The battle of TCO: EVs vs ICEs

Electric vehicles still tend to cost more to purchase or lease than their conventional ICE (internal combustion engine)-powered counterparts.

For fleet decision-makers, however, a sole focus on upfront pricing can result in cost deferral. To avoid kicking the proverbial cost can down the road, a vehicle’s total cost of ownership (TCO) should be calculated to establish a full picture of how much it will cost their business over the longer term.

Here, we’ve pitched EVs against ICEs in a head-to-head battle of TCO. Can you guess the winner?

Energy

The cost of petrol and diesel has soared over recent months due to the increased price of crude oil. This has meant that, despite rising energy costs, the per mile cost difference of running an EV, compared to a conventional vehicle, has become more marked.

According to analysis in June 2022 by transport research association, New AutoMotive, the fuel bill is now around 80 per cent cheaper, with a small EV such as the Nissan Leaf costing £250 per year, compared to £1,210 for a 38mpg petrol car and £1,260 for diesel.

The cost of charging an electric vehicle will ultimately depend upon the size and nature of the battery, prevailing energy prices and the location of the charge point. Rapid charge points at service stations, for example, tend to be relatively expensive to use, while charging at home during ‘off-peak’ hours can prove less costly.

It is important, therefore, that businesses establish and implement a robust workplace charging strategy to help keep a lid on costs (check out our guide here).

Winner: EVs

Service and maintenance

Did you know there are more than 2,000 moving parts in an ICE vehicle?

With that many components, it’s easy to see why things can go wrong, resulting in fleet and business downtime and a hefty financial burden.

By comparison, EVs have much fewer moving parts – around 20 – making them cheaper to maintain and service. Their batteries have a longer life than a typical ICE vehicle engine, while regenerative braking makes for more efficient braking, meaning reduced wear. Indeed, a study has claimed service and maintenance costs could be up to 23 per cent lower over a typical three-year, 60,000-mile period.

This is not to say they don’t come with problems, however. EVs will still experience the usual wear and tear with their power steering, wipers and other shared components.

For electric cars, manufacturers will also typically offer a longer warranty, covering not only the battery pack failing outright, but also if the battery capacity drops significantly beyond what is expected. This differs between manufacturers, however most set the threshold of around 70 per cent of the battery’s original performance. Nissan, for example, guarantees its batteries against capacity loss greater than nine out of 12 bars on the Leaf’s display.

Winner: EVs

Depreciation

EVs were once thought to depreciate in value more rapidly than ICE vehicles. However, due to the limited supply of electric cars and the relatively slow degradation of battery packs, this has not proved to be the case.

According to data, a one-year-old EV loses 12 per cent of its value compared to 24 per cent for ICE vehicles. After three years, meanwhile, or 36,000 miles, electric cars have been found to hold around 48.9 per cent of their value, compared to 40 per cent for traditional petrol and diesel cars.

Winner: EVs

Insurance

Insurance remains one of the biggest contributors to fleet TCO – but can an EV fleet mean reduced insurance costs?

Not quite. Historically, the cost of insuring an EV has been more expensive than insuring a petrol or diesel vehicle. This has been due to a number of factors, including their relative lack of popularity, higher cost, expensive and less readily available parts, and the need for specialised garages.

As they become more commonplace on our roads, however, with an increased number of consumers and businesses making the switch, the premium price gap between EV and ICE vehicles is expected to shrink.

Winner: ICE vehicles

Taxes, grants and incentives

Vehicle Excise Duty (VED) is based on the carbon emissions of the vehicle, meaning it’s free for those with pure electric vehicles. ICE vehicles aren’t exempt, however, with the rate of tax dependent on the level of CO2 emissions, age and price of the vehicle.  

To entice drivers to make the switch to electric, the government is also offering attractive incentives. Company car drivers choosing an electric car are subject to just 2 per cent tax on Benefit in Kind (BIK) in 2022/23 and is held at this rate until at least April 2025. For e-LCV drivers who are allowed to use their vehicles for private journeys, there is zero BIK.

For business, there are further reductions in National Insurance as this is based on the 2 per cent BIK charge, while with Corporation Tax Relief, lease rentals can be fully offset. They can also benefit from 100 per cent first year capital allowances until 2025, however this does not include leased vehicles.

The plug-in car grant, which was worth up to £1,500, was pulled in June. Though for e-LCV owners, a purchase price grant is still available of up to £5,000 dependent on the size of the vehicle.

Winner: EVs

Environmental charges

An increasing number of UK cities are implementing Clean Air Zones (CAZs) and Zero Emission Zones (ZEZ). These, along with London’s Ultra-Low Emissions Zone (ULEZ), are designed to improve air quality by discouraging the use of older, high polluting vehicles.

If your employees drive an ICE car or van that doesn’t meet emission standards, there may be a charge for driving in a CAZ or ZEZ. EVs are exempt from charges due to their lack of emissions. They are also exempt from the London Congestion Charge until 25 December 2025 but will need to be registered with Transport for London.

Winner: EVs

Overall winner: EVs

Electric vehicles are victorious, convincingly beating traditional petrol and diesel vehicles in the battle of TCO.

So, while EVs may seem more expensive at first glance, they may actually work out cheaper in the long-run.

If EVs are on your company car choice lists, we would recommend banding them by their TCO, rather than by their upfront or lease cost. By doing so, the vehicles will be categorised more accurately, ensuring they are accessible by a wider number of employees.

If you need support on devising a TCO strategy for your business, get in touch with our experts: advice@fleetoperations.co.uk