Report: Electric cars will be cheaper than gas models by 2025

May 30, 2017

It's clear that an electric car revolution is brewing and that it's going to shake up the auto industry. 

Beyond that, however, details about the revolution are hard to come by. For example, how will the auto industry deal with the issue of range anxiety: better batteries? Faster charging? Improvements to the electricity infrastructure? 

And perhaps most importantly: when will electric cars be cheaper than those that run on gas?

A study from Bloomberg New Energy Finance suggests that the answer to that last question could be "sooner than you think". Or, more specifically, "2025".

Why so soon? Because the biggest cost associated with electric vehicles is currently their batteries, and the price of those batteries is predicted to plummet by 77 percent by the year 2030. 

Right around the year 2025, the cost of batteries will be low enough to put EV sticker prices on par with those of conventional cars using internal combustion engines.

But while that in itself is an interesting proposition, the reduction in battery prices won't be the only thing giving electric cars a big boost in the coming years. 

The tipping point

As concerns around issues like pollution and climate change become more pronounced, regulation of gas and diesel vehicles will become stricter in many countries. That, in turn, will make those cars more expensive to produce, since they'll have to incorporate a range of efficient technologies to comply with various guidelines. 

Compounding that effect, there will be a shift in the perceived cost of ownership and attitudes associated with EVs. 

Typically, electric cars are cheaper to operate and maintain than conventional vehicles. Electricity costs far less than gas or diesel, and as EVs have fewer moving parts (thanks to their lack of engines and transmissions), maintenance expenses are reduced. Throw in some self-driving tech, which will minimize the number of crashes consumers have, and the cost of ownership falls further.

As electric cars become more common, the buying public will begin to weigh factors like those in their purchasing decisions. That, in turn, will accelerate adoption and help automakers achieve economies of scale, which will make EVs even cheaper. 

And of course, as EVs become cheaper and sales begin to boom, sales of conventional vehicles will falter. The economies of scale that car companies have long enjoyed with combustion-engine vehicles will disappear, causing their prices to climb. That vicious circle will make EVs even more competitive. 

Our take

There are so many factors at play in the switch to electric cars that it's hard to predict where the tipping point will fall. However, one thing's for sure: price can be a major motivator of consumer habits.

The cost of batteries has already begun to drop, and it's likely to tumble much further and faster as facilities like the Tesla gigafactory open up and as countries like China encourage EV adoption

To us, Bloomberg's predictions on battery prices seem reasonable, and that lends a lot of credence to the notion that the transition to electric vehicles will grow exponentially in the coming years. Whether we'll reach the tipping point in 2025, 2035, or later is a matter for debate. 

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