EV Production Costs Approaching Parity: A Critical Crossroads for Turkey

Just two years ago, the production cost of Electric Vehicles (EVs) was 40% higher than that of Internal Combustion Engine (ICE) vehicles. If lithium prices continue to decline, by the end of this year or early next year, EV = ICE in terms of production costs. This will provide a new advantage for EVs in countries like Germany, where incentives are minimal, and a massive edge in countries like Turkey, where incentives are substantial.

Turkey will face a tough decision. Should the government support vehicles that use electricity produced from 60% local sources? Or support a powerful ICE industry (excluding Togg), which produces 1.4 million vehicles annually, exports 1.0 million of them, generates $37 billion in exports, and employs over 200,000 people?

The more complex issue lies in value-added production. Turkey lacks a fully integrated battery production facility and its supporting ecosystem starting from mining. We will need to collaborate with Chinese, Korean, or Japanese partners in this field. We also lack domestic electric motor production, and establishing a China-level competitive industry overnight is impossible. There’s also no software.

In vehicles like the Tesla Model 3 and VW ID.4, the cost of the battery, motor, and software accounts for 50–65% of the total, depending on configuration. Even with maximum localization, Turkish industry could only reach 35–50% at best. While the current localization rate in ICE production is about 40–45%, this figure drops to 30–35% when considering sub-suppliers.

Without detailed calculation, it is evident that a full switch to EV production would lead to a major loss of value-added manufacturing.

Another dramatic issue: Turkish manufacturers export 1 million vehicles mainly to Europe. However, the EU aims to bring that production back home, and there is talk behind closed doors of ending the Customs Union — the same argument being used to threaten Chinese manufacturers. The EU clearly does not want Turkey to become a back door for China.

What can Turkey do? There is little it can do against the EU, and not much it can do against China either. The only move left is to expand the domestic market, but that also presents many challenges. After 53 years, the Turkish automotive industry has reached a major crossroads with EVs. Unfortunately, most of the sector still struggles to grasp this reality.