25th April 2019

What factors influence the business case for EV adoption?

While private motorists and indeed SMEs may take a more flexible, short-term approach, businesses and organisations with larger fleets of vehicles typically make longer-term decisions, an increasingly pertinent one being whether to embrace electric vehicles (EV) now or to wait.

Although certain OEMs continue to invest in diesel and petrol, with BMW1 quite rightly citing sizeable countries like Australia and Russia when its R&D head was quoted as saying 85% of its international lineup will still feature an engine by 2030, it’s clear from Geneva2 and other 2019 motor shows that electric is now the focus for many other manufacturers, with Audi, Citroen, Honda, Kia, Polestar, Subaru and inimitable Tesla keen to reveal their latest battery-powered creations.

According to Bloomberg New Energy Finance, around eight-five all-electric models will be introduced by the end of 2020, partly accelerated by OEMs being forced to work towards reducing their ranges’ overall CO2 emissions to meet governmental targets, and such a proliferation will simultaneously present business fleets with wider choice but also perhaps additional confusion as a result.

As part of its ‘What’s next?’ strategy, contract hire and mobility solutions provider LeasePlan recently published a whitepaper entitled ‘When is the right time to switch to electric vehicles?’4. It states correctly that “an electric vehicle (EV) strategy must carefully balance the impact on costs, driver satisfaction and operational processes”5, although the middle component could be argued as the least important. After quoting figures identifying that global EV sales rose by a sizeable 57% during 2017, the whitepaper asserts boldly that “the question is not if, but when the time is right to switch to EV” before evaluating the various constituents of the business case.

Vehicles’ typical usage patterns

Necessary journey mileages based on vehicles’ usage patterns previously led to ‘range anxiety’ deterring some organisations, but the information under LeasePlan’s whitepaper’s heading ‘OEMs are improving the EV offering’ makes it encouragingly evident that electric cars are becoming much more realistic propositions for organisations whose drivers cover relatively considerable distances. Gone are the days when climate control use, a heavy right foot, cold temperatures and steep uphill routes sap the average EV’s battery range down to around 80 miles, with LeasePlan’s handy table showing that even the listed car with the lowest range, the Hyundai Kona, claims circa 155 miles on the NEDC cycle, while the latest Nissan LEAF cites 235 miles, and the Jaguar I-PACE reckons almost 300 miles after WLTP testing.

Environmental and governmental influences

Clean air zones’ (CAZ) and low emissions zones’ (LEZ) incremental introduction across the UK and other countries around the world will indeed increasingly have a much more direct effect on fleets, with many organisations depending strongly on access into dense urban areas. Drivers entering London from April 8th this year will be affected by the ULEZ, and other UK cities like Birmingham6 and Leeds7 will most likely welcome them in January 2020, while fleets in Europe will need to plan for Berlin’s8 ban of diesel vehicles from April 1st 2019, for example. It would be welcomed if cities in the United States9 and other countries follow suit without delay, although this unfortunately seems unlikely. The latest Euro 6 engines are admittedly the cleanest ever produced and look set to continue being allowed into many of the UK and Europe’s cities for the next few years at least, but EVs remove this worry entirely.

Real-world financial commitment

Total cost of ownership (TCO) is typically considered by the majority of businesses and organisations although perhaps in much more detail by larger entities, and although it’s fair to concede that many EVs still command higher list prices than ICE equivalents, the UK government’s Plug-in Car Grant, which is now focussed solely on eligible fully-electric vehicles, does provide list price savings of up to £3,500 against finance and contract hire figures. The gradual reduction in the cost and price of batteries is also a significant contributor to EVs becoming increasingly more affordable.

Meanwhile, recharging such a vehicle’s battery courtesy of electricity generally works out to be more cost-effective in the medium to long term compared to filling the tank with diesel or petrol. The Great Annual Savings Group9b put the average cost of charging an EV to enable a 100-mile journey to be covered as £4, which they say works out considerably cheaper than a petrol-fuelled car – but it must be pointed out that their example is from a year ago and based on overnight charging, which simply won’t be convenient for many fleets.

CAR Magazine10 recently identified that their long-term Nissan LEAF costs £0.04p per mile, while Sust-it11 puts the Hyundai Ioniq at the top of their table of most efficient EVs at £0.03p per mile. However, electricity running costs depend on what type of charger is used and where, with public charging infrastructure tariffs varying wildly even for the same charge-point speeds used, as WhatCar?12 identified this month in their impressively comprehensive report.

Road tax and company car benefit-in-kind (BIK) tax is also typically more attractive for EVs, and LeasePlan’s report outlines that this is true on the global stage, prime examples being zero-rated taxation for electric vehicles in the Netherlands and EV exemption from road tolls in Norway, a country widely known for spearheading alternatively-fuelled vehicles (AFV).

Additional costs in running a fleet

Servicing, maintenance and repair (SMR) also forms part of the equation when weighing up whether an organisation should adopt electric vehicles to replace some or perhaps all of its fleet, and with far fewer mechanical parts, prominent EV sources such as GreenFleet point to SMR savings potentially as impressive as 70% compared to internal combustion alternatives, with electric vehicles perceived as resultantly spending much less time off the road.

However, even with the acceptance that online forums and discussions are often far from scientific, numerous purportedly experienced voices14 provide reminders that electric cars still incorporate the same maintenance items as conventional models, such as brakes, windscreen wipers and tyres, their sometimes complex electrical systems are prone to failure like any object, the bodywork of EVs is exposed to the same potential damage scenarios as any other vehicle, and they are just as susceptible to poor road condition and associated suspension damage.

Additionally, while electric vehicles are still in the minority, certain garages may continue charging a premium for the servicing, maintenance and repair of them, partly due to the specialist tools and other investments required, and specialist breakdown and recovery assistance is often required for EVs. On the whole, though, sentiment seems to agree that they bring SMR savings, but it’s not an aspect that a fleet should take at face value without digging deeper.

Light commercial vehicles

Vans comprise the bulk of some organisations’ fleets and the tipping point behind the decision to adopt electric vans, the choice of which is admittedly disappointingly limited at the moment, will usually be primarily determined by what an organisation does and what it needs vans for, alongside the location of its customers, who may in some cases predominantly be in rural areas. Local authority policies will therefore also play a part, including the density of charge points.

Van-dependent organisations, most of which still rely on diesel, will have to think carefully when planning new contract hire commitments, extensions or other forms of acquisition depending on their typical cycles, taking the aforementioned clean air zones into consideration. Zero-emissions electric vans are currently eligible for a 100% first year write-down under HMRC’s capital allowance rules15, and at-work charging points themselves also benefit from a 100% first year allowance, in place until 2023.

A somewhat inadvertent additional benefit of a fleet switching to electric vans is that near-silent, zero-emissions vehicles can boost an organisation’s image16 and may even increase its sales or other success, partially offsetting its higher purchase price or leasing rental payments.

Increasingly intelligent and renewable energy

Electrical energy is relied on substantially by certain companies and other entities, and EV champions such as Haven Power’s David Mvula are increasingly commenting17 in the media over the potential for electric vehicles’ batteries to be harnessed as alternatives to renewable energy sources, feeding electricity back into the local grid or even a facility’s internal supply under what is commonly referred to as demand side response. This trend extolled for the not-too-distant future will encompass both EV batteries that have essentially been retired, along with vehicles still in operational use that simply donate their stored energy when not required.

LeasePlan’s whitepaper has very much an international outlook, as does Trak Global Group as a leading telematics company, and it concludes by stating that “the best approach is to carefully consider your geographic scope” because “countries with a higher percentage of EVs on the road and with well-developed infrastructure are easier to start with”. With Norway ranked in first place, the UK is currently the 5th most suitable country for EV adoption, while Germany is perhaps surprisingly in 9th position. Fleets across Europe clearly have numerous factors to consider, with other developed and then developing countries no doubt following suit in time, but the business case for switching some or maybe all vehicles to electric is increasingly becoming stronger.

 

Sources:
1. https://www.teslarati.com/bmw-exec-diesel-electro-mobility-discussions-irrational/
2. https://www.fleeteurope.com/en/connected/europe/features/2019-geneva-motor-show-these-cars-will-shrink-your-carbon-footprint
3. https://www.bloomberg.com/news/articles/2018-12-18/in-the-switch-to-electric-vehicles-expect-a-few-giants-to-crash
4. https://insights.leaseplan.co.uk/wp-content/uploads/2018/12/2018-LeasePlan-Whitepaper-Business-case-for-EV.pdf
5. https://insights.leaseplan.co.uk/fleet-management/sustainability/whitepaper-business-case-ev/
6. https://www.birmingham.gov.uk/info/20076/pollution/1763/a_clean_air_zone_for_birmingham/4
7. https://cleanairleeds.co.uk/clean-air-zone
8. http://urbanaccessregulations.eu/countries-mainmenu-147/germany-mainmenu-61/berlin
9. http://www.livablecities.org/articles/using-low-emission-zones-improve-health-cities
9b. https://greatannualsavings.com/business-buy-electric-vehicles/
10. https://www.carmagazine.co.uk/electric/how-much-ev-charging-and-running-cost/
11. https://www.sust-it.net/miles-per-gallon-mpg-fuel-efficient-cars.php?type=all&fuel=electric
12. https://www.whatcar.com/news/electric-vehicle-charging-%E2%80%93-what-does-it-really-cost/n16833
13. http://www.greenfleet.net/features/26062018/how-smes-can-benefit-switching-evs
14. https://www.quora.com/Are-electric-cars-harder-and-more-expensive-to-work-on
15. https://comcar.co.uk/taxpages/capitalallowances/
16. https://www.parkers.co.uk/vans-pickups/advice/2018/electric-van-guide/
17. https://www.havenpower.com/news/can-electric-vehicles-save-business-money/