Is Tesla Leading the Race on EV Price Parity?



Tesla (TSLA), the leading EV (electric vehicle) maker, saw record deliveries in its latest quarter. Looking back, it seems like a distant dream that an EV maker could sell over 300,000 cars in a year—but this is the reality now. The company has made a tremendous effort in developing EVs that could be adopted by consumers.

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Tesla and ICE cars

Still, there’s a massive market for ICE (internal combustion engine) cars. Earlier, awareness and skepticism related to EVs had led to the slow pickup of demand in the segment. This included anxiety and doubt related to range, charging time, charging availability, usage in rainy conditions, and more. However, these issues have started fading.

Now, cost seems to be a more significant roadblock. EVs are expensive to buy compared to gasoline cars. Although an EV’s average selling price has been declining in the past few years, it still hasn’t reached a point where it is a cheaper alternative.

However, Tesla CEO Elon Musk is not a fan of gasoline cars. In August, he tweeted, “Gas cars are so last-century!” He also opined, “Passing fad. Like steam engines. They look cool in a museum.” He believes that electric vehicles are the future of the auto industry, and gasoline cars will eventually become obsolete.

He also believes that owning any vehicle other than Tesla will not be a viable alternative for consumers. To learn more, please read Could Tesla Eventually ‘Amazon’ Gasoline Carmakers?

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Battery cost—A crucial component

Although several factors contribute to the high cost of EVs, one of the critical factors is the battery cost. The cost of a battery constitutes a significant portion of an EV’s total cost.

In April 2019, Bloomberg reported, “For a midsize U.S. car in 2015, the battery made up more than 57 percent of the total cost. This year, it’s 33 percent. By 2025, the battery will be only 20 percent of total vehicle cost.” This smaller share is due to a decline in battery costs, caused by technological improvements in the past few years.

According to a report on Mining.com, a lithium-ion battery was priced at $1,100 per kilowatt-hour (or kWh) in 2010. However, the price currently stands at $156 per kWh. That’s an 86% plunge in its price.

Further, large-scale production and optimization in the supply chain could bring down the cost in the future. The report added that BloombergNEF expects the battery cost to fall to $100 per kWh by 2023.

Tesla leads the race

While the industry is looking for ways of reducing battery costs, Tesla is already leading the race. According to a June 2018 CleanTechnica report, the BNEF graph on the trend of Tesla’s battery pack cost, in comparison to the market average, showed that the company is leading the industry by four to five years.

Tesla is continuously working toward reducing battery costs. The report added that when Musk was asked about battery costs during the 2018 shareholder meeting, he replied, “We think at the cell level probably we can do better than $100/kWh maybe later this year … depending upon [stable] commodity prices.” He added, “We think long-term we can get below $100/kWh at the pack level.”

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Is it expensive to own an EV?

Tesla bulls believe that while the purchase price of an EV is greater than for ICE cars, lower maintenance requirements could finally lead to cost savings. According to an August 7 Automotive News report, Reinhard Fischer, senior vice president for Volkswagen Group, said, “I don’t think it’s going to take a lot of convincing.” He continued, “There is a fundamental curiosity. Everybody sees the end state. When you put pencil to paper, owning a full-electric vehicle costs about half of what a gas car costs me to operate.”

However, critics argue that an electric car battery eventually needs replacement, which could add to the cost of ownership. It’s no surprise that stalwarts are betting on iron-flow batteries for longer energy storage and indefinite durability. To learn more, please read Can Jeff Bezos Best Elon Musk with Flow Batteries?

Musk knows that there are latent issues in lithium-ion batteries, which is why he aims to produce batteries that could last about a million miles.

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Can EVs achieve price parity?

While battery costs have been decreasing, technology has been advancing. This could eventually lead to a price reduction for an electric vehicle, bringing its cost on par with ICE cars. Analysts refer to that status as the tipping point for the EV industry.

At the tipping point, the demand for EVs could rise sharply. Bloomberg analysis shows that EVs can achieve price parity by 2024. Earlier, Bloomberg had forecast price parity by 2026. But with rapidly changing conditions, the tipping point is moving closer. As a result, BloombergNEF expects electric vehicles to account for 57% of the global passenger vehicle sales by 2040.

However, there are hindrances. In the past few years, government subsidies have helped EV buyers. But as the subsidies are rolled back, demand could become impacted. In China, the government’s stand on subsidies has led to a fall in demand for EVs in the past few months. In the US, Tesla electric vehicles will not be eligible for federal tax credits next year.

Further, battery improvement will be needed to make it cost-effective and long-lasting, with the ability to store more energy.


The EV industry is rapidly evolving to compete with ICE cars. The automakers in the industry are looking at various means to lower costs. As a part of this effort, they are focusing on reducing the cost of its main component—the battery pack. Further, technological advancements and economies of scale could help reduce the cost of electric vehicles.

Tesla seems to be leading the race on battery costs. While price parity looks like the way forward for the EV industry, Tesla could reach that point well before its competitors. This is unsurprising, as Tesla is considered the behemoth of the electric vehicle industry.

To learn more about Tesla’s outlook for next year, please read How Is Tesla Stock Positioned for 2020?


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