EVs beat gas cars in total cost of ownership, says new study

In good news for environmentalists, researchers at the University of Leeds have assessed the total cost of ownership (TCO) of Plug-in Hybrid Electric Vehicles (PHEV) and Battery Electric vehicles (BEV) in three countries (the UK, USA, and Japan) between 1997–2015. The study found, that thanks to subsidies, BEVs were able to reach cost parity with other vehicles in all three countries, however plug-in hybrids remain behind the curve in comparison to ICEs.

The electrification of the transport sector reduces national oil dependency, while enabling more renewable energy generation. Urban air pollution is also a serious concern for residents in many cities, with poor air quality understood to claim the lives of over 7m people annually worldwide. The batteries found in BEVs can also be used on the grid as storage assets, as distributed batteries, making it easier to stabilize local electricity networks.

PHEVs and BEVs emit lower levels of carbon dioxide and air pollutants than conventional petrol and diesel vehicles, contributing to the decarbonization of road transport and improving urban air quality. Growing the adoption of these low emission vehicles is therefore of interest to environmental policy makers – and air quality is becoming a more pressing issue for many voters.

The study works to establish a clear relationship between the TCO and adoption of low carbon vehicles, finding that there is a positive correlation between the two – although it accepts that the TCO is often not always the critical factor in a customer’s purchasing decision. Currently, the market share of low carbon vehicles is not significant enough to make a dent in pollution or grid stabilization. If policy makers want to address these areas with increased adoption of low-carbon vehicles, they should consider how they can continue to improve TCO.

With a larger battery and features such as regenerative braking, engine stop-start, and a novel transmission system, hybrid and electric vehicles have a higher manufacturing cost than conventional ICE vehicles. However, running costs are often lower, stemming from cheaper fuel costs, taxes and maintenance.

Many countries also offer subsidies or reduced taxes for low-emission vehicles, to stimulate adoption, such as the Clean Vehicle Rebate project in California and the Green Vehicle Purchasing Promotion in Japan – the net effect of which means the premium paid for EVs by consumers is outweighed by the saving made from lower running costs and subsidies, with the government benefiting from the air pollution benefits of the EVs.

On the topic of subsidies, a German government agency has removed Tesla’s Model S from its list of eligible BEV cars, because customers cannot order the base version of the vehicle without extras, pushing the cost of the vehicle above €71,500 price limit.

The incentive scheme, launched last year and worth $1.2bn, was partly financed by the German car industry to boost low-carbon vehicle adoption. A price cap was included to exempt premium models. Under the subsidy scheme, buyers get €4,000 off their BEV purchase and €3,000 off PHEVs.

Returning to the study, it notes that the dynamics of purchasing a new vehicle are driven by consumer finance agreements, normally based on a 3-year contract, where the consumer pays for the depreciating value of the vehicle before it is then resold on the second-hand market. Finance-driven models of ownership, have caused depreciation rates to become the most defining factor in the cost of vehicle ownership. Uncertainty surrounding the depreciation rates for both BEVs and PHEVs, which have been available on second hand vehicle markets for over a decade, is currently constraining adoption – according to the report.

The study also points to the number of charging stations in an area as a key factor in low emission vehicle adoption. Investments in charging infrastructure have been extensive in California and Japan, reducing the issue of range anxiety – which is still the most frequently cited fear among consumers when considering purchasing a new BEV.

Policy makers in China are planning to build 4.8m charging stations across the country by 2020 – a project that is expected to cost $19bn. Analysts at Ping An Securities believe most, if not all, of the funding will come from the state.

At the end of September 2017, China had just 190,000 charging poles and stations, which is still the largest number of any country in the world, but a tiny fraction of the target with three years to go. By comparison, the US has 44,000 charging outlets and 16,000 electric stations.

Elsewhere, the European Commission proposed allocating $942m from the EU budget to finance projects that will improve the infrastructure for BEV charging, this week. The decision redistributes funds that had been previously been allocated towards funding carbon capture research projects, which yielded no fruitful discoveries, despite having cost an estimated $691m before this reallocation.

The private sector has also seen significant activity to support anticipated consumer demand for BEV charging infrastructure. Shell recently purchased charging equipment vendor and operator NewMotion, which manages over 30,000 charging points for electric vehicles in Western Europe.

The study also found that incentives such as the number of charging points in area were difficult to quantify, but likely have a positive impact on adoption – such as in California, where low emission vehicles have access to their own lanes. Drivers of PHEVs and BEVs could apply for stickers that allowed them access to special lanes.