In China, electric cars are already cheaper than thermal models

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IM L6

The Chinese IM L6 electric sedan at the Geneva Motor Show in 2024.

© Digital

While electric cars offer significant fuel savings in use, most of them remain quite expensive to purchase, at least in Europe. In China, the world's largest car market and which accounts for more than one in two electric car sales worldwide, the situation is quite different. According to the latest analyses by BloombergNEFprice parity would have already been achieved there.

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In 2023, the average transaction cost for purchasing a 100% electric car was $32,138 in China. This was therefore the least expensive energy, since thermal cars without hybridization (gasoline, diesel, etc.) and non-rechargeable hybrids were sold for an average price of $34,296 and $41,446 respectively.

Average transaction cost of purchasing a new car based on its energy in China.

Average transaction cost of purchasing a new car based on its energy in China.

© Bloomberg

Of course, the cars purchased can be of different categories and ranges, but electric “mini-cars” were intentionally excluded from this calculation. It is noted, however, that plug-in hybrid cars were sold on average for $34,290, which is less expensive than non-hybrid models or non-plug-in hybrids, while logic would dictate that they cost more to produce.

Another interesting fact is that in the first quarter of 2024, almost two-thirds of all-electric models marketed in China (64.2%) were listed at a price lower than the average cost of an equivalent thermal model. In 2023, this was the case for only 51.9% of electric models.

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Share of electric car models more or less expensive than their thermal equivalents in China.

Share of electric car models more or less expensive than their thermal equivalents in China.

© Bloomberg

A significant drop in the price of batteries

The main factor explaining this drop in the price of electric cars observed in China is the cost of their battery. It has continued to fall, after a slight temporary increase at the end of 2023, benefiting in particular from the drop in the price of raw materials. The average cost of a battery pack was thus $104.3/kWh in China in April 2024 for those with lithium-ion technology with a high nickel content, NMC811, NMC955 and NCA chemistries. In April 2023, they cost $151.2/kWh of the pack, a drop of 31% in one year.

Evolution of the cost of battery packs in China depending on their technology.

Evolution of the cost of battery packs in China depending on their technology.

© Bloomberg

LFP batteries, which are particularly popular in China and are also increasingly being used in models in Europe, have followed the same trend, with a drop of almost 37% in one year. Their pack cost an average of $75.3/kWh in April 2024, compared to $119.3/kWh in April 2023.

This drop in the cost of packs has been accelerated by a reduction in battery producers' margins, which were over 30% on average at the start of 2023 and which fell to less than 10% in March 2024.

Evolution of the selling price of battery packs in China compared to their production cost.

Evolution of the selling price of battery packs in China compared to their production cost.

© Bloomberg

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Overcapacity in Chinese battery factories has played a significant role in the decline in the selling price of batteries. “The average capacity utilization of battery factories in China has fallen from 51% in 2022 to 43% in 2023, and will be even lower this year.”Bloomberg explains.

“Chinese battery champions CATL and BYD continue to invest heavily in research and development, automation and building additional factories, and are launching new products at a breakneck pace.”explains BloombergNEF, which “expects low prices to persist for at least the next few years.”

When will price parity be achieved in Europe?

In Europe, while some specific electric models may be cheaper to buy than their thermal equivalents, this is still far from being the case generally. The very recent European taxation of electric cars produced in China is also unlikely to accelerate the arrival of low-cost models.

Several reports predict that price parity will be reached in 2027 outside China, including one on the European market, produced by BloombergNEF for the NGO Transport and Environment.

Time will tell whether this deadline is achievable. One thing is certain, the price of electric cars should continue to fall in Europe, along with that of their battery, and the wider use of LFP cells. Outside China, Tesla was among the first manufacturers to adopt this battery technology for some of its models, which also attracted Citroën for its very competitive ë-C3 electric city car and which will equip future models at Renault.

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