Originally published on Gas2.
Analysts for UBS have torn apart a perfectly good Chevy Bolt to see how it is put together. What they found led them to make this rather startling announcement: the “total cost of consumer ownership [of electric cars] can reach parity with combustion engines from 2018.” Notice that doesn’t mean an electric car and a conventional car will cost the same to buy new. It means they will cost the same to own, figuring in maintenance, cost of fuel, insurance, and all the other factors that are part of the total cost of ownership.
The UBS study goes on to say, “This will create an inflection point for demand. We raise our 2025 forecast for EV sales by 50% to 14.2 million — 14% of global car sales.”
14% by 2025 is eerily similar to the 15% the state of California is aiming for by the same date. The study language is somewhat imprecise, as the term “EV” is commonly understood by many to include plug-in hybrid vehicles as well as battery electric models, but the inference is that UBS is referring only to fully electric cars in its findings.
After deconstructing the Chevy Bolt, which it called “the world’s first mass-market EV, with a range of more than 200 miles,” UBS called the electric car the “most disruptive car category since the Model T Ford.” It says it expects Europe to lead the rest of the world in adoption of electrics.
The UBS team found that the powertrain for the Bolt was $4,600 cheaper to produce than originally thought, “with much cost reduction potential left.” It also found that the electronics built into the car cost about $4,000 more than those in a conventional car, not including the cost of the battery. But they say GM is losing money on every Bolt they sell. “We estimate that GM loses $7,400 in earnings before interest and tax on every Bolt sold today, mainly due to a lack of scale.”
The same analysts say they expect Tesla to lose $2,800 on entry-level versions of its soon to be introduced Model 3 but think customers will opt for extra cost options that will raise the average selling price to $41,000 — $6,000 more than the base price. Tesla will be able to break even at that price, they believe.
Overall, automakers will start earning a profit of about 5% on electric cars by 2023 as the switch over from conventional cars to electrics gathers momentum. “Once total cost of ownership parity is reached, mass-brand EVs should also turn profitable,” UBS said. 5% happens to be the average profit margin on conventional cars, although some premium manufacturers like BMW are accustomed to profit margins as high as 8%.
Its findings led UBS to issue a warning for companies that make replacement parts, since electric car drivetrains are more reliable than those that feature internal combustion engines. That makes perfectly good sense, considering a gasoline engine has over 1,000 moving parts. An electric motor has 3. Add in the increasingly complex automatic transmissions in use today and there are a lot of things that require fixing as a conventional car ages. “Our detailed analysis of moving and wearing parts has shown that the highly lucrative spare parts business should shrink by 60% in the end-game of a 100% EV world, which is decades away,” UBS said.