Understanding Electric Vehicle Total Cost of Ownership
This minority status that electric vehicles (EVs) still wear in Europe can be credited majorly to one thing: presumed electric vehicle total cost of ownership (TCO). Research shows that besides range anxiety, a prevalent limiting factor to EV ownership across Europe is the perceived costs accompanying owning and operating an EV. It’s become a growing cause for worry among potential European vehicle buyers.
According to research, only 13% of potential vehicle owners consider buying an EV, and 24% of this fraction still do not go for an EV when they finally decide because of the misguided fear of the TCO of an EV. Therefore, this post, in essence, aims to provide individuals, fleet managers and corporates who are hesitant to go electric with sufficient information on the TCO of EVs.
What is The Total Cost of Ownership of Electric Vehicles?
The TCO of an EV is the total of all the predicted costs required to purchase and maintain it. An EV TCO is broken down into the following parts:
- Purchase Cost: this is the initial investment or capital. The amount spent on claiming ownership of the EV.
- Repair Costs: maintenance costs of broken, worn out, or defunct parts peculiar to EVs, such as batteries, charge sockets, etc.
- Energy/Fuel Budget: depending on the kind of EV, these costs represent the amount spent on charging an EV (in the case of battery electric vehicles (BEVs) or fueling it (fuel-cell electric vehicles (FCEVs).
- Residual Value: the residual value of an EV is the estimated value it will retain at the end of the period of ownership.
- Tyres: the tyres of an EV quite differ from their ICE counterparts because of the difference in weight that they carry. In addition, EV tyre types vary with seasons (summer and winter). These conditions consequently mean they cost differently.
- Taxes: because of the swelling promotion of EVs in Europe, taxes on EVs and ICEVs differ significantly and, as such, are an important element in calculating TCOs.
- Insurance Costs: EV insurance costs are higher than their ICEV counterparts due to the costs incurred over replacing damaged parts, batteries and the use of repair facilities.
Of the above components, the most influential determinant of TCO is the energy/fuel cost. Energy prices vary heavily with locations and time and therefore dictate the bulk of TCO of EVs. Below is how much the TCO of certain European regions has adjusted over the past ten years.
Electric Vehicles TCO Trend in Europe Over the Past Decade
Norway remains the number one European country on the EV market penetration chart. With Norway as the primary case study, it is easy to map out the TCO of EVs within the last ten years.
BEV Purchase Costs
The average cost of an EV in Norway as of 2012 was NOK 227,150 (or €29,597.645 as of then). Fast forward to 2019, and very little has changed—NOK 202,300 (or €26,359.69). The trend line, as shown below, is not straight but haphazard, fluctuating within a definite pair of boundaries.
Chart illustrating BEV purchase costs between 1992 and 2019
Source: Science Direct
The table below shows how much difference is recorded annually in the average residual value of a BEV between 2011 and 2019. It is apparent from the data that the devaluation of EVs has reduced significantly over the past decade.
Source: Science Direct
Energy prices and, consequently, the charging rates have seen steady annual increments since 2012. The average charging rate was
NOK 0.795 (€0.1036) per kWh in 2012;
NOK 0.81 (€0.0906) per kWh in 2015;
NOK 0.92 (€0.066) per kWh in 2016;
NOK 1.16 (€0.1208) per kWh in 2018; and
NOK 1.15 (€0.1167) per kWh in 2019.
Factors Affecting the Total Cost of Ownership of EVs in Europe
While EVs generally have higher purchase costs than ICEVs, the other components, such as taxes, subsidies, and residual values, offset this imbalance and sometimes end up making EVs have lower TCO than ICEVs. The following factors affect TCOs and how potential electric fleets or vehicle owners can circumvent them.
A 2020 survey shows EV drivers are likely to spend 60% less on fueling (charging) than ICEV drivers annually. Despite this, charging costs can still pose a competitive challenge to the decisions of potential EV owners as they vary from country to country.
To combat this, fleet owners and EV drivers can borrow a trick that can never go wrong: smart charging. Smart charging helps EV owners & fleet managers to optimise their charging in relation to the Time of Use tariff or self-balancing, enabled by algorithms such as the Hive Power FLEXO smart charge.
Smart charging enabled by the FLEXO solution also allows EV owners to remotely control their charging from a mobile app and adjust their charging periods. Furthermore, as Vehicle-to-Grid applications grow, owners and fleet managers will be able to sell back unused energy in EVs to the grid for additional income.
Tax Benefits and Incentives
Another heavyweight factor that sways the tide of EV TCO in Europe is the pair of taxes and incentives. Across the continent, a select few countries readily have tax schemes and subsidies to encourage EV adoption. You can see the list of countries that offer these schemes and learn more about them here.
Earlier this year, the EU bloc approved its plan to phase out ICEVs completely by 2035. This means that the competition between both vehicle types will be reduced to zero, and the inhabitants of Europe will find newer ways to adapt to this change that is being gently eased down onto the continent’s transportation sector.
Adaptations typically take so much time, effort, money and convenience. However, with the fitting resources at the disposal of Europeans, transitioning to this new system might come with a better, smoother experience. Smart charging has been proven to improve the TCO of EVs, which can give a soft landing to every participant in Europe’s EV market as 2035 approaches.
Book a slot with our team to understand how Hive Power’s FLEXO solution can be tailored to your smart charging needs.