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If you're in the market for a new car, knowing when to take the plunge is tricky.
Key points:
- Cheaper batteries are driving down the cost of EVs
- New emissions rules may increase retail price of some petrol and diesel cars
- The government will have more to say on the proposed fuel efficiency standard "in coming weeks"
A string of recent developments, from battery prices to new engine efficiency rules, has made the situation even more complex.
After years of supply crunches and low stock numbers, experts are predicting a return to a "buyer's market" and a likely fall in the average vehicle price.
But the situation is uneven, or "lumpy", and whether you pay more or less for a car in 2024 will depend a lot on the type, make and model.
Here are some of the variables to consider.
EV battery packs are getting cheaper, but there's a catch
First, the good news. EV battery prices are falling again.
The power packs, which account for about half the cost of an EV, declined in price every year from 2013 until 2020, when COVID struck.
This led to optimistic forecasts that EVs could be sold at the price of their ICE alternatives by 2025.
Then the pandemic hit, supply chains suffered, and batteries became more expensive.
But in 2023, production (mostly in China) ramped back up, and the average sales price fell 14 per cent over the course of the year, according to Bloomberg New Energy Finance.
So what does this mean for EV prices?
Cheaper battery packs should mean consistent ongoing falls in the average price of EVs, at least for the next few years.
Hussein Dia, a professor of transport at Swinburne University, said he was "cautiously optimistic" about 2024.
"The supply chain issues have eased. The battery cost, per kilowatt-hour, is improving," he said.
And the investment bank Goldman Sachs predicts prices will keep falling — as much as 40 per cent by 2025 (from 2022).
Now the bad news. Or, at least, some other variables.
The limited supply of EVs to Australia (which restricts competition), uncertainty around government regulation designed to fix this, and an ongoing price war between EV-makers all complicate the picture.
Let's look at the supply issue first.
Questions over fate of CO2 emissions standard for vehicles
For years, Australia has been losing out in the global competition over the supply of EVs and lower-emissions vehicles.
Car makers have sold their EVs elsewhere, rather than shipping them to Australia, despite many Australians wanting to buy their cars.
Major markets like Europe, the UK and the US have a policy of penalising car makers for selling ICE vehicles (when the cumulative carbon-dioxide emissions of these cars exceed a set figure).
But they allow car makers to effectively reduce or eliminate these financial penalties by selling more EVs.
Car-makers sell every EV they can to these markets, and end up skipping Australia.
That may be about to change. In April last year, the federal government announced it was working on its own "fuel efficiency standard", with plans to release the details by the end of 2023.
But it failed to meet this deadline.
The lack of a fuel efficiency standard will keep EV prices higher than they would have been, due to less competition, experts say.
Jake Whitehead, head of policy at the EV Council, the peak body for the EV industry, said there won't be much of a decrease in EV prices in 2024.
"The fuel efficiency standard is the key lever to get greater supply and ultimately putting downward pressure on pricing," he said.
"Ultimately, we may see a few more affordable models come out over the next 12 months but we're not expecting any significant change."
In a statement, a spokesperson for Transport Minister Catherine King said designing the fuel efficiency standard was "complex".
"The Government is committed to taking the time to get it right," they said.
"We will have more to say on this in coming weeks."
Professor Dia said it wasn't clear when the scheme may come into effect.
"Some people are saying probably we're not going to see [the standard] in action until 2025," he said.
Noxious emissions standard may affect ICE vehicle prices, model range
Now the story is about to get more complicated.
A few days before Christmas, the government announced a "vehicle emissions standard" that sounds similar to the proposed fuel efficiency standard, but is completely different.
When it comes into effect, the emissions standard may increase ICE car retail prices, and restrict what models are available.
All new cars, SUVs and light commercial vehicles introduced to Australia from December 2025 will have to meet a strict noxious emissions standard equivalent to what's already in place in Europe, "Euro 6d".
Existing models – the ones available now, or introduced before the end of 2025 – will have until 2028 to meet the standards.
These noxious emissions are different to the climate-change-causing carbon dioxide emissions to be addressed by the proposed fuel efficiency standards. They're the dirty, health-harming chemicals, such as oxides of nitrogen and sulphur, produced by burning fossil fuels.
When the standard was announced, there were reports it could see popular utes banned.
Many of the utes, four-wheel-drives, SUVs and performance cars sold in Australia do not meet the Euro 6d standard.
But many of these vehicles are available in Euro 6d-compliant variants overseas.
Stephen Lester, CEO of Cox Automotive Australia, which conducts automotive market research and analysis, said the changes could see an increase in car prices, but the effect would probably be gradual.
Some less-efficient entry-level models will be replaced by cleaner-burning variants, while others will be discontinued entirely, he said.
"[This] will have the potential to increase prices for ICE vehicles," he said.
"It will also mean perhaps a reduction in the availability of models."
Professor Dia said the new standard may not have much effect on prices.
"Overseas, where they're selling these more efficient ICE vehicles, the price is not much different than the ICE vehicles that are being sold here," he said.
Range anxiety, bigger battery packs and EV-maker price wars
In summary, EVs are probably going to get slightly cheaper in 2024, but this hinges on how quickly the government acts on introducing the fuel efficiency standard.
The other big variable is the rise of low-cost, Chinese-made EVs.
Last year, Tesla cut its prices by about 20 per cent, in an attempt to fend off competition from Chinese car-makers like BYD.
Even so, in the final quarter of the year, BYD's global sales overtook Tesla.
This trend of Chinese EVs is likely to continue, according to investment bank UBS.
It recently predicted Chinese car-makers are "set to dominate the world market with high-tech, low-cost EVs for the masses."
Australians were the beneficiaries of this increased competition last year.
A price war between Chinese car-makers BYD, MG and GWM drove the price of the most affordable EVs below $40,000 for the first time.
A 'lumpy' buyer's market for ICE vehicles
ICE vehicles may also get cheaper in 2024, although this probably won't be the case for all models.
Mr Lester described the situation as "lumpy".
"We're going to see different brands affected in different ways," he said.
Increased post-pandemic vehicle production combined with lower consumer spending means average vehicle prices should fall.
Trusted brands that have a dedicated customer base and a backlog of orders may not see much of a fall in demand.
But new auto-makers may struggle to sell their stock, Mr Lester said.
"You may see brands that have overbuilt their supply – and therefore we will start to see some discounting."
Longer term, ICE vehicle prices may go up, as manufacturers are forced to adopt new low-emissions technology.
Independent modelling commissioned by the EV Council last year estimated ICE vehicle prices will increase 0.3 per cent if the government introduces an "ambitious" fuel efficiency standard.
Combined with other engine efficiency measures, average ICE vehicle prices may increase 1.4 per cent per year, according to the modelling.
"It's hard to speculate on ICE vehicle prices without knowing exactly what government settings will be for the fuel efficiency standard," Dr Whitehead said.
"Our model suggests if we put an ambitious standard in place, there'll be a relatively modest increase in vehicle cost of maybe $500.
"But that will be more than offset by fuel savings."
Meanwhile, the same modelling estimated EV prices would fall 2.8 per cent per year with the introduction of a fuel efficiency standard.
EVs may reach price parity with ICE vehicles by 2028
So, when will EVs be as cheap to buy as their ICE equivalents?
Before the pandemic, the EV Council predicted this would happen by 2025.
That forecast has been pushed out to about 2028, Dr Whitehead said.
"We're expecting if we get a fuel efficiency standard in place in the next 12 months, it's possible to see price parity around 2028," he said.
This price parity refers to the "sticker" or retail price of the car. The other measure of price parity is "total cost of ownership", which includes the cost of fuelling or charging a vehicle, plus servicing, over about 10 years.
On this measure, many EVs are already cheaper.
Dr Whitehead noted some entry-level compact EVs have already achieved retail price parity with their ICE equivalents.
But the future of EV prices really hinges on the the detail of the proposed fuel efficiency standard, he said.
"We understand the desire and need to get settings right, but we need to move forward," he said.
"We need government to come out, and come out quickly."
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