Comparing with traditional diesel or petroleum-fueled vehicles, electric cars offer much cleaner environment with its zero emission feature, lower maintenance cost due to its fewer moving parts, and no or lower consumption of oil.
With these advantages, the global electric car sales is booming, reaching 1.7% market share last 2017. That is, increasing by almost half of 2016’s global market. This leaves us with the question – what mainly drives consumers to switch to electric vehicles?
It is easy to view that government efforts – establishing environmental policies – would drive the global transformation to electric mobility. However, according to beyondbrics, even without these policies, electrical cars will soon be the cheapest option. beyondbrics, which is a forum on emerging markets, believes that cost or economics will be the main driver of global transformation to electric mobility.
Emerging Markets Lead the Transformation
It was formerly believed by some analysts that emerging markets would be less competitive in electrification of automobiles. However, current events show that emerging markets, such as China, are leading the global green vehicle transformation, having surpassed in 2015 American and European auto manufacturers in electric car sales.
China’s market upsurge in performance is associated with three factors:
- Its commuters, who use two- and three-wheeled vehicles, are good targets in electrification. These vehicles are faster to electrify because of their light weight, which would require cheaper batteries.
- Its government is highly focused on fighting air pollution from urbanization.
- To compensate its incompetence in diesel and petrol cars, Chinese automakers are dedicated on developing electric cars that can be globally competitive. While the West has Daimler to probably produce electric vans, China has already built electric vans and buses and launched in the market.
EVs Offer the Lowest Total Cost of Ownership
While it is known that purchase prices of electric cars are more expensive than traditional diesel and petrol vehicles, it is also widely acknowledged that this cost difference is compensated with the savings brought by lower maintenance and fuel requirements.
Savings from electric vehicles increase with increasing distances travelled. This means that high-mileage cars such as taxis can now save up to 30 percent compared with those conventional diesel-fueled taxis in terms of operational costs.
Soon, it is also expected that the purchase prices of brand new low-mileage hybrid vehicles will also be comparable to their diesel-engine counterparts. Analysts project this to occur by around 2025. Volvo and Peugeot have already promised creating hybrid counterparts to all of their car models. In addition, carmakers Volkswagen and BMW are developing fully electric vehicles priced at a comparable level with traditional diesel-fueled cars.
In a study published in the journal Applied Energy, it was shown that electric cars indeed are the cheapest option, in terms of the “total cost of ownership” (TCO) which represents the combination of fixed and variable costs. The study compared the 2015 TCO’s of fully electric, hybrid, plug-in hybrid, and diesel vehicles using their average mileage and average fuel consumption. The authors of the study wrote “Costs were found to be cheaper for electric vehicles due to less wear on the brakes and fewer moving parts.”
This economic assessment used data from two years ago, and currently, the battery prices are steadily dropping, which means electric car prices will still be declining in the years ahead.
Car Financing Scheme Changes the Game
While some projections have regarded the higher purchase prices of electric cars to inhibit or slow down the electrification of transport industry, it also seems that they have skipped or underestimated the power of car financing schemes. An example is the so-called “personal contract plans” which enabled North American and European consumers to purchase vehicles they could not initially afford.
In a personal contract plan, a customer is allowed to lease a car and at the end of the contract, he or she has an option to purchase the unit at a fixed price. Consequently, the car companies are in a race in offering the lowest monthly leasing rates instead of advertising or lowering their prices.
With this system, the customers tend to return their vehicles if the secondhand value is lower than the option-to-buy price. This trend made the personal contract plan scheme a game changer in the car industry, creating a domino effect.
Its success led to an oversupply of secondhand diesel-fueled cars. The scandal of diesel-fueled cars’ cheated emissions tests lowered even further the demand for secondhand diesel cars. As the market for electric cars increases, the secondhand value of diesel cars decreases. To compensate for this loss, the contract prices of diesel cars were increased – about 57% increase in Audi3 from its 2016 price.
Considering that the battery prices keep on declining, then contract prices for electric vehicles are expected to decline even more in the coming years. These trends illustrate how the shift to electric vehicles is happening faster, motivated by costs.
Environmental policies and targets set by governments initialize the awareness on and pushes electrification of transportation. However, in order to achieve targets faster, economics could drive consumers to opt for a green vehicle.
Non-Economic Factors Influencing Car Buyers
Certainly, cost is not the sole factor that will dictate if a consumer is going to purchase an electric vehicle. Other influences are brand loyalty, design features, and raw emotional response. In a survey conducted by McKinsey & Company, it was discovered that about one-third of car buyers in the United States actually had considered purchasing electric cars, but only three percent proceeded on buying them. The reason? Half of the respondents reasoned that they were not sure of how does the electric vehicle technology work.