However as technology progresses, there comes a time when consumers no longer want to buy the dated alternative; it simply doesn’t make economical sense.

Take a look at smart phones as an example; the past five years have seen a dramatic decrease in the cost of entry-level smart phones. While they were once only available to those with money to burn, today there are plenty of smart phones that come in under the $100 mark. It no longer makes sense to consider buying a ‘brick’ phone when you can get smart phones for virtually the same price.

According to a recent article written by Bloomberg New Energy Finance, “It’s looking like the 2020s will be the decade of the electric car.”

They believe that by 2022, electric cars will cost around the same as their gas-guzzling counterparts – leading to a mass increase in people making the switch to electric. In terms of sales, Bloomberg has made some very good points in their argument as to why electric cars are the way of the future. They note that electric vehicle sales grew by 60% worldwide last year; this is the approximately the same annual growth rate forecast by electric vehicle manufacturer Tesla through to 2020. At the moment, they’re right on the mark.

As the Bloomberg article notes, it’s also the same growth rate that helped Ford’s Model T eventually take over from horse and cart back in the 1910s. Surely this bodes well for the future.

Case study: Tesla’s Model S

Tesla is perhaps one of the most exciting electric car manufacturers in the world at present.

Introduced in 2012, their Model S was a full sized, all-electric luxury car that proved to be very popular in countries such as the United States, China, Norway, the Netherlands, Germany, Canada, Switzerland and Denmark.

The Tesla Model S.

Targeting the luxury vehicle market, the Model S doesn’t come cheap. In Australia (where it hasn’t been sold on a mass scale), the car retails for AUD$130,000+. And that’s just for the base model. In the US where car prices are cheaper and the Model S has proven to be far more popular, the base model sold for around USD$70,000.

In December 2015, the Model S surpassed 100,000 sales – which was a very exciting milestone for not only the company, but electric car sales in general.

What about world oil prices?

When petrol prices hit AUD$1.60 a litre in mid-2008, Australian drivers began to fear the worst. In New Zealand and much of Europe, petrol prices exceeded $2 a litre during this period. Even now New Zealand is still between AUD$1.80 and $1.90 per litre, while UK prices are well over AUD$2 a litre. There were also some frightening reports at the time that predicted Australians could be paying between $2 and $8 a litre as soon as 2018. Thankfully at this stage, it doesn’t look as though this predication will come to fruition.

Oil prices are relatively affordable at the moment here in Australia thanks to the fact that world oil prices have been at a record low. With petrol falling below $1 a litre in some capital cities multiple times over the past year, motorists are certainly rejoicing.

Although many predict that Australia’s lower fuel prices are here to stay at least short term, there is uncertainty as to whether this trend will continue long term. With many countries experiencing much higher prices than Australia, many believe it is only a matter of time until our prices rise again.

Only time will tell where our fuel prices are heading – but if they follow the trend set by Europe, electric cars will certainly begin to look more appealing Down Under.

How have electric cars improved in recent times?

Electric car technology is going ahead in leaps and bounds, which is promising in terms of the industry’s future. Here we look at some of the main recent advancements in electric vehicle technology.

Lower battery prices

When it comes to manufacturing electric cars, the battery itself accounts for around a third of the cost. Therefore, for electric vehicles to gain widespread adoption, the price of these batteries must fall.

According to the aforementioned article released by Bloomberg, battery prices for electric cars fell by 35% last year (2015). The article also notes that according to research, unsubsidised electric vehicles will be as affordable as their oil-burning counterparts within the next six years. Bloomberg predicts that once this occurs, serious mass-marketing efforts will occur and the electric car’s star will begin to rise rapidly.

Since the cost of electric car batteries has dropped, the incentive for manufacturers – and also buyers – has increased.

Longer-range models

One of the main drawbacks of electric cars is the fact that they can only go so far on one charge. While they may last for a while zipping around the inner city streets, they aren’t suited to weekend trips away down the coast.

Longer-range batteries mean that electric cars don’t need to be charged as often.

However, as technology progresses this is set to change. Already there are electric cars entering showrooms that are capable of travelling 200+ miles (approximately 320 kilometres); although this doesn’t rival the current fuel range of internal-combustion vehicles, it’s impressive.

There are a number of longer-range electric cars that are set to enter the market, including the Chevrolet Bolt. Nissan has also released details for a battery pack that is capable of travelling 200 miles, and this technology is expected to become part of their next generation Nissan LEAF electric car.

In terms of longer-range travel in electric vehicles, the technology is getting there. Already, these cars provide a driving range that makes them suitable for city travel – surely it won’t be long before weekend cruises up the highway become achievable as well.

More charging stations

One of the main drawbacks to owning an electric car at present is the lack of charging stations. Combined with lower travel ranges, drivers are nervous that there won’t be a charging station nearby when required.

However, in the US this is already starting to change. An increasing number of petrol stations and companies are installing charging stations to help the uptake of electric vehicles, meaning ‘range anxiety’ could soon be a thing of the past. Companies such as Walgreens, Coca-Cola and Google are already installing charging stations, while US states such as California are committed to deploying thousands of charging stations over the next decade.

As a sweetener, Nissan is offering those who buy its current generation LEAF two years of free battery charging across hundreds of stations.

While coal power stations are still the primary source of energy in Australia, there is a strong push to move towards renewable sources such as wind power, solar power and hydro electricity. Although Australia unfortunately isn’t at the forefront of this movement, many believe that it’s only a matter of time until coal-fuelled power is put to rest.

Reducing emissions on a global scale

Ultimately, the world is looking for ways to reduce carbon emissions and oil dependency – as these are two factors that we know influence climate change. In a recent study conducted by the Electric Power Research Institute and NRDC, it was found that widespread electric car use could potentially cut carbon emissions by as much as 550 million metric tons annually by 2050 – that’s essentially the amount of emissions produced by 100 million passenger vehicles.

The recent Paris Climate Agreement – where 197 nations representing 97% of the world’s carbon emissions got together – unveiled commitments that aimed to combat climate change. The agreement was brokered at the end of 2015 and subsequently signed by participating nations in April, 2016. While the Copenhagen and Cancun Agreements saw countries pledge to reduce carbon emissions by 2020, the Paris Agreement includes commitments from 2020 onwards – signalling an ingoing drive to reduce emissions and combat climate change.

Major carbon emitters that took part in the agreement included the USA, China, India, Mexico, EU, Brazil, South Korea and Indonesia. Australia was also part of this agreement; we have already pledged to reduce greenhouse gas emissions by 26-28% below 2005 levels by 2030 – however many hope that by signing the Paris Agreement Australia will strive to do more. While we are not one of the leading carbon producers on a global scale, an article published by Abc.net.au notes that Australia is considered to be “one of the world’s highest per capita emitters”.

According to NRDC’s article, motor vehicles account for 17% of the world’s CO² emissions; as such, motor vehicles consequently featured in the Paris Agreement. The three largest passenger car markets (which represent two thirds of global sales) have all put strong fuel economy standards in place. These standard will help drive up electric vehicle sales, as governments push for cleaner, more economical vehicles.

China is one of countries committed to implementing better fuel economy standards. In recent times it has become one of the world’s largest markets for electric cars (overtaking the US in 2015), and is home to the largest electric vehicle manufacturer – BYD.

Car manufacturers are already on board!

Many car manufacturers are already embracing electric vehicles – with many investing billions of dollars in electric technology.

According to NRDC, the number of electric car models has increased from just 2 in 2012 to 25 in 2016 – and that number is only set to rise. Manufacturers such as Tesla (whose Model 3 is set for release in 2017), GM, Nissan and BMW are leading the way; however others are beginning to jump on the bandwagon.

The field of electric cars has also captured the attention of companies beyond the vehicle manufacturing industry, with Apple and Google apparently tipped to join the race. If these giants believe electric cars are worth the investment, then the future certainly is looking bright.

The oil companies aren’t convinced…

Although many are predicting a bright future for electric powered vehicles, perhaps unsurprisingly oil companies are playing it down.

According to a 2015 article by Auto World News, Organization of the Petroleum Exporting Countries (OPEC) believes that electric cars will still only make up around 1% of the global car market in 2040. OPEC believes that without a significant technological breakthrough, these cars won’t be viable; they cite high costs, lack of refuelling regulations and a lack of demand for alternative energy vehicles as the reasons why electric cars won’t gain traction over the next few decades. The organisation believes that hybrid cars – such as the Toyota Prius – will remain more popular than pure electric cars.

However, it comes as no surprise that OPEC is predicting a bleak future for electric cars. The organisation has admitted that over 40% of the global oil demand comes from road vehicles – so of course they are not predicting any change to that figure by 2040. They have to remain optimistic about the future of oil, since that’s how they make their money.

What about electric cars in Australia?

While the US and China have been very quick to jump on the electric vehicle bandwagon, Australia is certainly off to a slower start.

So why is Australia so slow on the uptake? There are a number of reasons why electric vehicles are yet to take off here:

• There is a severe lack of infrastructure when it comes to public charging stations.
• The limited range of electric vehicles doesn’t work as well in a country that is so big and spread out.
• The initial price of electric cars in Australia is higher due to a lack of government subsidies that are present in countries such as the US.
• Petrol prices are still relatively affordable, reducing the financial incentive to go electric.
• Electricity production in Australia is dirty; we’re predominately fuelled by coal, which means that the environmental benefits of driving an electric car aren’t as great as countries that produce more ‘green’ energy.

According to a 2015 Carsguide.com.au article, a mere 1,130 electric vehicles were sold in Australia in 2014. Many of these cars were not ‘pure electric’; rather, they had range extenders that allowed the petrol engine to work as a generator and charge the battery. At present, that’s the reality in Australia – we’re simply not set up for 100% electric cars.

This doesn’t mean that electric cars won’t have a future here. It just means that Australia – as always – is a little slower to acquire the latest technology!

Case study: Tesla Model 3

Car enthusiasts around the world are waiting in anticipation for Tesla’s much-hyped Model 3. This car combines a far more practical driving range (200 miles/320 kilometres) with outstanding performance, looks and safety features; it’s a premium car that matches many internal-combustion cars on the market in more ways than one.

With the same classy looks of the popular Model S, the Model 3 is priced to appeal to the masses. Tesla announced in February that their Model 3 would be priced at USD$35,000, which means that these cars could potentially sell for as low as USD$25,000 in the US once government incentives have been applied.

This huge price drop and increase in driving range is certainly a step towards making electric vehicles viable here in Australia in coming years.

The way of the future?

Bloomberg New Energy Finance states in their article that “By 2040, long-range electric cars will cost less than $22,000 (in today’s dollars), according to the projections.” If this is the case, increased practicality and affordability will almost certainly mean that electric cars are the way of the future.

While Australia has a long way to go in terms of making electric cars a standard option, the fact that overseas markets have been so quick to jump on board bodes well for the future. As technology improves – and Australia seeks out cleaner energy production methods – electric cars will certainly find their place in this country.

Just as colour televisions took over from their black and white predecessors once technology and price point allowed, electric cars will one day outnumber internal-combustion vehicles on our roads.

Of course, Australians don’t just pay too much for luxury cars – from Levi jeans to iTunes, Aussies generally do pay a premium compared to our overseas counterparts. In a recent Mapping the World’s Prices report by Deutsche Bank, Australia was named the most expensive country to live in.

So just how much more do Australians pay for luxury cars compared to other countries? Well, according to an article on News.com.au, the United States pays around AUD $105,000 for a Porsche 911 Carrera. In comparison, Australians must fork out close to AUD $180,000. This price hike doesn’t merely extend to overseas manufacturers; when Holden exported its Commodore SS to the US (sold as the Pontiac G8 GT) in 2013, it sold for around $45,000. In Australia at the same time, the Commodore SS was selling for around $55,290. That’s $10,000 more – for a car that is made here!

So why are luxury cars so expensive in Australia? Read on to find out!

Shouldn’t a strong Aussie dollar lower prices?

While the current Australian dollar is relatively low at around 0.52 GBP and 0.76 USD, over the past five to six years it has been rather strong at times (for example, in 2011/12). With this being the case, many people have wondered why the cost of luxury vehicles has remained so consistently high.

It turns out that when it comes to luxury car imports, currency rates are established up to a year in advance in order to keep prices stable. This means that luxury car manufacturers essentially hedge to protect themselves from currency movements in either direction.

Ultimately, this means that luxury car prices don’t rise and fall with the fluctuating Australian dollar. Aside from being able to maintain consistent prices, consumers are also protected from the possibility of buying an imported luxury car at a high price – only to see the value of their car plummet in months to come.

Luxury car tax

One of the primary reasons why luxury cars are so expensive in Australia is the government’s luxury car tax (LCT).

The LCT is one of the reasons why luxury vehicles are so expensive here in Australia.

When was it introduced?

According to Drive.com.au, this tax was put in place by the Howard government in 2000 alongside the controversial goods and services tax (GST). The LCT replaced the wholesale tax that was in place during the 1980s.

At the time when the LCT was introduced, the government had only just begun to dismantle protectionist barriers surrounding the local car industry; these barriers were created due to excessive import tariffs. High import duties prior to the LCT meant that Australians have always had to pay more for luxury vehicles; the LCT really just changed the way this premium price tag was calculated.

While it was good to see the end of high import tariffs, car buyers unfortunately had little to celebrate – the GST and LCT ensured car prices (in particular luxury car prices) remained relatively high compared to other developed countries such as the US and UK.

While the introduced rate of tax for luxury vehicles was 25% on vehicles over $55,134, this rate was increased by the Rudd government in 2008 to 33%. Although the threshold has risen virtually every year since 2008, the tax rate has remained steady.

Many people feel that the LCT is unfair; many car buyers have been left questioning why luxury cars are subject to such a high tax rate here in Australia.

How does the LCT work?

According to the Australian Taxation Office, the LCT threshold for the 2015/16 financial year is $63,184 – which some would say is not all that much considering how many cars sell for more than this price. If the vehicle is fuel efficient (i.e. if the car uses 7 litres or less per 100km) then the threshold is slightly higher at $75,375.

LCT is set at 33% and this is taxed on the amount above the LCT threshold. This tax is paid by businesses (i.e. dealerships) that sell luxury cars and therefore the cost is passed on to consumers. LCT also applies to individuals who choose to import luxury vehicles – you can read more about do-it-yourself imports later on in the article.

LCT is calculated via this formula: (LCV-LCT threshold) x 10/11 x 0.33

LCV stands for luxury car value; this is the retail price of the car. Therefore, a vehicle that has a retail price of $88,000 must pay a LCT of $7,444 ((88,000-63,184) x 10/11 x 0.33). This means that the car would be sold to a customer for $95,444.

It’s easy to see how the LCT can really bump up the price of luxury vehicles in Australia!

Market tolerance

As mentioned earlier, prior to the LCT Australians still paid a lot more for imported vehicles – especially luxury cars.

Very high import duties (which were as much as 59% in the 1980s) meant that Australians expected to pay more for cars imported from countries such as Germany – where many luxury vehicles (such as BMW and Mercedes-Benz) come from. Due to Australia’s higher price tolerance for German vehicles, some would argue that German car manufacturers have always sold their vehicles for a higher rate here in comparison to other markets around the world.

Demand

While mid-range luxury vehicles are relatively popular here in Australia, top-end cars such as Ferraris and Lamborghinis are sold in far smaller numbers. The lower demand for these cars – as you might expect – equates to a much higher retail price. Australia has a relatively small population compared to countries such as the United States and United Kingdom; therefore, there are fewer people who can afford the sort of cars that cost hundreds of thousands of dollars.

A smaller demand equates to smaller shipment numbers and less competition at the top end of the market, meaning those who are selling these vehicles are able to do so at a premium. Demand also affects mid-range luxury cars such as Audi, Mercedes-Benz and BMW – just not to the same extent as top-end vehicles.

Tailor made for Australian conditions

The luxury cars sold here in Australia are more expensive than those sold overseas – however many of them aren’t exactly the same as their overseas counterparts.

According to Drive.com.au, many German made vehicles are designed to meet conditions specific to Australia; i.e. many are higher-specification vehicles. For example, Audi de-tunes some of its high performance vehicles to deal with Australia’s extreme summer heat, while Mercedes-Benz often fits unique cooling packages for the same reason. Mercedes-Benz also includes towing packages with some of its vehicles to cater to the Australian market, since more Australians use their vehicles to tow in comparison to overseas drivers.

There are also differences in terms of safety standards. According to the same Drive.com.au article, a Mercedes-Benz C-Class in Australia has nine airbags; in the United Kingdom it has seven. The car manufacturer also uses a different stability control (ESP) calibration for vehicles sold in Australia compared to other countries.

It becomes apparent that these Australian-only specifications impact upon the price of luxury cars. The manufactures have to implement unique specifications for a relatively small number of vehicles (since Australia has a smaller population than many developed nations) and therefore they need to be able to recoup this cost one way or another.

Can Australians self-import?

If luxury vehicles are so overpriced here in Australia compared to other countries such as the United States and United Kingdom, then why don’t more Aussies simply import cars themselves?

The truth is that do-it-yourself importation is a complicated, impractical affair at best. The Department of Infrastructure & Regional Development states that:

“The importation of vehicles to Australia is prohibited except in very specific circumstances. Most vehicles are imported by large manufacturers that invest substantially in research and development to ensure that every new vehicle meets minimum safety standards that maintain the safest possible environment for all road users and our community.”

In terms of DIY importation there are a number of restrictions faced by Australians – such as needing to have owned the vehicle while living overseas. In this case, the car needs to be continually kept within close proximity to your overseas address for at least a year, and this qualifying period must immediately precede your permanent return to Australia.

Some vehicle enthusiasts will be pleased to know that there are some exceptions to these rules. The Department of Infrastructure & Regional Development does have a Specialist & Enthusiast Vehicle Scheme; subject to approval, this scheme could mean that you are allowed to import certain cars that are not sold locally in an official capacity. You can find an up-to-date list of cars in this scheme here.

If you are a lover of older vintage models, then you might also find some respite. Australians are allowed to import any vehicle that has been manufactured prior to the 1^st of January, 1989. This means that those who are interested in rare or classic cars are generally able to import vehicles of interest.

There are also a number of other import options for Australians, the details of which can be found on the Department of Infrastructure & Regional Development website. If you are planning to import a vehicle from overseas yourself, the Department of Infrastructure & Regional Development also provides useful information that explains how to import an eligible vehicle in eight steps.

What are the actual costs of importing a luxury car?

While some cars may only cost a few thousand dollars to import, luxury cars are generally more expensive.

The government will still hit you with a luxury car tax (LCT) if your vehicle is worth more than $63,184 (figure for the 2015/16 financial year). If your vehicle isn’t brand new, you can ask to have this figure revised to better reflect the current value of your car, however if it’s still above the threshold then you will have to pay 33% tax, plus GST and customs duty. As you might expect, the cost of importing most luxury cars (if you are actually allowed to do it in the first place) equates to a substantial amount of money.

Some buyers opt to self-import rather than buy via a dealer; however at present there are still significant costs involved.

Here is an example:

Assume the customs valuation (CV) of your vehicle is $56,000. First off, you will have to pay customs duty which is 5% of the CV (in this case, $2,800). Transport and insurance costs are then added, which generally equate to around $1,500.

The value of the taxable importation (VoTI) is then calculated by adding the CV, customs duty and transport and insurance costs. In this example, this equates to $60,300. A GST of 10% is then added ($6,030) which takes the total at this point to $66,330. This is considered to be the luxury car value (LCV).

Since this figure is above the LCT threshold, the importer will need to pay LCT. The amount of tax payable is calculated by this equation: (LCV-LCT threshold) x 10/11 x 0.33. In this example, the LCT equals $943.80.

In this scenario, the cost of importing the car (customs duty + GST + LCT) is $9,773.60 (plus the cost of transport and insurance). As you can see, importing a luxury car yourself (if you are even allowed to) can become very expensive – and this cost only increases with the value of the vehicle you’re looking to import.

You can find a complete breakdown of these costs on the Department of Immigration & Border Protection website.

Parallel imports

Recent changes to the legislation mean that in the future, importing new or near-new cars from overseas could become cheaper for individuals.

The government recently approved parallel imports from Japan and the UK, which basically means that from 2018 individuals will be able to import a car once every two years. The law will stipulate that these vehicles must be less than 12 months old and have less than 500km on the odometer.

Motoring.com.au notes that the introduction of this legislation could see a drop in the price of luxury vehicles:

“Industry groups say only buyers of luxury and sports cars will benefit from cheaper premium models…at the expense of dealership jobs.”

While this is perhaps bad news for luxury car dealerships, it’s certainly good news for Australians who are planning to buy a luxury car in a few years time!

Are luxury cars overpriced in Australia?

One must consider that in recent times cars in general have become more affordable in Australia. Today, the cost of an average car equates to a far smaller proportion of an average wage compared to what it would have a generation ago. For example, a 2015 Drive.com.au article states that according to Commsec:

“…someone earning the average wage has to work for only around 24.2 weeks to be able to purchase a new Ford Falcon 4.0 sedan – the best result since 1975.”

Many also cite figures that reveal the cost of owning a car has also dropped. Vehicles these days possess far better fuel economy, longer servicing intervals with capped price servicing, and also increased warranties. When it comes to standard vehicles these days, Australians are generally getting better cars for less.

This general increase in vehicle affordability does appear to extend to some luxury cars. For example, BMW’s senior manager of corporate communications told Drive.com.au in 2011 that:

“The prices of these [luxury] cars are [also] more competitive than they’ve ever been. If you compare the price of an E-Class, say the E200 CGI, to its equivalent 10 years ago, it is significantly better value now in terms of average weekly earnings and inflation.”

However as mentioned earlier, high end luxury cars seem to be more expensive than ever before.

Another Drive.com.au article from 2011 analysed the cost of high end luxury cars such as Ferraris and Lamborghinis and found that these luxury vehicles have increased in price by as much as 50% in a decade. While the price of a new BMW had also increased in this time, it was by a far smaller margin (approximately 10%). However, standard vehicles such as the Toyota Corolla actually saw a reduction in price between 2001 and 2011 – revealing just how much of a premium Australians really are paying for luxury cars.

Despite this, it seems as though Australians are buying more luxury cars than ever before.

Conclusion

There’s no doubt about it: Australians do pay more for luxury vehicles. Thanks to luxury car tax, perceived market tolerance, lower demand and the customisation of cars for Australian conditions, we are certainly charged a premium price that easily exceeds that imposed on countries such as the US and UK.

While private import is an option in some cases, it’s currently an incredibly expensive option when it comes to luxury vehicles. Thanks to endless restrictions at present, the vast majority of consumers are unable to head down the path of acquiring a private import.

However, there is some respite in site. Thanks to recent legislation changes that will see parallel imports become legal in 2018, it’s possible that luxury vehicles in Australia could become more affordable in the near future. Whether this actually comes to fruition remains to be seen – knowing the Australian government, things could change a lot in two years time!