Ignore the naysayers: running electric vehicles can save you money

Eight years ago, Fleet News produced a supplement boldly called “2012: The Year of The Electric Car”.

While there was growing evidence at that time that the technology was about to break through into the mainstream, it turned out we were – as is sometimes the case – ahead of our time.

However, current political, environmental and technological circumstances suggest that with the dawn of the new decade, battery electric vehicles (BEVs) will now really start to gain a firm foothold in the UK fleet sector.

Part of the reason for this should be that the adoption of BEVs also has the potential to save fleets thousands of pounds per vehicle each year.

This is why it is important that organisations look beyond the P11D price or leasing cost premium that BEVs carry over petrol or diesel vehicles to look at wholelife costs, says Helen Lees, head of electric vehicles and connected services at Groupe PSA.

“We are trying to focus our customers’ minds on the total cost of ownership of EVs,” she says.

“Even if you have to pay more up front, or even if your monthly rental is a little higher, the reduced running cost through electricity is much cheaper than petrol or diesel; there is a reduced service, maintenance and repair (SMR) cost from the fact there are fewer mechanical working parts so there is less to replace on every service, and that can change the perception of pricing in the customers’ minds.”

Here we look at the some of the elements which influence the cost of operating a BEV and what they mean for a fleet operator.

 

Purchase price/lease rentals

BEVs have traditionally carried a price and leasing premium over petrol or diesel vehicles, with research from Sewells showing this is a major barrier to wider fleet uptake of the technology.

As an example of the differing costs between internal combustion-engined (ICE) cars and their electric versions, the P11D price of the Volkswagen e-Golf starts at £31,020, while the ICE range – excluding the GTi hot hatch – is priced between £19,065 and £30,880.

Hyundai’s Kona Electric has a P11D price from £30,695. The ICE models range from £18,330 to £26,245.

Sewells’ British Business and Mobility Study found:

• 30% of car fleets and 22% of van fleets are not prepared to pay a premium to purchase or lease an electric vehicle (EV).
• 61% of car fleets and 74% of van fleets think it will be three years at least, if ever, that electric vehicles reach a price the business would be prepared to pay.

However, advances in technology and falling prices of raw materials mean the price difference between BEVs and ICE vehicles is shrinking, with analysts KPMG predicting price parity next year.

It says batteries typically account for 40% of the cost of an entire vehicle and when the first mass-market EVs were introduced in 2010, they cost an estimated $1,000 (£765) per kWh.

Today, Tesla’s Model 3 battery pack costs $190 (£145) per kWh, and KPMG expects the cost to halve by 2030 due to technological developments and production scale economies.

“If you look at what has happened in the battery supply market, there have been significant changes in lithium battery prices over the years,” adds Lees.

“Probably the easiest example I can give is Peugeot Ion and Citroën C-Zero. When we launched these in late 2010/early 2011, they were £33,000 cars.

“When they were discontinued in the UK market in 2018, we were retailing them at £16,000 and the absolute majority of that change was down to battery cost reduction.”

 

Fuel costs

The major cost advantage a BEV has over an ICE vehicle is fuel. “It is a fraction of the price,” says Simon King, fleet and procurement director at Mitie, which has committed to 20% of its car and small van fleet to be electric by the end of the year.

The cost of electricity to power a BEV for a mile depends on the electricity tariff used, but starts at around 3.5 pence per mile (ppm) on the average domestic electricity rate of about 14 pence per kWh. This compares with 11ppm to 14ppm to fuel a typical diesel car.

However, like petrol or diesel cars, the efficiency of a BEV can vary massively.

“We are finding that manufacturers are applying BEV technology in different ways,” says Rob Anderson, programme manager at Cenex.

“You’ve got the likes of Hyundai and Kia who have quite an efficient drivetrain, because you have got a 64kWh battery pack that will do 270 miles on a charge.

“You’ve then got companies like Jaguar and Audi who are throwing the kitchen sink at it with 90kWh battery packs and they will still just about do 280-ish miles.

“They have probably gone for performance because that’s what their customers expect. They expect acceleration, they expect that oomph behind the wheel, which is why they’ve added extra batteries in there to give them that, whereas Hyundai, Kia and Nissan have gone ‘tell you what, let’s go for efficiency’.”

This has a noticeable affect on the cost of fuelling BEVs – as the table shows – but it is still much lower than for ICE vehicles.

Organisations which reimburse drivers for business miles using the Government’s advisory fuel rates can also make significant savings by switching to BEVs.

HMRC has set an advisory electricity rate (AER) for BEVs at 4ppm. This compares with between 12ppm and 21ppm for petrol cars and between 9ppm and 14ppm for diesel models.

This means an employee driving a BEV more than 10,000 business miles a year will be reimbursed £400. If they were driving a petrol or diesel car, this figure would be between £900 and £2,100.

“There are huge savings there to be had,” says Mel Creedy, business development manager at DriveElectric.

 

Benefit-in-kind tax/Class 1A NIC

The Government’s announcement that drivers of BEVs will pay 0% company car tax for the 2020/21 tax year will lower the cost of operating the
vehicles for both employees and employers.

From April, a 20% taxpayer who drives a £32,000 BEV will save £1,664 a year compared with an identically priced petrol car with CO2 emissions
of 105g/km (26% BIK band), and £1,792 over a 95g/km of CO2 diesel (28% BIK band), with the same P11D price. These savings double for a
40% taxpayer.

The BIK tax bands for EVs will increase to 1% in 2021/22 and 2% in 2022/23.

“It always amazes me how little employees know about electric vehicles,” says Simon King, fleet and procurement director at Mitie, which has pledged to convert its entire fleet to electric by 2030. “If you drive a BMW 320d and switch to a Tesla Model 3, how much BIK will you save a year come April? It’s £4,500 take home.

“So, if I take away your BMW 3 Series and give you a Tesla instead, that’s the same as giving you an £8,000 pay rise, assuming you are a 40% taxpayer. What’s not to like about that?”

The changes to the BIK car tax regime also have benefits for employers. As the Class 1A National Insurance Contributions (NICs) for company cars is calculated using the BIK tax band, organisations will pay no Class 1A NIC on pure electric vehicles in 2020/21.

Using the same cars as in the previous example, they will save £1,148 and £1,236 a year by opting for a BEV over an equivalent petrol or diesel model respectively.

The fuel BIK charge that applies to ICE cars does not apply to any electricity supplied by an employee to charge a BEV (such as at work), while employers can provide a charge card to give access to public charging points without a fuel BIK charge arising.

There is also no BIK charge for a company car user when an employer pays to install a charge point at the employee’s home.

In addition, BEVs are also exempt from vehicle excise duty (VED), while companies are able to claim First Year Allowances for electric charge point equipment bought.

 

Service, maintenance and repairs

The SMR costs of a BEV are between 40% and 60% lower than for an ICE car, according to analysts at KPMG.

Figures from data company KeeResources show the SMR cost of a Hyundai Kona Electric over four years/80,000 miles is 2.97ppm, or £2,376. This is £1,328 – or 35% – less than for the petrol Kona 1.0T-GDi 120 SE.

The reduced cost of SMR is largely down to the lower number of moving parts: a BEV powertrain features just three – the on-board charger, inverter and motor – compared with the hundreds of components in an ICE engine and gearbox.

Cornish business C&C Taxis reports that over 174,000 miles and outside of scheduled annual services, one of its Nissan Leaf taxis needed
just three sets of wipers, two sets of brake pads for the rear and one damper, as well as tyre replacements when necessary.

“With a diesel taxi doing that sort of mileage you’d be looking at replacing a clutch and that sort of work can see a car out of the business for three days,” said Mark Richards, C&C transport manager.

“That length of downtime can hurt the business, but we haven’t had that problem with the EV. Service and maintenance savings are impressive.”

 

Clean Air Zones

More than 60 towns and cities around the UK have either introduced or are currently considering the potential introduction of clean air zones (CAZs) to improve local air quality. These see vehicles which do not meet stipulated emissions standards charged to drive in the zone, with requirements varying dependent on the scheme.

Currently, the majority of CAZs allow petrol and diesel cars and vans which meet the latest Euro emissions standards to enter without paying the charge, but there are signs this will change.

Bristol, for example, has proposed a CAZ which bans diesel cars and vans from an area in the city centre from March 2021, while Oxford is set to introduce a zero-emission zone, banning all petrol- and diesel-powered vehicles from entering its city centre from December.

Transport for London (TfL) has announced that only BEVs will be exempt from its charge after October 25, 2021 – the date when the zone is due to expand to 18 times its current size. All other vehicles – including plug-in hybrids – will then be subject to the charge.

Organisations can make significant savings by operating BEVs in these areas. For example, London’s ultra-low emission zone (ULEZ) sees cars and vans which do not comply with its emissions standards facing a daily £12.50 charge to drive within the zone. If a non-compliant vehicle operates in the zone just twice a week, it will rack up charges of around £100 a month, or £1,200 a year.

 

Residual values

As a new technology with limited supply into the used market, the long-term strength of BEV residual values (RVs) is relatively unknown. However, KeeResources predicts they are comparable with petrol and diesel models.

For example, it says after four years/80,000 miles, a Volkswagen e-Golf will retain 27% of its value. Over the same duty cycle, a diesel Golf will be worth 25% of its new price.

The data company also says, over the same lifecycle, a Hyundai Kona Electric’s RV will be 25%, two percentage points lower than the petrol model.

“Over time, used (BEV) values have stabilised and now perform against the same market pressures as their petrol counterparts,” adds Chris Plumb, senior valuations editor at Cap HPI.

“It’s clear that there is a growing market for a used BEV at a particular price point perhaps for use as a second car for city commutes. We expect to see demand continue to increase as CAZs are rolled out across the country and the range of product widens.

Simon King, of Mitie, is “very optimistic” about the future RVs of BEVs.

“If you buy a Tesla Powerwall which has got 10kWh of battery storage, it will cost you £5,000,” he says.

“A Nissan Leaf e+ has a 62kWh battery and costs £35,000; 62 divided by 10 is 6.2, multiply that by £5,000 and you get close to £35,000 which is the cost of the car, so buy a battery, get a car free.

“Over time, yes, the battery will degrade, but the RV associated with that battery will be significant, whether it be for the rare earth metals or the battery per se.

“There is a huge opportunity to reuse that storage and that capacity in time, so I think the RVs will stack up very well.”

 

Government grants

Financial help is available from the Government to help organisations adopt EVs.

Its Office for Low Emission Vehicles (OLEV) offers a range of grants, including plug-in vehicle grants towards the purchase price, which go up to a maximum of £3,500 for cars and up to £8,000 for vans.

OLEV’s Workplace Charging Scheme is a grant that businesses can use to reduce the cost of installing charge points for staff by up to £10,000.

The grant is for £500 per charge point socket, up to 20 sockets per applicant organisation, and is available to any business, charity or public authority.