Morgan Stanley Says EVs Will Reach Price Parity With ICE By 2025

1 month ago by Steven Loveday 62

Tesla Model 3

EVs like the Tesla Model 3, Chevrolet Bolt, and Nissan LEAF are only the beginning of the disruption of the current automotive industry.

Morgan Stanley is becoming more bullish with their EV-related estimates and now the research group concludes that EVs will reach price parity with ICE cars by 2025.

Electric cars still have a long way to go before they can be considered anywhere close to mainstream. In most areas, EV market saturation is only at 1-2 percent. Though it’s going to take a long time before this percent becomes truly measurable (in most areas), a few factors can accelerate the adoption at a much quicker rate.

Now that EV range is slowly becoming less of a contributing factor, and this stands to change drastically in the coming years, the number one factor inhibiting EV segment growth is arguably cost. People just aren’t going to buy an electric vehicle if it costs significantly more. This is especially true in an economy where gas prices are down and have been for some time. But, what if EVs were priced the same as ICE cars?

2018 Nissan Leaf

2018 Nissan Leaf

Some would argue that certain EVs have already reached price parity with gas cars if you factor in the savings on gas and maintenance, especially for those that are able to recover the entire U.S. federal EV tax rebate. Others still believe that an EV just plain costs more. Unfortunately, we live in a society in which up front costs mean a whole lot more than long term costs. Financing some ~$40,000 and then waiting for the rebate (which many people can’t get because they don’t have the tax liability) results in a high monthly payment.

People can get an ICE car cheap and have a low monthly payment, so filling the car with gas doesn’t put a huge dent in their wallet. Even if over the long term, once sitting down and figuring out the cost of gas and maintenance, they’d end up spending more, but to many, it doesn’t matter (and many people are just unwilling to do the math). This is not unlike people putting a major purchase on a credit card and paying small payments over time. They can afford the payments, even though over the life of the balance they will pay substantially more due to interest. So until EVs reach point-of-sale price parity with ICE vehicles, widespread adoption will be far off.

Morgan Stanley believes that this initial price parity is not that far away. If the firm is right with their estimates, this can only be amazing news for the EV segment. The research says that we will see about one billion EVs on the road by 2050 (via Electrek):

“We have modelled the global car fleet out to 2050. We see global car sales growing by 50% to over 130 million a year, and expect battery electric vehicles to make up 80% of global sales by 2050. Looking at the global passenger car fleet as a whole, BEVs make up 7% of a growing fleet by 2030 in our base case, rising to 24% by 2040 and 57% by 2050.”

The firm points to dropping costs to build EVs (mostly due to declining battery costs), and price parity with ICE vehicles as top reasons for its updated estimates:

“For the OEM business model, BEVs are a game changer. Up to 50% of the value of the car could migrate from mechanical to electrical systems and electronics, and this transfer of power could challenge OEMs’ competitive position, branding and pricing. Our modelling of an illustrative OEM transition from ICE to BEV drivetrain suggests that price and volume pressures could push down ICE profitability sharply from 2021, as new BEV products cannibalise sales and pricing power, with potential for losses from 2028. BEV losses peak in our model in 2023 before production ramps on new model launches. The range of profitability outcomes is wide.”

Morgan Stanley goes on to add that automakers will likely experience tough times as part of the transition, mostly due to supplier situations:

“Margin pressure is likely to be passed down the supply chain. Moreover, OEM suppliers for the powertrain, transmission and fuel systems face loss of content – much of the electrical / electronic systems in an BEV could be supplied by new competitors. On the other hand, technology change and outsourcing are typically opportunities for OEM suppliers.”

Some automakers (like GM and Nissan) are already ahead of the game and building up a supply chain around new suppliers. Others are just beginning this process. If Morgan Stanley’s predictions are even close to being on target, automakers will need to get to work on this aspect as soon as possible or suffer the consequences.

Source: Electrek

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62 responses to "Morgan Stanley Says EVs Will Reach Price Parity With ICE By 2025"

  1. Paulo Horta says:

    Well… I live in Portugal and just yesterday, I compared a 2.0 diesel VW Golf with an VW e-Golf.
    I selected the equipment in the diesel one to match the electric one, and even had to add the Navigation Pro pack that comes standard with the e-golf.
    It ended up with the diesel one costing around 1000€ more the the electric!
    Note that, there’s an exemption on a tax for EVs!

    For that specific model in this country, the parity is already here!

    1. Mad says:

      In Portugal, what is the difference in fuel costs?

      From what I see, the e-golf is at least half as expensive. In Europe, that seems to be a big savings.

    2. bibig71 says:

      Parity, unfortunately not!
      Do you have the same range?
      Do you refill for about the same time?

      I like EVs, but theses issues have to be fixed.

      My prediction is the same as the article, 2025.
      A Tesla Model 3 with 120 kWh and fast charge at 350 kW will be comparable as a BMW 3 series for about $35,000.

      1. Mister G says:

        Bibig…if you factor in the BILLIONS OF DOLLARS that hurricane Irma, Harvey, MARIA will cost American tax payers because gas guzzlers directly contribute to increased CO2 in the atmosphere which in turn causes global warming which in turn causes warm oceans that feed and strengthen hurricanes…we have reached price parity. Connect the dots.

        1. mevp says:

          Mister G, that’s not how consumers think.

          You make a good argument for taxing carbon, but it’s irrelevant to the content of this article.

          1. Mister G says:

            Consumers need to connect the dots on gas guzzlers and global warming yesterday.

            1. Hugh says:

              @Mister G

              How about the health costs from polluting gas guzzlers?

          2. Windbourne says:

            skip taxing carbon. The GOP will not do it.
            Instead, add a .01/gal/month increase on diesel and gas. And do this for 48 or even 96 months.
            This will NOT harm the economy, since it gives ppl time to adjust. In addition, it is less than what we have seen fuel prices hit before.

            Finally, pass the gas portion to the state where collected and then require both feds and state to put this money into infrastructure.

        2. scott franco says:

          The black helicopters are coming…

      2. =j says:

        Different paradigm.

        What if you had a gas tank that only held three gallons of gas? That would suck.
        But, what if the guy from the gas station would come to your house every night and fill it up? How many days do you burn more than 3 gallons of gas?

      3. Someone out there says:

        I would agree that a 100 mile EV does not compete with a 600 mile diesel, however I’d say that a 300 mile does. 300 miles is enough range to make occasional quick charges irrelevant even for long trips. The 600 mile diesel range is really only useful to avoid having to go to the gas station as often.

    3. Ricardo says:

      That’s funny. I compared a Nissan leaf to a Ferrari and the Ferrari was way more expensive. You forgot to say most people buy the 1.6 diesel. You know, those that are actually around 10k Euro cheaper than the e-golf. So… no, no price parity yet.

      1. Paulo Horta says:

        The 1.6 engine is indeed cheaper, but less powerful too. I tried to compare (more or less) the same specs!

  2. (⌐■_■) Trollnonymous says:

    Any and all rebates/incentives should be available to ALL/Everyone and at POS. A persons TAX status shouldn’t even be considered.

    That will spur more sales.

    Cost of gas for a person on a monthly basis needs to be an item to always bring up. Many people who drive a civic/cruze/focus or small car that gets 37-40mpg will see the least benefit.

    The person who drives a medium sized SUV and up will see more of the benefits/savings.

    Educating a buyer is the key as what I have always told many people to get off the OPEC juice. I helped quite a few people into Bolts in the past month. I’m pretty sure you all know I’m not a Bolt fan but if it fit the persons needs asking about an EV, I wasn’t going to redirect them.

  3. Another Euro point of view says:

    This price parity thing is part of the reason why the OEM’s are not as stupid as they seem to be for not massively coming to the EV car market right now in 2017 but rather in 2020. They watch Tesla out of the corner of their eye doing the pioneer job making massive losses in the process while keeping up to date with the technology (or the lack of it ?) by producing a limited number of EVs (G Bolt, Hyundai Ioniq)).

  4. Bacardi says:

    Lots of people forget that nearly half of all EVs are leased…GM/VW/BMW/Nissan/Fiat has offered some highly subsidized lease deals in the past…For the uneducated “all leases are bad” trolls, a great lease deal is if you get true $0 down and your payments, inclusive off all fees/taxes, are 1% or less of MSRP…People are reporting that in CA, Bolts are going for under $270 and that’s before the state incentive or a private offer ($3000 off was offered recently)…

    1. Mark.ca says:

      Forget about the Bolt, in Cali the real deals are the low range 100 mile evs (leaf, eGolf, 500e) which are almost free on 3 year leases when you factor in all available credits and has savings. These are perfect second cars in any household, I’m surprised to see so many not taking advantage of this.

      1. SparkEV says:

        It’s interesting that we call EV “second cars”. I drive more on EV than the gasser, I suspect the same for many (all?) who own EV + gasser.

        1. Mark.ca says:

          Yes, i know…but you will not get people to join in if you are overselling this. You can use the car 99% of the time just fine, the trolls will pick up on the 1% where range is not enough. On the other hand, as a second car there really is no against arguments. Evs could get a huge adoption boost from 2 car home owner/renter households…how many millions people we have in US under this category?

      2. Hugh says:

        @Mark.ca

        Yep. My 2017 Leaf is almost free when I factor in gas savings.

    2. Don Zenga says:

      65% of the Lexus vehicles are leased as per their executive. Leasing has become common thing in the auto industry.

    3. Someone out there says:

      Those loss-making fantasy leases for compliance cars will go away when auto makers start competing for real in the ev space.

  5. SparkEV says:

    I’m not as bullish on EV due to charging infrastructure. They’re simply not growing fast enough to meet free chargers clogging them up. That is going to be the negative feedback that limit sales. Limited sales mean not enough scale to drive down the prices.

    Unfortunately, battery swap has proven to be failures in the past, but I think that might be one way to alleviate free charger clogging. Finances and logistics, of course, still don’t make sense.

    But then, I thought Donald trUMP (DUMP for short) would never get elected, so I could be wrong.

    1. DJ says:

      Dude, enough of the lame political diatribe. If you want to spout that crap go to a myriad of other websites for that. This coming from a strong non-Trump supporter.

      2nd, how many times you gonna break that record! I don’t have a problem with public chargers whatsoever but then again I got a car that fit my needs so I rarely need to use them. Maybe the problem is you went cheap and got a car that can only go roughly 80 miles on a full charge??? I suspect if you didn’t go cheap and got one with longer range, even with the free charging, that you would have a different tune.

      1. me says:

        You’re not everybody. Ask folks who don’t drive an EV why they don’t have one and one of the most common reasons you’ll get is “no charging network”. It doesn’t matter if that’s true or false today (it’s true until we have a network of chargers all throughout the US that can charge in under 10 minutes); that’s the public perception.

        1. Pushmi-Pullyu says:

          Thank you.

          There are far too many comments in general on the Internet from those who write as if everyone ought to share their opinion, and as if there’s something “wrong” with those who don’t. Maybe it’s just my imagination, but that seems to be even more prevalent here on InsideEVs.

          Objectively, that’s a rather silly attitude; if everyone had the same preferences, then there would only be a handful of car models, instead of hundreds!

          Most of us (including me, from time to time) could use a gentle reminder that our culture gets strength through diversity, and that reasonable people can agree to disagree on most subjects.

      2. SparkEV says:

        When Tony Williams commented that DUMP might get elected, I replied that US can’t be that stupid and that he won’t get elected. Obviously I was wrong; it’s just a follow up to my old comment here.

        Go visit any of San Diego DCFC and count how often and how long you have to wait; you can do such “study” even if you don’t have an EV. Indeed, a restaurant employee taking a break asked me why there are several cars around DCFC. I doubt he’ll get EV any time soon even if he could afford it or it’s cheaper than gasser.

        As for my lovely singing, I did get the longest range EV at the time regardless of price (outside Tesla). Back in 2015, Leaf was the longest at 84 miles followed by SparkEV. But in reality, SparkEV actually got more miles than Leaf, especially in highway speeds. Had I got the more expensive Leaf with even shorter real world range and much slower DCFC speed, I’d still be singing this tune, maybe even louder.

        1. Asak says:

          Well, the U.S. really wasn’t that stupid. He received fewer votes. For some reason we have an antiquated system carried over from the 1800s where we don’t determine the winner by simply adding up all the votes.

          1. Rightofthepeople says:

            That’s because the US doesn’t hold national elections, we hold 50 state elections and the winner must win a majority of the states (by electoral college votes). Sorry you think the system is antiquated but it’s here to stay so you may as well get used to it.

        2. Rightofthepeople says:

          Well Sparky, America was dumb enough to elect Barrack Obama, TWICE, so yes we are definitely dumb enough to elect Trump at least once. I didn’t vote for either of those clowns.

          1. Pushmi-Pullyu says:

            “America was dumb enough to elect Barrack Obama, TWICE…”

            I’m proud to be one of those “dumb” enough to help elect him twice. Too bad it couldn’t have been three or more times.

            Comparing people who voted for Barack Obama to those who voted for the astoundingly incompetent, ignorant, and offensive demagogue who is currently in occupation of the White House… Well, it’s a free country, and you’re entitled to your opinion.

            And if you were trying to be offensive, you certainly succeeded.

          2. SparkEV says:

            Touche about 2X Obummer. Gawd, I hope we don’t have to put up with 2X a-hole in charge like we did with smiling back stabber lazy-ass deporter in charge.

  6. F150 Brian says:

    Hmmm, so purchasing a 2020 model after incentives run out but well before price parity means you’ll pay more and get killed on resale, therefore making their “half-life” ownership quite expensive.

    So better hope incentives are tapered to match improvements in cost.

    1. me says:

      Yup. This is why I’m not bullish on the EV market (that and there’s virtually no non-Tesla quick charging network in the US). Sales are going to tank once the tax incentives run out, which will happen long before price parity, and the “but you don’t have to pay for gas” argument just doesn’t work on the general public.

      1. Mark.ca says:

        Truth is most ev drivers could not care less about away from home charging. I have yet to use my ChatgePoint card after more than a year of ev driving. General public, the one that doesn’t know evs, needs education above anything else.

        1. me says:

          So what? All that means is there is a very tiny fraction of the general population whose driving needs are served by today’s EVs.

        2. Nix says:

          That just means that typical buyers of sub-100 mile range EV’s are self-selecting to be people who don’t care about high speed charging.

          In other words, current buyers are a special subset of the whole car market who don’t care about fast charging, so they are the ones choosing to buy cars that can’t fast charge.

          But by definition, they don’t represent the whole of the market, because people who need fast charging aren’t buying sub-100 mile range EV’s that don’t have fast charging.

          _____________________

          See how you can’t say that the market as a whole doesn’t value fast charging just because people who don’t value fast charging have self-selected to buy cars without fast charging?

    2. Asak says:

      In 2021 we might see a political climate more favorable to EVs and the rebates will then be extended. The EV credit setup was really idiotic. I suspect someone who didn’t like EVs got involved and watered them down.

      First of all the credits should be refundable so they can be used by anyone, regardless of tax burden. Secondly, the EV credits should have been part of a pool shared by all manufacturers.

      If a manufacturer sat on its hands and missed out, then that would be their prerogative. It actually would have encouraged vehicle manufacturers to be more aggressive, knowing their competitors could use up all the rebates if they didn’t produce and sell EVs. Plus when the rebates ran out, they’d run out for everyone, maintaining a level playing field.

      1. Pushmi-Pullyu says:

        Asak said:

        “I suspect someone who didn’t like EVs got involved and watered them down.”

        Perhaps, but I think more probably it’s merely a typical example of “design by committee.”

        Never attribute to malice that which can be adequately explained by stupidity. — Hanlon’s razor

    3. Don Zenga says:

      No, when the tax incentives run out, automakers are going to cut the cost by the same amount because the battery price has gone down from $1000 / KWh to $230 / KWh at the end of 2016. So right now, automakers are just pocketing the tax incentives by maintaining the higher prices.

  7. DJ says:

    For cars sure but how long until the more popular SUVs are on parity?

  8. Doggydogworld says:

    They show BEV at 16,500 and petrol at 14,000+. That’s component cost, MSRP is typically 60-80% higher, so we’re talking about 28k MSRP vs. 24k. That’s not parity.

    Also note the $14k cost includes about 2k of “additional exhaust content”. I don’t know what that is, normal exhaust and cat converter are usually included in power train. The “+” in their 14,000+ is “New emissions standards compliance?” which is another speculative cost. If that is high enough maybe we’ll see parity.

    I think the biggest driver for EVs will be cities banning gascars or imposing daily fees (e.g. London congestion charge). That can happen a lot sooner than 2025. As gascar sales dwindle it becomes politically easy to tax them.

  9. Loboc says:

    TCO parity will happen way before initial cost parity. And that’s not hard to sell to fleets. A little more difficult for consumers, but, they’re coming around.

    Tesla’s are already a good alternative for taxi service.

    There are a lot of folks out there that realize they are losing their arse on depreciation, maintenance and fuel costs.

    The EV TCO advantage will be here pretty fast. If not here already for vehicles like Bolt and Model 3.

  10. kbm3 says:

    EV’s will not hit parity with ICE until the cost of the electric drivetrain is the same as the cost of the ice drivetrain.

    This has already been achieved by Tesla against vehicles with very expensive combustion drivetrains.

    It will take much longer to compete against the very cheapest combustion engines.

  11. Scott says:

    Can someone explain to me why the Model 3 hasn’t reached price parity today? Last I checked comparable ICE, like the BMW 3-series, the MB C-class and the A4 sell for about the same price as the Model 3. Isn’t that what price parity means? Tesla seems to have cracked that nut this year. Other makers haven’t yet, but I cannot see how anyone can argue that the Model 3 hasn’t achieved price parity.

    1. Loboc says:

      Depends on what you use to say it is parity. A Model 3 can transaction for $45k if not more.

      If you’re using base MSRP plus destination, then, yeah maybe so.

      1. Scott says:

        Anny of these compact lux sedans can transact well over the typical $35K entry level price point if a bunch of options are piled on.

        What does the BMW M3 cost, $60K or more? That will be the competition for Model 3 Performance, which I expect to cost in that range.

        The Model 3 Long Range has performance on par with the BMW 340, and the starting prices are comparable.

        I am talking about feature/performance parity to the extent that’s possible. I have done that comparison across a number of compact lux sedans, and as far as I can tell Tesla is equal to or better than the comparable ICE model at a comparable price, especially since Model 3 performance tends to well exceed the competition at a given price point and in this class performance is a significant factor.

    2. me says:

      Is anyone arguing that? This article is about EVs in general and we’re a long way away from being able to buy something like a Leaf for the price of a Civic (and that’s really all that a Leaf should be worth)… and not counting tax incentives either since those won’t last forever.

    3. Asak says:

      It might have reached parity with that level of car. Unfortunately, that level of car is not mass affordable.

    4. Pushmi-Pullyu says:

      I think their cost analysis looks at the average of the entire PEV market, not just one model such as the Tesla Model 3.

      You may have a good argument to say that the TM3 as achieved parity with those cars it’s aimed to compete with, such as the Audi A4 and the BMW 3-Series, but that’s just an opinion; a lot of people are going to argue that the Spartan interior of the TM3 doesn’t achieve parity with the less Spartan A4 or 3-Series. That’s their opinion, and they are just as entitled to it as we are to ours.

      Note that all discussions of comparisons between any two models of cars in comment threads here on InsideEVs rapidly degenerate into arguments over whether or not specific things should or shouldn’t be included in the compared prices, as well as what items should be considered “necessary” versus what are merely “optional”.

      There is no set of standards by which we can compare two or more cars on an objectively neutral playing field. At least part of such comparisons will always be chosen and weighted subjectively.

      Ultimately, it comes down to which cars people choose to buy. So the important question isn’t whether or not PEVs have attained parity by any subjectively chosen and weighted list of characteristics, but rather whether or not PEVs have attained parity with gasmobiles in the opinion of the majority of car buyers.

  12. Henry says:

    My future Model 3 will replace a full-size sedan with lifetime average of 20 MPG. At 15K miles driven per year and California premium fuel cost of ~$3.2/gal, my annual gas cost is around $2400. Assuming I get a rather conservative 300Wh/mile on the Model 3, my annual electricity cost on the same 15K miles is ~$550 (EV plan, off peak rate of ~12c/KWh). Five year saving on gas alone is over $9000, a quarter of the price of the car. If I extend to 10 year service, half of the car’s price will have been recouped by gas saving.

    I also plan to install PV panels, which would have paid for itself after ~8 yrs of service. So with solar, I can save even more on EV – again on gas saving alone.

    Taking into account a host of other advantages such as home charging, commuter lane privilege, low maintenance, … EV is the clear winner – even at today’s price.

    1. Brave Lil' Toaster says:

      Yes, but here’s a conversation I had with one of my friends a while ago.

      Him: I just bought a new Kia Soul!

      Me: Did you check out the electric version?

      Him: Yeah, but the extra $15,000 buys a lot of gas, no matter how much I hate buying gas.

      Of course, I’m sure that the $15k difference in the sticker price of the base model gas vs the base model electric isn’t reflective of how much he actually paid, but that’s not what he saw when he was on the lot, see.

      If, on the other hand, there was zero difference in price, it’s game over for gas. You’d have to be a moron to not see that the cheaper operating costs would make total cost of ownership drastically less.

      But until you don’t have to do the math on that, then people are going to have to do math. And do it right, or they’ll come up with the wrong number. Like how $15k doesn’t jive with reality when you add in things like an automatic transmission or air conditioning, because of course you did.

      So car dealerships will always take advantage of you when you’re bad at math. Why else would they offer financing?

      1. Asak says:

        The saddest thing is after rebates, I wouldn’t be surprised if the Kia Soul EV was actually cheaper. But that’s not apparent for an uninformed consumer just by looking at sticker prices. And by uninformed I mean anyone who isn’t really interested in EVs.

  13. Mister G says:

    If only all Morgan Stanley executives would buy EVs today and recycle their Bentleys into scrap metal then I could see this a possibility.

    1. Brave Lil' Toaster says:

      How do you know they haven’t already?

  14. scott franco says:

    I don’t think range is that big an issue. Here in Silicon Valley I have seen a bunch of new plated Leafs that can’t be more than 130 mile range. The dealers discounted the heck out of them and they are moving.

  15. Don Zenga says:

    They act like they are favoring EVs, but they are not. Yes Model-3 has already reached the price parity with many cars in it’s category. And Chinese companies are selling many more EVs because they already hit the price parity.

    By any means, in 2020 we can see more EVs on the roads. Let these investment management companies decide whether price parity has been met or not.

  16. Pushmi-Pullyu says:

    Plug-in EVs will attain purchase price parity (or “initial price” parity, as this article terms it) with gasmobiles in 8 years? That seems to be an overly conservative estimate. I certainly hope it won’t take that long!

    A lot of the drop in price will come with economy of scale, as more and more PEVs are put into production. It’s not all about battery prices.

    I think I read some other forecast quite recently which claimed purchase price parity would be reached in only two years. That may be a bit premature. I’d guess it will be more than two, but less than 8; and hopefully closer to that two!

  17. Michael says:

    My all in cost after Nissan and BC incentives was $30K. Same as the CUVs that I was originally shopping for after 14% PST+GST taxes. The LEAF is comparable in passenger head/leg/hip room and cargo space. Similar ride height. Quieter and more responsive acceleration. Saving me $3,000 year in gas.
    Seems like price parity to me!

    http://driving.ca/car-comparison-results/381450-387252-386907-389622/2016-Nissan–LEAF-vs-2017-Mitsubishi–RVR-vs-2017-Mazda–CX-3-vs-2017-Honda-HR-V

  18. leafowner says:

    Is there a better $35k car than the upcoming Model 3?

    1. Steve says:

      I think not. This whole “parity in 2025” thing seems blind. They’re off by about 8 years.

  19. Steve says:

    Hold on folks. The Tesla Model S is *already* superior to gas cars in the same price segment. And the free market agrees with me — it’s the best seller in that price range. So in that part of the car market, parity was surpassed in 2012. Right?

    So now we’re just waiting for parity to hit the less pricey segments of the market, and for production to ramp up. That’s happening approximately now.

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