Electric versus internal combustion engine (ICE) cars - cost analysis reveals clear advantage for electric vehicles

A new study by Fraunhofer ISI on behalf of the Federal Ministry for Digital and Transport in Germany compared the total costs of various passenger car drives and reveals a clear, long-term cost advantage for electric vehicles over ICE cars, even though electric cars have significantly higher purchase costs to start with. If electric cars are charged using self-generated power, this can lead to a significant cost advantage over a longer period of time. A fact sheet summarizes all the results of comparing the different drive types.

When buying a car, alongside its purchase price, the costs of operating it are a decisive criterion. The carbon footprint of the drive is also increasingly important to buyers.  Overall, electric cars are becoming increasingly popular. In December 2022, the share of battery-electric and plug-in hybrids in newly registered cars in Germany rose to more than 55 percent. Recently, however, the sharp rise in electricity prices and the decline in the environmental bonus have unsettled those potentially interested in electric cars and made them wonder whether electric cars are still economically competitive with other types of drive.

Fraunhofer ISI’s »Economic analysis of passenger car drives«, which took a closer look at selected car models with different types of drives, should provide some clarity. This analysis included the future development of energy prices and therefore calculated the actual costs across the entire lifetime of the vehicle - the so-called Total Costs of Ownership (TCO). It was assumed that rising CO2 prices would increase the fuel costs of ICEs, while the continued expansion of renewable energies would decrease the costs of electric vehicles. The methodology takes into account all the costs incurred over the period of ownership, such as purchase costs, costs for charging infrastructure, resale value, annual energy and fuel costs, maintenance and repair costs as well as insurance costs.  Vehicle taxes were included as was the GHG quota, a type of annual bonus for avoided greenhouse gases that drivers can apply for from various providers if they own an electric vehicle. Data from the ADAC’s car database (German Automobile Club) were primarily used for the calculations.

Clear advantages for electric cars

The study shows that battery-electric passenger cars have a cost advantage over cars with combustion engines in the long term, despite much higher costs for purchase and charging infrastructure.  While the costs of inspections, maintenance and insurance for electric cars are more or less comparable with those of conventional cars, their lower energy costs, the environmental bonus, the exemption from vehicle tax and the annual GHG quota all contribute to a cost advantage: Medium-sized electric cars, for example, reach cost parity after three years.  In the small car segment, it can take five to eight years for electric cars to reach the cost level of ICE cars.  How long it takes to reach cost parity therefore also depends on vehicle size.

In addition, charging infrastructure has a significant influence on the total costs of an electric car: Car owners who can charge their vehicle using self-generated photovoltaic power have a noticeable cost advantage compared to those forced to use public charging stations. Exclusive use of public charging infrastructure can lead to energy costs being up to 42 percent higher. The cost advantage of an electric car compared to one running on gasoline can increase by up to 12,000 euros over 15 years if the owner can charge it at home in combination with their own PV system.

Two price scenarios

The study also compared two price scenarios: high electricity prices, and a rising price for CO2, which mainly increases the prices of fossil fuels. The results show that the development of energy prices plays an increasingly important role over time - but also that the price difference only becomes noticeable over a longer period due to the small differences in energy prices in the first few years of owning a vehicle. The influence of energy prices is lower than that of the charging infrastructure or whether a car is charged at home or at a public charging point. Assuming cars are owned for 15 years, the cost differences between the two scenarios can vary by up to approx. 3,000 euros for small and medium-sized cars.

Dr. Michael Krail, who led the study at Fraunhofer ISI, draws the following conclusion: »Our calculations show that the prices for electricity and for fossil fuels have a more limited influence on the cost comparison between electric and ICE cars than widely assumed. The resale value, on the other hand, can play a major role as can the question of how the vehicle is used and, above all, where it is charged.  To further increase the attractiveness of electric cars, support via the environmental bonus and the innovation premium is important, especially in the smaller car segments. The choice of a smaller and more cost-effective battery can also have a positive influence. This could help to achieve cost parity even faster in future.«

The Fraunhofer Institute for Systems and Innovation Research ISI analyzes the origins and impacts of innovations. We research the short- and long-term developments of innovation processes and the impacts of new technologies and services on society. On this basis, we are able to provide our clients from industry, politics and science with recommendations for action and perspectives for key decisions. Our expertise is founded on our scientific competence as well as an interdisciplinary and systemic research approach.

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