Unveiling the Truth: The Economics of Electric Vehicles

In a recent analysis titled “New Vehicle Efficiency Standard: Race to the Bottom?” by Commonwealth Bank economist John Oh, doubts have been raised regarding the Federal Government’s claims that electric vehicles (EVs) will outshine conventional petrol vehicles in terms of affordability.

Comparing the MG ZS electric model with its petrol counterpart, Oh revealed that, presently, owning the EV could cost between 5 to 58 percent more over a five-year period than its petrol counterpart. Despite potential savings in fuel and maintenance expenses for EV owners, the weaker resale value of EVs ultimately leads to higher ownership costs.

However, a game-changing shift could occur if MG discounts its EVs using carbon credits earned under the government’s proposed efficiency standard. Under this scheme, EV manufacturers earn credits that can be sold to offset emissions from less efficient vehicles, such as utes.

Oh estimated that MG could pocket up to $6500 per car in credits, potentially translating into a 2 percent reduction in ownership costs compared to petrol cars, provided the credits are passed on to customers. This move could tip the scales in favour of EVs being more economical to own and drive, particularly if manufacturers pass on their credit earnings through discounts.

Nonetheless, uncertainties loom over whether EV brands will indeed pass on their credit earnings as discounts. Manufacturers like MG, with a range of petrol vehicles in their portfolio, might opt to utilise these earnings to balance out emissions from their less efficient models.

Moreover, the advent of cheaper new EVs presents challenges for the resale value of used EVs, potentially intensifying competition with new models, which are becoming more affordable.

The outlook isn’t optimistic for buyers of petrol and diesel vehicles, especially for those eyeing thirsty utes and SUVs. Car makers failing to meet the stringent new standards will likely transfer penalties to consumers. Oh estimates that about three-quarters of the top 20 car brands may fall short of the 2025 NVES standard.

For instance, Isuzu, primarily selling utes and 4WD wagons, might face penalties or have to purchase credits worth a substantial percentage of their vehicle prices by 2029 if emissions standards aren’t met.

However, vehicle manufacturers can navigate these challenges by adjusting volume, pricing, or even exiting the market if necessary.

The ute market poses a significant immediate obstacle to the success of the government’s plan due to low EV uptake, premium prices for low-emission vehicles, and untested consumer demand for EVs.

Despite offering lower operating costs and being more environmentally friendly, EVs face hurdles such as rapid depreciation and higher insurance costs, as highlighted in the analysis. Nonetheless, it’s worth noting that certain EV models, like Tesla’s popular Model Y and Model 3, have demonstrated stronger resale values compared to the models analysed in the Commonwealth Bank’s study.

In conclusion, while the road ahead for EVs may seem challenging, with careful policy implementation and market adjustments, the vision of affordable, sustainable transportation could become a reality sooner than anticipated.

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