Why sooner or later you will all be driving a car with an electric drive.

The debate surrounding electric cars is heating up. A veritable front is building up against the new technology. Hundreds of arguments and opinions are being put forward as to why electric cars should be rejected. I see this as an extremely good sign for electromobility: the topic is reaching more and more people, so the rate of adoption will also increase worldwide. It’s nothing new that there is a lot of noise surrounding fundamental changes in technology.

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The electric car is the devil

And what is being talked about every day in the social media about all the problems with electric cars… The evil water consumption in the extraction of lithium (by the way, the rare earth lithium (sic!) is mined by very poor children who are already severely damaged (sic!)), the electricity that only comes from the socket, the insanely high acquisition costs that are not suitable for the masses, the batteries that only last 100k kilometers. It’s all there.

As someone who has dealt with these issues in depth, I can assure you that these opinions are simply nonsense. As a daily driver of an electric car, I have to disappoint the critics. Switching to an electric car has led to cost savings and considerable simplifications for me. And yes, I drive these things across the whole country for work and across Europe for pleasure. Whether it’s freezing cold or extremely hot – so far I’ve simply had no problems whatsoever. At least that’s the case with Tesla.

Colleagues often ask me what I should say to someone who says or asks the same nonsense for the umpteenth time. My answer is always the same: just confirm it. Let him talk. Who cares?

This may seem confusing at first glance. But it simply doesn’t matter. Because the adoption of electromobility will never, ever take place because of environmental protection arguments. I am also completely against us trying to force a different way of life on people. Everyone should just have to bear their share of the costs they cause – including environmental costs. Unfortunately, this is not even remotely the case today.

It’s the economics, stupid

No. Electric cars will prevail because they will be unbeatably cheap. This is already the case today in certain segments, and I won’t get tired of repeating it. You can compare any Tesla model with a comparable combustion engine (as far as that goes) and you will quickly realize that the total cost of ownership is considerably lower with Tesla. Of course, this doesn’t mean that today an electric car is the cheapest option if you want any kind of four-wheeled vehicle. But all the data suggests that this will be the case relatively soon – across all segments. As follows:

Cost Grind-Down

If, for example, VW announces that it will deliver a car for less than EUR 20,000 in 2022, that sounds great from today’s perspective. But will it be in 2022?

I did a little math and compared many different sources on historical battery prices at cell and pack level and tried to draw a cost reduction curve. What we can see is that the cost reduction has accelerated. This is logical insofar as lithium-ion batteries are being produced in ever larger quantities. On the cost side, manufacturers are therefore benefiting from economies of scale. With this in mind, it also seems completely logical why Tesla is investing so heavily in the Gigafactory in the USA.

On the other hand, we will also see a trend towards constant or smaller battery packs. This is due to the fact that further major improvements are possible on the consumption side. Tesla is demonstrating this in a particularly elegant way with the Model 3. They use a Hallbach array in the electric motor and thus significantly increase the efficiency of the motor. Compared to the combustion engine, the electric motor has also only undergone comparatively few innovation iterations in automotive engineering. The potential for the future is therefore simply enormous.

Will an electric car cost less than EUR 20,000 in 2022?

The question can be answered quite simply with “No”. To find out, I did a simple calculation. I divided the current diesel Golf cost break-down and replaced the pure material costs for the combustion engine with the projected battery costs. The calculation tends to be wrong in that the cost reductions are also reflected in the actual production costs. This means that the cost reductions should actually be even higher.

I have also made the assumption that battery costs will continue to fall, as we have seen over the last 15 years. I have not factored in a further acceleration of the cost reduction, although I assume that it will take place.

The result is as follows:

In 2022, an electric Golf with a 38 kWh battery may cost a maximum of EUR 16,470, one with a 50 kWh battery a maximum of EUR 17,590 and one with a 100 kWh battery a maximum of EUR 23,750. Due to the reduced consumption, these cars should have a range of between 500 and 1,000 kilometers.

Costs too high or margin too high

The fact that Tesla is the cost leader is undisputed in the industry. The gross margins on the vehicles sold are enormously high on average in the industry. So there can be two reasons why VW, for example, is announcing these relatively high prices for the future: Either they cannot achieve a cost level like that of Tesla or they want to seize the opportunity and increase the gross margins on the vehicles. Or both together.

Electric cars will also be much cheaper to buy in the medium term

If we follow this cost curve, electric cars, even those in the low-price category, will be cheaper than combustion engines by 2025. There will then simply no longer be any rational reason to buy a car with a combustion engine. The switch to the more efficient electric drive will therefore progress faster than we realize today.