How expensive must petrol be to make owning an electric vehicle cost-effective for the average Aussie?

The ABC recently published an article claiming that petrol prices would need to jump to around $3.85/L for EVs to be cost-effective.

I think that’s understating it, and also missing the point.

The real point is this. EVs cost significantly less to run than ICE cars, but are presently significantly more expensive. Right now, the price premium for an EV means that the lower running costs mean an EV is not a cost-effective 5-year lifecycle ownership deal for an Aussie who drives around 14,000km per year, about the national average. And that’s ignoring the fact that there isn’t an EV equivalent for most vehicle classes; where’s your sports car, people mover, 4X4 for example?

But what the article missed is that that EV prices are dropping rapidly, and they won’t need to reach parity with ICE for the EV to be the better 5-year ownership option. The price of petrol becomes irrelevant when you consider this, unless you think petrol prices will actually drop. Pretty sure they won’t.

Back in September 2020 I looked at the 5-year run costs of a Hyundai Kona EV vs ICE, and found that it’d cost around $11,500 more over 5 years to run the EV. Details here:

Today, I looked again and found that the Kona EV Extended Range had dropped in price from $67,030 to $65,470 and the ICE had gone up from $35,487 to $35,673…so the price gap is closing, as expected. However, my new calculations based on those prices indicate the 5-year ownership gap is around $10,500…so a big gap. But it’ll continue to close. Oh and in the video I talk about what you could do with the price difference between ICE and EV sitting in your mortgage account, shorterning the time to repay the loan. Or whatever else you want to do with $30k or so.

So, based on today’s prices, how expensive would petrol need to be in order to make an EV cost-effective?

Over $4.50L/, so very expensive indeed. But as I said, that’s not the point, it’s the price difference between EV and ICE that’s the problem for EV affordability, and that’s closing rapidly, and EVs won’t need to reach purchase-price-parity with ICE to be more cost-effective to own. Petrol going up helps the EV cause too, even if the same percentage increase applies to electricity costs, the absolute extra dollars is more for petrol.

The question of depreciation is an interesting one, and I don’t think history can be a guide as there’s not enough of it with EVs, and COVID has changed everything. The older EVs are such a different technology to the current models they also cannot be compared.

EV realities – what’s the real story?

The EV people like to think that ICE cars will be worthless in just a few years…I disagree to a great extent. Enthusiast cars like sports cars will command high prices, and EVs won’t be doing the job of 4x4s or towcars any time soon except in limited applications. So no effect there for quite a while. Where EVs will start to replace ICE is in small suburban runabouts, the beige and boring Yarises, i20s and Getzes of the world. But they are pretty cheap anyway. I agree that those resale values will, eventually, drop relative to EVs. Right now the Tesla 3 is extremely popular, and resale is high, but that isn’t true of all EVs, and may not be true of the Tesla in the long term. And, some ICE resale is sky-high.

So you can do the sums many ways; even make EVs cost-effective, if you assume high resale on say a Tesla 3, low cost of electricity, a high-run-cost ICE, higher mileage as the more miles, the better an EV looks etc. But I’m using the two Konas, and average Aussie mileage, and as of today, the sums don’t favour the EV.

The bottom line is that some time in the next two years, three maximum, I expect and hope, I’ll do the sums yet again and find that yes, an EV is a cost-effective choice for the average Aussie. And you can be sure I’ll tell everyone!