Why fleets can overestimate the total cost of ownership for EVs
The total cost of ownership (TCO) measures the real cost of a vehicle. Due to regulation and cost pressures, fleet owners are continuously looking for ways to reduce operating costs. Traditionally, the life-cycle costs of conventional vehicles (CVs) have remained unchanged. However, with the introduction of electric vehicles (EVs), cost models require significant reform.
The obvious costs such as fuel, maintenance and repair, interest, and depreciation are still relevant. A fundamental difference with EVs is the battery component. In particular, the revenue opportunities with vehicle-to-grid (V2G), and second-life stationary storage. When cost is a critical factor, fleet owners must be aware of these crucial differences when carrying out the TCO.
The Total Cost of Ownership Calculation
A bulletproof TCO takes into account every single factor that affects the real cost of a vehicle. A standard approach splits the model into two. First, the direct costs make up all the costs associated with acquiring and running the fleet. These include upfront costs, depreciation, residual value, vehicle maintenance and repair, taxes, finance costs and interest, fuel, and insurance. Also, For EVs, any financial subsidies are included here.
Importantly, fleet owners must adjust for business-specific characteristics such as vehicle lifetime, annual mileage, financing agreements, or any down payments on the vehicles.
A Typical Total Cost of Ownership Model
Secondly, associated indirect costs such as employee productivity, driver well-being, and time spent on management or administration, are often included. However, the nature of the costs means that they are more difficult to quantify. For all the TCO enthusiasts, a comprehensive view of all the components incorporated, and its pitfalls when calculating CV and EV total cost of ownership is available in a recent comparative analysis.
Consumers often place greater significance on the upfront costs, rather than considering the total costs of owning a vehicle over an extended period. The upfront costs continue to be one of the main barriers for EVs. As recognized by governments, incentives are available to subsidize the purchase price. However, as technology improves and battery costs decline, all types of EVs will soon reach price parity with CVs.
According to a recent AAA report, all-electric vehicles already have a lower average cost than CVs. The study found that the driving costs of an all-electric vehicle based on the annual mileage of 15,000 miles was $8,439, compared to $8,469 per year as the industry average. The key driver is lower operating costs for EVs. Without a combustion engine to support and less moving parts, EV have the lowest maintenance and repair costs. Equally, fuel costs are considerably lower at under four cents per mile.
However, what time of day you charge can make a massive difference to fuel price, therefore, impact the TCO. Thus, adopting efficient charging plans, fleet owners can produce extra savings. The introduction of specific EV charging tariffs, for example, PG&E in the US offers two time-of-use electric vehicle rate plans for residential customers, allows fleets to benefit from cheaper off-peak tariffs.
On a similar note, FleetCarma’s SmartCharge Manager offers a data-driven solution to charge optimization. The tool allows fleet owners to avoid electricity peak demand charges, review real-time battery health, and help understand charging patterns and behaviors. Therefore, taking advantage of fleet management software that can optimize charging profiles, and the low rate, time-of-day electricity tariffs will help drive down the TCO for your fleet.
Battery Ownership is a Game Changer
As highlighted before, the battery offers revenue opportunities. Unlike CVs, EV batteries have a life-span far beyond its initial vehicle use. Technological advancements such as V2G and stationary storage are creating new revenue streams. However, current TCO models fail to take into account additional battery uses when deciding the feasibility of switching to an EV fleet.
V2G turns EVs into an energy storage facility that connects with the electricity grid to help with demand management. Therefore, during peak times, electricity is provided from the vehicle to the grid, and in return offers a financial incentive. A new UK study on the economic benefits of V2G shows that over a ten-year period supplying energy to the grid three times a week could produce revenue of £8,400 (roughly $11,000 USD). However, did note that the income generated was strongly dependent upon battery degradation costs connected with the V2G process.
How long an EV battery will last is a hot topic in the industry. Data suggests battery degradation is reasonably flat, and given that the typical vehicle is replaced every eight to ten years, it provides opportunities for further usage in less intensive stationary environments. For example, Nissan and Eaton are using second-life Leaf batteries to create stand-alone energy storage units, that will allow consumers to manage energy consumption. The storage offers an affordable and long-term solution that will increase grid efficiency. Equally, recycling has gained traction, Li-cycle, a Canadian based company can recycle 100 percent of lithium-ion batteries for reuse.
V2G, stationary storage, and recycling provide openings to extend the life-cycle of EV batteries. Therefore, the challenge for traditional TCO model’s is can they incorporate the future revenue opportunities that batteries have when EVs initially retire?
For far too long, fleet owners pay undue attention to the upfront cost of vehicles when making a purchase. While the total cost of ownership modeling remains a crucial tool for making decisions, EVs completely change the game. No longer is the cost only considered when the vehicle is in its first life. The afterlife of EVs, specifically the battery provides revenue potential that is ready to be explored. If I were a fleet owner, I would think twice before purchasing another fleet of conventional vehicles. From a TCO perspective, EVs are already cheaper and are only going to get less expensive in the long term.