Twenty years ago it looked like renewable energy was a luxury product. The world would never be able to afford to transition to clean energy, and many environmentalists concluded gloomily that a sustainable future would be one of energy constraints, re-localisation and austerity. Others were looking past the sticker price at the underlying trends and reaching a more optimistic conclusion: the price of renewable energy was falling, while fossil fuels were getting more expensive. At some point those trends lines would meet and then cross over.
From then on, wind and solar would be the cheapest way to generate electricity and the economics would fundamentally change. Clean energy would win the argument on price rather than on carbon emissions or energy security. That doesn’t make the energy transition unstoppable, but from that point on you would have to actively hold it back. That point of price parity is now behind us, and clean energy is cheaper almost everywhere.
A similar pattern is underway with electric vehicles. They have also been seen as a luxury for those who can afford them, but the trends suggested it wouldn’t stay that way. I wrote about this in 2017, investigating two different studies that were aiming to predict when electric vehicles would reach price parity with fossil fuels.
There were a number of factors to consider. One was the price of batteries, which were very expensive and an obstacle to widespread adoption. There was the question of charging infrastructure and also of policy, whether governments would prompt demand for EVs or respond to it. As demand grew, car companies would be able to make electric cars in larger numbers and economies of scale would kick in. One study from Bloomberg suggested that the moment of price parity would arrive in 2025.
Were they right?
As with wind and solar, price equivalence with fossil fuelled cars will arrive sooner in some places than others. In developed countries car companies focused on the more profitable luxury car market, and there’s been a shortage of affordable EVs. In 2024 American car buyers had a choice of just six EV models priced under $30,000, and European drivers had a choice of seven. It was different in China, and that same year Chinese drivers could pick and choose from 122 different lower priced cars. The average price paid for an EV in China was $600 lower than the average price for a petrol or diesel car. Electric was more affordable, and if charging is easy why would you choose anything else?
A couple of years behind China, the UK has just entered the zone of price parity. According to Auto Trader, new electric cars are cheaper than new petrol and diesel cars for the first time, as of April this year.
This is in large part due to China, and the arrival of brands such as Jaecoo and BYD on the UK market. It’s also thanks to discounting and competition from car companies, with a big slice of government intervention in the form of EV grants. Put together, the average price paid for a new electric car this year was £42,620, which is £785 cheaper than an average petrol car.
I say the ‘zone’ of price parity, because there isn’t an exact moment to point to. The total cost of ownership has been in favour of EVs for a couple of years already, and used EVs and leasing all cross the rubicon at different points. Government incentives that make EVs cheaper or petrol and diesel more expensive also nudge parity closer or further away. Global events matter, such as wars that affect oil prices. Market conditions contribute, such as the wave of post-lease cars that’s hitting the US market at the moment and making used EVs cheaper for the first time, something that I noted in the UK a couple of years ago.
The exact date of these different crossovers is unimportant. The point is that the direction of travel is towards electric. Once it is cheaper, people don’t need to be convinced by the environmental logic. They gradually become the default option. And while private cars are not the most important element of a sustainable transport system, we can all celebrate the gradual decline of internal combustion engines.
The Earthbound Report 