Will soaring electricity prices sink EV adoption?

The circumstances are extraordinary, to say the least. For almost a year, the world has been gripped by an unprecedented energy crisis impacted by the Russia-Ukraine war. With energy trades riding a rollercoaster daily, a new peak might loom around the corner.

These hikes have severely impacted the running costs of cars, especially those with a battery-powered driveline, which as a rule of thumb, were portrayed as economical in utilization exactly because of low electricity prices. It was also welcomed to compensate for their high purchase price.

The tables seem to have turned. New surveys on EV willingness amongst potential customers don’t fail to put the finger on the problem. Apparently, six out of ten drivers are put off buying an electric vehicle because of the energy crisis. Where previously range anxiety and the steep sticker price were considerable barriers, the new worry of paying as much per mileage as conventional drivelines, eroding the initial advantage, has joined the steeple chase for EV adoption.

Expensive battery packs

The culprit for the skyrocketing inflation is the exploded price of natural gas used to generate electricity, which has increased tenfold, a reverberation from the Ukrainian war distorting the market. Before the spike, electricity prices were relatively stable. This ensured that the energy cost of running an electric car settled at roughly half the price per kilometer compared to diesel. An enticing offer.

But also a much-needed one. Because, comparing similarly sized and equipped cars, the electric counterpart is sold for roughly 30% more. EV manufacturing still needs some crucial scaling to drive costs down, and battery packs are expensive, which is one of the reasons why car manufacturers often deploy the technology in higher-end SUVs, which appeal to a more affluent customer pool.

These battery packs must ultimately reach the turning point of 100 euros per kWh before EVs can reach parity with ICE cars. However, supply constraints have pressured this ratio upwards, and in 2022, we’re likely to get 135 euros per kWh. Exceptionally, this is 2% higher than in 2021 and going against the grain since the curve was bent downward year after year. Consequently, the purchase price for EVs has increased instead of declined.

This comes on top of the rising electricity cost, slowing down the widespread adoption of EVs among private customers, at least in those countries (like Belgium, for example) where purchase incentives are lacking.

Speed influences pricing

In contrast to filling up fossil fuels, charging an electric car occurs in many different circumstances and conditions: at home, along the highway, at a municipal parking spot and so on. Basically, you pay for the required speed. At the current tariffs, slower charging in your garage costs about half the price of ultrafast charging. Of course, this makes it more complex.

With some charging point operators having concluded fixed rate contracts, some public charging stations might be cheaper than plugging in at home. But these are exceptions. Most operators have considerably revised their tariffs during the last months, except for the fast-charging consortium of Ionity. Their prices have stagnated. Remarkably enough.

Since 80% of charging is done at home or the office, the domestic contracts throw in the most prominent weight when comparing an electric and a combustion-engined car. With current tariffs, the advantage has withered to around 30%. Still, an upper hand, because next to that of electricity also the fuel price has climbed noticeably. This is particularly the case for the most cost-efficient fuel: diesel. Europe’s tanks are running low, and with wintertime knocking, French strikes and a strong dependency on Russian supply, which is being sanctioned, it isn’t likely to go down. Keeping that scarcity in mind, it seems unlikely that charging could become more expensive than filling up a diesel tank.

Here comes the sun

But touching on running costs, for a specific group of owners the electric car remains the cheapest option by far. It’s those who have installed solar panels on the roof of their homes and who can benefit from regular homeworking. They can charge their EV at the cost of solar rays. For free if you abstract from the investment of the panels and the installation. The requirements are that you need at least nine solar panels for charging your car with a daily range of 100 kilometers. Asides from the solar power required for household tasks. A full charge, however, can take several days, so it’s not always ideal.

As electricity prices will remain volatile for some time, uncertainty about the consumption cost of electric cars won’t wither away soon. But other benefits need to be factored in. In a corporate context - where 9 out of 10 electric vehicles sold in Belgium end up - it shows that the total cost of ownership (TCO) hasn’t worsened to the same extent as the climbing energy cost.

Residual values of electric cars are gradually rising, while the cost of maintenance has declined, keeping the gap open with the TCO of a conventional vehicle. As for service: more and more electric cars benefit from over-the-air updates (OTA), fixing malfunctions or upgrading cars from a distance without the intervention of a mechanic who is replaced by a cloud connection. So, all things considered, electric cars still have an edge, albeit some of their sparkles have - temporarily? - dissipated.