real choice between both kinds of vehicles.”

The economic tipping point will happen earlier for car model segments-geography combinations with higher annual mileage, lower electricity cost and higher gasoline cost. However, across almost all regions and segments, the tipping point (for a 10-year total cost of ownership) happens by 2025, says BCG. In some segments/regions it can happen faster. For example, in 2022 it will happen in the C-Segment in Europe according to BCG calculations (see graph). Between 2022 and 2025 this tipping point will build momentum across geographies and car segments.

As Dauner says, this will be a huge challenge for the industry, as it is sitting on conventional powertrain capacity of a 100 million units. Almost half of the blue collar employment in the industry is related to the powertrain, and most car manufacturers do their own gearbox and engines. Once the shift to EVs happens, carmakers are likely to become even more reliant on suppliers, as they are unlikely to make the batteries or electric motors — other firms are better positioned in those areas. “While it’s interesting from a consumer point of view, it’s a challenge for the industry,” adds Dauner.

Governments should step in

Governments and manufacturers need to make smart choices on when to move to electric vehicles. It’s still a small part of overall vehicles sold; just 50,000 EVs were sold worldwide compared with 90 million passenger vehicles of all kinds. While many countries have talked about making the switch to EVs, no country has yet mandated by law a full switch to EVs. “It would mean a huge strain on employment; if you abandon the powertrain, you stand to lose a lot of jobs,” says Dauner. However, the trend is irreversible, he adds.

Dauner says India, especially Tamil Nadu, which has emerged as the auto hub of the country, can be ideally placed to usher in the new wave of next-gen vehicles. For that to happen, the Government will need to facilitate large battery makers to set up base and tech parks to make electrical engines for EVs. At least 25-30 per cent of vehicles sold by 2035 is expected to be electric. With India’s avowed intention of creating smart cities, Dauner bats for India to take the lead in adoption of EVs. As Xavier Sebastian, Partner & Director in the Chennai office, points out, “We have seen countries move in stages but that doesn’t stop India from leapfrogging the intermediate of stage of hybrid vehicles directly to EVs.”

Existing auto giants are fully aware of the coming EV revolution and many are experimenting with EVs, but still waiting for governments to make the final call. “If societal benefits are there, then the climate for investment should be created,” says Dauner. “Individual makers will have to decide if they want to go fast or slow in this game, which is the change that will happen in the next 10-15 years.” As Sebastian says, the future is just round the corner and both carmakers and governments have to move now. “We shouldn’t sit in 2025 and regret the years we lost when we could have planned the move to EVs,” he adds.

Published on November 23, 2017

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