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Are the world’s cars on the cusp of going solar?

Anthony Brown | iStock/360 | Getty Images

Within a decade, declining prices of solar systems and batteries combined with the rise of electric vehicles may start sending internal combustion engines to the junk yard, analysts say.

"By 2020, shrinking battery and solar cost will make EVs (electric vehicles) in the mass segments the cheaper alternative over a car life cycle in most European markets," UBS analysts said in a note last week.

It expects Europe, particularly Germany, Italy and Spain, to lead the shift due to their high fuel and retail electricity costs, with a "conservative" estimate for around 10 percent of Europe's new car registrations to be electric vehicles by 2025.

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"A mass segment EV will have almost the same sticker price as a combustion engine car [by 2020]. But it will save up to 2,000 euros ($2,632) per year on fuel cost, hence, it will begin to pay off almost immediately," UBS said.

So far, EV penetration is low at about 0.25 percent of the auto market, UBS noted, but it expects a more than 140 percent compound annual growth rate (CAGR) for sales. Around 113,000 EVs were sold globally in 2012, but that's likely to rise to more than 5 million by 2025, UBS estimates.

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In some markets, buying EVs is already cost-competitive, even if subsidies aren't included, and the economics will only get better when combined with solar, UBS said.

The bank expects battery costs will fall by more than 50 percent by 2020, which when combined with the around 85 percent decline in solar panel prices since 2007, will make home-based battery storage attractive, especially when combined with the EV.

"True cost parity with ICE (internal combustion engines) from a buyer's perspective will spur replacement demand especially as consumers see added benefit from self-generation of electricity as an additional cost reduction," it said. "It is the combination of the three that makes solar fully competitive and that has the potential to bring disruptive changes."

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Others aren't as convinced a sea change in auto technology will be as quick. "The next five years will both be uneventful and possibly game-changing," Itay Michaeli, an analyst at Citigroup, said in a report in July.

"Uneventful in the sense that no one technology will likely take the crown," he said. "Game-changing in the sense that nonconventional technology (EVs, fuel cells) could make sufficient strides to lay the ground work for an eventual disruption perhaps sometime next decade."

He noted that a superior technology for autos doesn't necessarily spur its takeup rate, citing "painfully slow" acceptance of diesel in the U.S. despite traditional cost-benefit analysis suggesting it is compelling for that market due to greater highway driving.

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But Michaeli expects EVs, as well as CNGs (clean natural gas) will disrupt the auto market over the longer term.

"From an operating cost perspective, electric vehicles (EVs) remain superior with a fuel cost-per-mile of only $0.04, even superior to CNG at $0.07 and of course far superior to conventional gasoline ($0.15)," he said.

To be sure, the fate of EVs isn't likely to be left solely to market forces. "The Chinese government has set itself major targets to see over half a million new energy vehicles deployed by end-2015 and over 2 million by end-2020," Namrita Chow, an analyst at IHS, said via email. "There has recently been an influx of regulations to encourage NEV (neighborhood electric vehicle) sales—particularly benefitting pure electric vehicles and plug in hybrid electric vehicles."

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Bloomberg reported Wednesday, citing sources, that China is considering providing funding of as much as 100 billion yuan ($16.27 billion) to build EV-charging stations.

"The introduction of the Formula E racing in Beijing and other premium EV events is part of an overall attempt to raise the awareness of EVs to Chinese consumers," Chow noted, adding that while the EV sales volume in China is still relatively limited, the growth rate has been "quite spectacular."

According to UBS data, around 12,800 EVs were sold in China in 2012, with around 64,000 expected to sell by the end of this year.

—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1