RACQ surveys highlight that affordability is the main issue holding back members making the leap to buying electric cars. So, when can we expect EVs to become more affordable?

Post COVID we have seen the cost of batteries increase but the factors that are driving high battery costs – war, inflation, trade friction – are also pushing up the price of internal combustion cars as well as the price of petrol and diesel to record highs.

That is driving more consumer interest in electric cars.

As electric car demand has increased, automakers are racing to lock up critical battery materials necessary to build electric vehicles at scale.

Raw materials supply constraints for batteries look very tight for a few years. This constraint is set to push back the point of EV price parity in some segments.

While predicting anything these days with confidence is a risky business, most global analysts say electric cars will reach unsubsidised price parity with ICE cars during this decade.

Exactly when will likely be different based on different car types – some being just a few years away and others, like four-wheel drives, being much later in the decade due to lack of global supply and high overseas demand putting Australia at the back of queue.

In the meantime, there is a Queensland Government $3,000 rebate for electric cars under $58,000 and the Federal Government is introducing Fringe Benefit Tax exemption for salary-sacrificed electric cars which fit under the fuel-efficient luxury car tax threshold of $84,916.

RACQ has submitted a list of recommendations to the Federal Government on ways to increase supply of electric cars into Australia and to make EVs more affordable.

A founder of what became RACQ, Dr Lilian Cooper (right), in a horse-drawn buggy she used to visit patients.

From horses to cars

What can the early history of cars in Australia tell us about pricing of EVs?

In 1901, when Australia became a federation, there were about 1,662,000 horses in Australia, roughly one horse for every two people.

Australia was a horse-powered society, but change was on the way.

In 1879, German Karl Benz was granted a patent for his car engine, which he first designed in 1876.

The first imported cars arrived on Australian shores in 1897 but they were expensive.

In 1905, when RACQ was formed (then the Automobile Club of Queensland), there were 18 founding members and only 50 cars in Queensland.

The founding members were mainly medical professionals.

Over the next several decades as the motor car became more affordable, RACQ became a mass membership-based organisation.

In the early stages of the motor car, they were essentially assembled by hand, making them very expensive and affordable only to a small, wealthy segment of the population.

RACQ’s membership exponentially grew not so much because the technology behind motor cars fundamentally changed but because the scale of production grew massively and the price of cars became affordable for the average person.

Henry Ford’s Model T was the first real affordable and reliable car in Australia and around the globe.

The Model T came out in 1908/09, but it really only became affordable when Ford got the moving assembly line working effectively in 1913.

Almost immediately, production of the Model T rose fivefold.

Bringing down the cost

Producing lots of standardised products, made with standardised parts by specialised machinery and workers at different stages of the production line, production costs were hugely reduced.

When the Model T Ford was introduced in 1908, it cost about US$950 with only 10,000 units produced.

By 1924, two million units were produced at a cost of $300 each and by 1925 the vehicles sold for only $260.

The Model T Ford (along with the rise of the aeroplane) hastened the end of Australia as a horse nation.

For 70 years the main inter-regional land transport had been Cobb and Co.

It was regional Queensland that saw the end of Australia as a horse nation after the last Cobb and Co. coach running on the Yuleba–Surat route in 1924. The transition from horse to car had taken less than three decades.

The Model T was the auto industry's first global car and beside its assembly line productivity it established the concept of building multiple vehicle model designs off the same platform – what car manufacturers today would call a ‘skateboard’ platform.

This is relevant today as many car manufacturers have been using petrol platforms to make their initial electric cars.

Most major car manufacturers have now developed their first-generation EV skateboard platforms to drive their manufacturing scale.

Tesla was the first to develop their skateboard platform and it is not surprising that they have the highest revenue or profit per car produced.

Arguably, the lack of competition means that Tesla’s car prices are 10–15 percent higher than they could be.

The key to understanding when EVs will become more affordable is therefore to look for the massive scaling up of global production capability of purpose-built electric cars.

Tesla's Model 3 sedan.

EV production on the rise

Policy and public support for net-zero emission outcomes are rising in many countries which is helping to drive electric car demand.

Automakers, in response, are starting to ramp up manufacturing of new electric car models.

Many US automakers have committed to rapid expansion of their electric car production this decade.

Tesla dominates US electric car sales and is ramping up production in its massive new Texas gigafactory.

Ford plans to spend $50 billion through 2026 to expand its electric car production, while GM plans to invest $35 billion through 2025.

Both also have ambitious targets for global sales, with Ford targeting two million units by 2026 and GM one million by mid-decade.

Other companies with a footprint in the US, including VW and Hyundai, are also scaling up production.

The benefit to Australian car buyers is that car manufacturers in other parts of the world will need to find markets for their exports.

China's electric car boom

While all this US production will boost that country’s share of global capacity, it will remain modest compared with China which is also experiencing an electric car gigafactory boom.

China’s production capacity, which already overshadows all other countries, is expected to rise about 486% from 2021/31.

That is worth thinking about as China is the main manufacturer of our electric cars, including our more affordable models.

It is clear electric cars are gaining popularity globally with strong sales in China, the US and Europe. Globally there are now almost 20 million passenger EVs on the road with 6.6 million sold in 2021.

In China, electric car sales are forecast to hit six million by the end of this year.

As with the Model T Ford, the scaling up of global electric car and battery manufacturing production will bring the price of EVs down to an affordable purchase price for all Australians, not just the wealthy few.

The fleet of EVs on the road globally is expected to hit 77 million by 2025 and 229 million by 2030 (according to recent Bloomberg New Energy Finance modelling).

This should be more than enough to meet Australia’s electric car demand within this decade, given our new car sales are just over one million per year and about 1/60th of global new car sales.

As demand for electric cars continues to outstrip short-term global supply, only concerted Federal and State Government leadership and action will get Australia closer to the front of the queue.

Read RACQ’s submission for the National EV Strategy.