Assessing EV vs ICE TCO
Fleets need a forensically local focus to assess the cost implications of switching from petrol or diesel to electric powertrains.
The transition to electric vehicles has made total cost of ownership (TCO) calculations infinitely more complicated.
TCO is the sum of all the costs associated with acquiring and running a vehicle over its fleet life. These include interest rates on the finance used to fund the vehicle, money lost in depreciation, fuel or electricity costs, insurance premiums, taxes and road tolls, and service and maintenance bills. The TCO seesaw between ICE and electric vehicles tips either way depending on the category being analysed.
Vehicle price inflation
Firstly, however, any fleet looking to replace vehicles nearing the end of their contracts needs to brace itself for the savage inflation in the cost of all new vehicles. Prices have risen by more than 30% for many new models in the US, and analysis by T&E found that Europe’s five biggest car makers had increased the prices of their cheapest models by an average of 41% between 2019 and 2023.
This means borrowing costs to fund new vehicles have also risen to fund the higher prices, exacerbated by higher interest rates in some regions.
Moreover, even if residual values rise by the same percentage as new prices (and there’s no guarantee this will happen), the net depreciation of vehicles acquired in 2024 will be greater than those that started their fleet life in 2019, pushing up their TCO.
These pressures apply to all new vehicles, regardless of powertrain. At present, EVs are more expensive to buy than ICE equivalents, but the gap has narrowed considerably. A Google search of ‘price parity’ reveals any number of forecasts when the two technologies will cost the same, ranging from 2025 to 2035, although purchase price is very different to TCO.
Working in favour of EVs are acquisition grants in some (but not all) countries, tax breaks, as well as exemption from annual road taxes and local low emission zone charges. The scale of these savings is country specific and therefore requires a national-level focus by fleets.
Insurance and maintenance
Motor insurance costs have risen for all vehicles in the last four years, but EVs are proving to be considerably more expensive to fix. According to the Association of British Insurers: “BEV claims [are] already ~25.5% more expensive than their ICE equivalents and are taking ~14% longer to repair.”
But EVs should be significantly cheaper to maintain, with many fewer moving parts, although leasing companies report garages charging higher hourly labour rates to compensate for less work. Nonetheless, over longer contracts, EVs ought to deliver savings in maintenance spend. However, early data from epyx’s 1link Service Network platform suggests EV tyres last about 10,000km less.
The biggest variable in EV TCO is charging cost. Whereas the price of petrol or diesel typically varies by no more than 15%, depending where a driver refuels, electricity can cost as little as 10 cents per kWh at home, and as much as 79 cents at a high-speed public charger in Europe, a variance of 690%. Fleet managers need to find a cheap charging solution for EV drivers (especially high mileage drivers who rely on public charging) to keep TCO competitive, although this raises a further question: should home and workplace charging infrastructure costs be included in TCO.
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