12 Oct 22

"Electrification is the best long-term strategy to optimise TCO"

For fleet managers, 2022 was like a boxing match. Yet, there will be many rounds in 2023, as new challenges arise as inflation kicks in and energy prices continue to rise. At the latest session of the International Fleet Managers Club (IFMI), hosted by Fleet Europe Editor-in-Chief Steven Schoefs, experts in the fleet industry discussed the current situation and the short and long-term solutions to the rising concern over the total cost of ownership (TCO). 

The virtual gathering of IFMI on 11th October, sponsored by ALD Automotive, Arval, LeasePlan, MHC Mobility, Seat and Cupra, was a powerful learning lesson focusing on the factors impacting the economy today and how fleets shall optimise their budgeting to set the best TCO? 

Growth is slowing down

Inflation and rising prices are not limited to Europe, as companies have begun feeling the pressure worldwide and expecting recruiting difficulties in the months to come, according to William De Vijlder, Group Chief Economist, BNP Paribas. De Vijlder highlights some important facts: 

  • Supply chain restraints, on the other hand, are easing, and delivery times are getting slightly shorter,
  • Disinflation is expected to be slow in 2023, as central banks will increase interest rates. 
  • Companies will push back their hiring plans and start preserving more cash, slowing down investments. 

In general, the picture points out a tightening economy as De Vijlder gives the message to be more careful with budgeting. 

What is impacting the TCO? 

The economic outlook provided by Sjoerd Brenters, Director of International Consultancy Services, LeasePlan, is also not relieving. According to recent figures, the cost of diesel and electricity increased by over 50% in the past 12 months in the major 12 European countries, and for petrol, the ratio is over 20%. Additionally, there is a 16% impact on TCO between mid-2021 and mid-2022 in France, Germany, Italy, the Netherlands and the UK.

"When looking at TCO, fleets must see the predictable costs during the vehicle contract life and the unpredictable costs unrelated to the lease plan," says Nicolas Michel, Senior International Consultant, Arval. All costs related to TCO are increasing, warns Michael. At this point, he underlines that the competitiveness of the all-electric vehicles (BEVs) TCO is not yet threatened compared to ICEs. In the worst case scenario, Michel says the electricity cost in France should be multiplied by three to make the TCO of an EV just at the same level as an ICE.

"If you are ordering an EV today, it will still be competitive in the coming months," says Michel. 

Do better planning for demand

The current issues in the supply chain prolonged the question of "How long do I need to wait for my delivery?" This depends on the car segment, the configuration of the vehicles, engine type and the market you are ordering from, says Daniel Schessler, Key Account Management, SEAT. From an OEM perspective, some suggestions are:

  • Preparing more advanced planning of demand.
  • Taking consideration of the time needed for particular configurations.
  • Being more transparent about the delivery due dates. 

Strategies to handle TCO 

Virginie Pochat, Senior International Consultant, ALD Automotive and Andrew Wilson, European Business Development Manager, MHC Mobility, gave tips on the short and long-term approaches to managing and controlling TCO. 

Achat underlines the importance of anticipation of the renewal times depending on the model. Thus, fleet managers can update their fleets, ensure the drivers have their vehicles on time and keep today's pricing for orders. 

In the long term, electrification is the ultimate solution. Despite the increase in electricity costs, the transition to EVs has proven to have the largest effect on TCO, says Wilson. To speed up the electrification process, fleets must: 

  • Fully understand their actual vehicle use, 
  • Adapt to connected technology and perform a robust EV suitability assessment. 

According to Geotab, electrification may save up to 60% in fleet costs, he reminds. 

Achat and Wilson provide some interesting statistics on the power of electrification: 

ALD calculations showed that the energy breakdown for EVs is 15%, while it is 27% for ICEs. 
A recent study showed that 86% of the 46,425 vehicles studied could be replaced with an EV which would complete 98% of journeys without charging, saving 9,508 euros per vehicle per year. 

The IFMI experts also support adapting multimodal mobility to distance fleets from traditional car leasing to optimise TCO. To have everlasting knowledge and confidence in your TCO strategy, don't forget to join us in the next IFMI sessions!  

Authored by: Mufit Yilmaz Gokmen