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22 Sep 20

Going Electric: conversational TCO myths

EV adoption is improving, but still needs to overcome a few hurdles; range anxiety is definitely the most important one, albeit more of an excuse not to electrify at this point in time, as +400km range vehicles become available on the market.

We’re also past the times where EVs didn’t appeal to the general public from a look & feel point of view. OEMs seem to have moved away from the spaceship esthetics and are producing vehicles that are looking either fairly similar to other vehicles or have a less radical design that seem to please more people.

From an image point of view, brands like Tesla have managed to lift the status of an EV driver rather than undermine it. Sustainability is no longer part of the marketing campaign but speed, torque, acceleration and tech are at the centre of the buyer’s attention.

Still, it’s too early to conclude that EVs have gained their place on the corporate car list and there’s a good reason for it: driving pure electric is expensive. Or is it not?

Let’s have a look at some of the myths that still exist about electrification.

1. EVs consume less energy

Let’s start with the most complex one. It starts going wrong if your car list or employee budget is based on lease rates rather than on TCO. Replacing a typical entry-level vehicle, such as a VW Golf, with a similar EV will drive the cost upwards dramatically for what is probably your largest employee population. This is not a pleasant conversation to have with your CFO.

But then again, how to compare the TCO of an EV with the TCO of an ICE? Take charging versus fuel consumption. For a contract based on 30.000km/year, you’ll be including 125 to 150 liters of fuel on monthly basis into your TCO calculation. Charging however works differently: charging at the office will most probably be less expensive than charging at home or at public charging stations. Therefore, applying a mix of 60% office / 30% home / 10% public charging makes sense, at least if you have the exact cost of electricity per kWH.

These ratios however change constantly, especially when people will be working from home: your employee will be doing less miles indeed, but, at the cost of home charging (or public charging if the employee doesn’t have a private charger), each mile will come at a higher cost.

The reality however is that traditional fuel vs. electricity comparisons need to include the fact that electric engines are significantly more efficient that combustion engines, regardless of the behavior of your employee. According to recent studies across various models, up to 54% savings on energy are realised when driving electric, compared to driving combustion.

2. EVs move emissions to the powerplant

Gas, coal or nuclear are still the most common energy sources of powerplants, and in that sense, the electricity that is consumed by EVs generates, indirectly, emissions or – worse – nuclear waste. Hydrogen vehicles are subject to a similar rationale: the production of hydrogen requires a lot of, yes, fossil fuel and hydrogen needs to be transported to fuel stations with, yes, diesel trucks.

The counterarguments are however not complicated: ICE vehicles can function only by generating energy from fossil fuels, whereas electricity (and hydrogen) have the potential to be generated more sustainably. Solar and wind would be ideal, but in the meanwhile more efficient powerplants can make a difference.

The other argument is that, regardless the source of the energy, electric engines are more efficient than ICE engines.

3. Producing batteries is expensive and polluting

Lithium and cobalt are not only 2 elements required to produce batteries, they’re also subject to controversy. Recurrent topics are child labour used in the mineral extraction business, as well as the limited availability of such minerals.

It is true that there are valid concerns around cobalt extraction in the DR Congo, a country that holds well over half of the global reserve of the mineral. Companies that hold battery producing expertise, have started developing new batteries that need less and eventually no cobalt. The reason is simple: cobalt is expensive and hits the P&L. Sustainability goals always work better with economic incentives.

As for lithium, most coverage is about the hurts done to environment and, even worse, child labour involved in the mining industry. Lithium is also used in mobile phone and laptop batteries, which seems to generate less nervousness in the media. But still, this is beside the point: mining is only one source of lithium, accounting for roughly 13% of total extraction. The remaining 87% comes from evaporation of brine (salt) water, an intensive process indeed, but not involving deforestation or child labour.

4. No moving parts, so no maintenance

EVs still generate maintenance cost, regardless of what urban legends tell us. You will still need to replace e.g. tyres, A/C filters and windscreen wipers. There are however some differences with ICE vehicles that have an impact on the maintenance cost.

For example: EVs apply regenerative braking, which means that the electric motor intervenes in the braking process to return energy back to the batteries. The result is that braking pads are less solicited than those of ICE vehicles, and consequently need to be replaced less often. EV tyres on the other hand will need to be replaced more often than ICE tires, because EVs are generally more powerful and have higher torque.

So overall, EVs require less maintenance than ICE vehicles, but it’s far from being a zero count.

5. EV Lease is expensive

Saving the best for last: EVs have a reputation of being expensive lease cars. There is a bit of a media contradiction regarding the monthly lease rate: reports are being produced indicating that the reselling value of EVs (and especially Tesla) are higher, compared to similar ICE cars. Often, Tesla S is compared to a BMW 5-Series or a Mercedes E-Class. These comparisons need to be nuanced:

  • Older EVs (pre-Tesla) had very low residual values, mainly due to their technological immaturity, unpopular looks and the low popularity of EVs in general.
  • When comparing a Tesla S with a luxury full-size sedan, it’s often forgotten that these 5-Series or E-Class already have a challenging residual value to start with.

In conclusion, it’s too early to define the true RV trends for electric vehicles; a few factors will still influence that value moving forward:

  • A higher availability of makes and models
  • Taxation that favours second-hand EVs compared to second-hand ICEs
  • Potential new battery technologies that will influence the value of the current lithium battery-powered EVs

And do not forget that all vehicle leasing companies are evolving their EV solutions and are gradually presenting solutions that improve the TCO of EVs and make them more accessible to employees of all levels. Alphabet’s AlphaElectric is such an initiative that starts with a fleet assessment, helping the client to figure out if and how EVs could work within a fleet.

 

Authored by: Yves Helven
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